Spotlight on 3PL Implementation Failure: Why It Happens and How to Avoid It

Spotlight on 3PL Implementation Failure: Why It Happens and How to Avoid It

Author: Tompkins International Staff/Wednesday, June 4, 2014/Categories: Article

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On-boarding a new client is difficult. When implementation does not go as planned, the results can be injurious to your business and your client's business. A rushed start-up or a delayed "go-live" date for a new customer warehouse operation, or repeated product delivery failures, will result in unhappy customers, financial losses, a depreciated brand image, and even potential lawsuits. For relationships to work long-term, mutual trust, excellent communication, joint planning, and a fair balance of risk and reward must be in place. Start-ups involve change and by their nature are difficult, but if these tenets are shared, they can serve as guiding forces to mitigate risk and insure a successful launch.

The root cause of third-party logistics (3PL) implementation failures can be industry specific and/or firm specific. Industry specific causes for implementation failure include the competitive landscape of the 3PL industry characterized by strong buyer negotiating power, a threat of substitute services, and the difficulty to differentiate a service offering. In addition to competitive forces, the 3PL industry must deal with margin pressures, a limited talent pool, and increasingly strict regulatory requirements, which can challenge even the best 3PL. Firm specific (or shipper) causes for implementation failure can be rooted in a lack of understanding of 3PL services, unrealistic expectations and/or timelines, and insufficient disclosure of business requirements. These disclosures include, but are not limited to, "life of an order" operating requirements, order volumes, service level expectations, value-added service requirements, operational site visits, and technology interface requirements.

The solution to this problem is multi-faceted and requires concerted effort from the shipper organization and the 3PL. It is important to begin with a clear vision with outsourcing goals and expectations. Outsourcing requires a commitment from both parties and a relationship that is based on trust, commitment, and value creation for both parties. A successful process enabled with a well written request for proposal (RFP), including a clear representation of the business and supporting data, is vital. 3PLs must help to educate the buyer by requesting business overview presentations and operational site visits.   Doing so will enable the 3PL to gather the necessary business requirements for developing an on-boarding plan, overall operating plan, and fee structure.

Waiting until an RFP is issued is not the time to develop the relationship. Increasingly, 3PLs are taking an industry view with specialists who can meet with potential customers and uncover opportunities for value creation well in advance of an RFP event. Detailed operational planning and testing with the 3PL (i.e., to identify and solve problematic areas prior to operational "go-live") are essential. The bottom line for 3PLs: do not allow the client to rush the on-boarding process. You will be doing them and yourself a favor.   In some cases, if there are too many "red flags," it is best to consider not submitting a bid at all.

In addition to joint implementation planning, it is important to allow sufficient time for the contracting process and development of the commercial terms. A review of internal costing methodology to align the shipper and your organization toward a common goal will engender mutual understanding and fairness in the relationship.

With more than 35 years of experience in global supply chain and the development and implementation of global logistics solutions, Tompkins International is well-positioned to help 3PLs develop and implement winning strategies for sales, operations planning, and implementation. Tompkins is committed to helping 3PL organizations achieve their objectives. If you have not already done so, consider joining the Tompkins Supply Chain Consortium and become a part of our community. Click here to learn more about the Tompkins Supply Chain Consortium for Third-Party Logistics Providers.

Want to learn more about this topic? Order your copy of Logistics and Manufacturing Outsourcing: Harness Your Core Competencies available in both print and eBook formats from Tompkins Press.


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Tompkins Solutions Staff
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