Outsourcing your warehouse operations to a third-party logistics service provider (3PL) is no easy task; it takes work to get the relationship just right. A clear set of objectives, transparency in day-to-day business dealings, and frank discussions about the role of automation and emerging technologies are among the most important aspects of the relationship between 3PL and client—with clear communication and mutual understanding at the top of the list.
“The key to any of our business relationships is communication,” explains Mike Holland, director of key accounts for North American 3PL Ryder System Inc. “And that not only has to do with addressing problems, but also being fair with [issues such as] rent negotiations and addressing various costs so that both parties come away with a win.”
Danielle Agnew, vice president of strategic partnerships for 3PL CJ Logistics America, a division of South Korea-based conglomerate CJ Group, agrees.
“[I spend] 80% of my time thinking about this: How do we become that partner of choice?” she says, adding that a good 3PL does more than just carry out routine transactions on your behalf. “There are plenty of companies that can bring pallets in, store pallets, and physically [handle] all the movements. A good 3PL and true partner is someone who is working to understand your business.”
In light of those issues, Holland, Agnew, and other experts offer the following three pieces of advice for managing a 3PL relationship.
1. BUILD A PARTNERSHIP
First, a one-size-fits-all approach never works. That’s because every business is different, with its own unique goals and requirements. Agnew uses the recent hot-button issue of tariffs to illustrate the point.
“[Tariffs] affect everyone differently—[depending on] whether you’re dealing with grocery, tobacco, raw materials, or finished goods. Having open and honest conversations about what’s going on globally and how it’s affecting [customers] locally is important,” she says, noting that some customers may be trying to figure out how to shift production to the United States, while others may be seeking new strategies for importing. “We work closely with them to model [different scenarios] and see how we can support them.”
In other instances, customers may require less formal guidance—perhaps a list of available warehouse space in particular regions of the country. The 3PL can then help the customer drill down further to determine the size and type of facility required and analyze the impact of a potential move on transportation costs, for example.
Whatever the case, understanding each other’s needs and capabilities is vital to building and maintaining a good partnership.
“The key is being able to have open dialogue—conversations,” adds Holland. “Especially when there are problems and issues, [so you can] resolve them.”
2. COMMUNICATE YOUR OBJECTIVES
It’s also vital for the 3PL to understand why a client is outsourcing—and for clients to understand all that the 3PL brings to the table.
“Where the relationships tend to work best is when both parties understand [how they] fit [into] each other’s business strategies,” explains Chris Blickhan, vice president of business development at contract logistics specialist DHL Supply Chain. “For us, having a fundamental understanding of our customers’ objectives, strategies, and [business] issues [is] one of the cornerstones of a good relationship.”
For customers, he says, it’s important to understand the 3PL’s service offering and whether or not it will fit their needs.
Beyond that, there are a handful of drivers behind most outsourcing strategies—such as the need to scale a business, improve service levels, and keep up with industry innovations and emerging technologies, including warehouse robotics and automation.
“Third parties like us tend to stay in the forefront in finding use cases for [technology] in supply chains,” Blickhan says, pointing to robot-assisted fulfillment and artificial intelligence (AI)-based solutions for inventory and customer service functions as examples.
Cost optimization is another benefit 3PLs bring to the table.
“Working with third parties can help you stay on the leading edge [in that regard],” Blickhan adds. “Particularly for businesses looking to streamline their supply chains and achieve overall efficiency.”
Agnew adds that working with a 3PL can help companies navigate supply chain shifts, changes, and challenges.
“The changes are happening to everyone, and [as] a 3PL partner, we hear things from different people and can say ‘Hey, have you considered this?’” she says. “We can ask intelligent questions—based on our experience working with a lot of different companies.”
3. BE REALISTIC ABOUT AUTOMATION
Another rule of thumb: Don’t assume that all those warehouse robots you’ve seen are the best solution to your particular logistics challenges.
“Everyone wants the shiny new thing,” Agnew says. She adds that with a 3PL, you’ll “see what’s possible [although] not all of it [will make] sense for your business.”
Automation and technology, including AI, are often high on a client’s wish list when evaluating a 3PL, but the experts say it’s best to be realistic and consider the return on investment (ROI) those innovations can bring. Technology can run the gamut—from automated forklifts and pallet movers to autonomous mobile robots (AMRs)—and the type of 3PL relationship you have will determine who’s investing.
“In some cases, we are spending the money to draw customers in. But in other cases, our customers are choosing to invest in the automation, and we operate it,” Agnew explains. “We help vet some of that, depending on your business and what your needs are.”
Holland emphasizes the importance of working with your 3PL to evaluate those technology options. He recalls a client that wanted to implement autonomous guided vehicles (AGVs) in a facility a few years ago—only to find out that it didn’t make sense.
“The first part of that analysis is to decide what the ROI would be—and what the labor force gain would be—using AGVs [versus] having a person on the floor to manage that activity,” he explains. “[In this case], the activity wasn’t there to support any savings [from the investment].”
But situations can change as technology advances and businesses evolve—and that highlights the importance of keeping communication lines open and partnerships strong.
“It certainly is a very exciting time for us in what’s developing, technologically speaking,” Blickhan says. “The demand from the marketplace to stay at the forefront of emerging technology is growing and quite high.
“We’re meeting our customers where they are in their maturity curve and then sharing with them what we would do in their shoes.”
