Better procurement can help businesses improve relations with 3PLs

A growing number of UK businesses are making use of third-party logistics providers (3PLs). A new survey from Scala Consulting of dozens of businesses and 3PLs has found that over half of businesses now use 3PLs for their full logistics requirement.

A third-party logistics provider offers outsourced services for the detailed organisation and implementation of a complex operation. This encompasses anything that involves management of one or more facets of procurement, logistics, fulfilment, warehousing or shipping activities. As a result, while a 3PL service may be a single service provider – such as transportation or warehouse storage – it can also be a system-wide bundle of services capable of handling supply chain management.

New research from Scala has found that these benefits for scalability, compliance and shared resources allow businesses to mitigate risk while also responding quickly to opportunities as they arise. Not having to maintain a warehouse or the staff to monitor supply chain operations can enable companies to improve a business’ bottom-line, while a 3PL service can also boost performance on efforts such as shipping, and improves the ability to scale operations.

As a result, there has been notable growth of the use of third-party logistics providers in the UK, mirroring developments in other countries. One study, in the US, found that today over 90% of Fortune 500 companies rely on 3PL providers to handle logistics, up from less than 50% at the turn of the century. On the European mainland, meanwhile, similar studies conducted in Germany, France and the Netherlands have shown similar trends of growing uptake, with the retail/e-commerce and industrial sector demonstrating particularly high 3PL activity.

Room for improvement

However, it should be noted that a high uptake does not necessarily mean all is well with any industry, and the 3PL sector is no different. Scala’s report also highlighted that in the UK, there is significant room for improvement in the relationship between 3PL’s and their clients.

Although the 64% of respondents told Scala they were "reasonably satisfied" with 3PL firms, just 18% of companies stated they were "very satisfied". At the same time, 3PLs seem overly optimistic with their performance: 38% said their customers were "very satisfied". At the same time, this disconnect was also reflected when things went poorly. 15% of 3PLs said they felt that customers were "very dissatisfied", compared to no companies at all actually saying as much. Indeed, only 18% of companies expressed a negative opinion at all, stating they were "slightly dissatisfied".

This does not mean there's no room for improvement, though. The report also found that less than one in ten companies considered themselves 'very confident' in having the best deal possible. Just under a quarter meanwhile believe a better deal might have been possible, as 18% were "not confident" while 5% were "definitely not confident" that their current deal is the best option.

The researchers also examined if businesses believed they were getting fair value for money. John Perry, Managing Director at Scala, said the results indicated that greater insight for both parties would be useful.

Mismatched expectations

One way of getting more value for money is through bringing new, better products/services to market. Here though, businesses believe the 3PLs they have dealt with are far from mastering their craft. One factor behind the poor performance of 3PLs in this regard seems to be their inability to innovate and bring fresh ideas and solutions to the table.

According to the study, over half the companies stated that their 3PL is 'poor' at introducing new initiatives, while 3PLs were once again overly optimistic in their performance. 84% of 3PLs believe they are 'reasonably good' or 'extremely good' at introducing new initiatives – a complete mismatch of opinions which suggests more up-front discussion and negotiation, together with on-going regular reviews and sharing of information, could lead to more consistent expectations and better performance.

Perry explained businesses should get best practice procurement into place to get the best out of relationship, stating, “Good procurement has positive impact when used effectively. Companies reported that using procurement throughout the selection and negotiation process delivered cost reductions, improved KPIs, better contractual terms and a clear method for monitoring and maintaining on-going performance of the 3PL.”

At the same time, with the benefit of hindsight, businesses will almost always find more work could and should have been put into the selection and negotiation process. With this in mind, Perry urged companies to keep a clear focus when forging a relationship.

He concluded, “During the running of the agreement, effective procurement was found to have led to improved performance, better relationships and the avoidance of conflict between companies and their 3PL partners… Leadership teams could potentially save millions in lost efficiencies and unnecessary costs by ensuring the effective integration of procurement teams with logistics.”