Benchmarking and the measurement of key performance indicators
can certainly help reduce the still high churn rate that take place
between 3PLs and their customers. David Warrilow explains why.
Quarterly review meetings between customers
(eg manufacturers) and thirdparty
logistics providers (3PLs) tend to
be fraught with problems, and these usually
arise because of conflicting service level data. So
what can be done to reduce the level of churn
that results, and often leads to many customers
and their logistics partner splitting up after just
three years? Even after attempting a remarriage,
a parting of the ways normally occurs.
It is all about good relationships, and these
have to be based on trust and mutual understanding.
That means honesty and openness.
No wonder divorce is so popular. In transport,
there is often a breakdown of what happens in
the real world and what goes on in people's
minds. It is the old problem of reality versus
expectation. The result is loss of faith and subsequent
ill feeling between the two parties.
Business relationships often mirror the personal.
In both, the financial impacts can be
huge. Businesses say they want good, strong
relationships, but seem to go out of their way to
hinder them. The result can be seen at quarterly
review meetings between 3PLs and their customers,
when the 3PL lays its performance figures
on the table and the customer objects.
The big issue - and the cause of friction
between the two groups - is the difference
between the service level being reported and the
actual service that is experienced. In many
instances, the 3PL will report a 98% success
rate, apparently unaware of customer complaints
about late or incorrect deliveries. Service
level agreements (SLAs) are left in pieces, for
reality on the ground can tell a very different
story from what the 3PL in the office is saying.
However, where metrics are in place, and
where these are triggered by physically driven
reporting criteria - and not by a logical, or officebased,
conclusion - better system transparency
can be achieved. Indeed, freight can be received
and processed at a piece level and events computer-
generated, thus making reporting of them
clear, unambiguous and honest.
Typically, though, after three years of wrangling,
the customer walks away and tries another
3PL, which, like the first, will promise great
performance to win business - but fail to deliver
unless it has metrics in place.
There is a huge need for maturity in the
supply chain process, but this will not happen
without the use of reliable performance metrics.
The 3PL must be able to show that the performance
figures it is using are reliable and
objective. The 3PL must also end the practice of
assuming that freight is at a specific location on
a specific day and time just because a piece of
paper - a result of someone's 'logic' - says so.
Both parties can work together to monitor
and improve the process to the advantage of all
concerned. When the process has been
improved and the maturity model locked in
place, the result is not only figures that match
up, but shorter delivery times and lower costs.
Accurate service measures, reduced costs
and improved customer satisfaction all result
from better process monitoring. The best monitoring
and agreed key performance indicators
come from genuine event recording
using unambiguous time stamps.
The fault is not all with the 3PL
sector though. Maturity also comes
from shippers committing longerterm
to the 3PL sector, but at the
same time reducing the number of
partners used. In turn, 3PLs should
invest in the processes and technology
that will enable them to
improve service levels and keep the
The shippers might have their faults, but
also legitimate concerns. In Eyefortransport's
Outsourcing Logistics Report survey, in
December 2005, 51% of shipper respondents
said they had problems monitoring and evaluating
their 3PL's performance.
In addition, the survey revealed a clash of
culture between shipper and 3PL firms as being
of particular significance. Furthermore, socalled
latent information asymmetry or information
divergence was seen as a threat to business
relationships and growth potential.
This last point - threat to business - is as
crucial as any, due to the current (and likely
future) status of the global logistics industry.
Ongoing outsourcing of manufacturing activity
to low-cost countries has elevated the importance
of the supply/delivery chain - hence, the
role of the 3PL.
Within this picture, air is taking over from
ocean for many high-value goods, freight is
being consolidated for the longest leg, crossdock
in the import gateway must be achieved in
minimum time, and outbound shipments must
be consolidated wherever possible.
Process maturity - and, with it, better 3PL
relationships - will not happen without reliable
key performance metrics being introduced.
Good metrics are fundamental to successful
relationships, and how an event is measured is
as important as what is measured. Processes can
only be improved if they can be quantified, leading
to sound service levels that can be the basis
for a long-term relationship.
The ingredients for a successful relationship
- SLAs are central to the relationship
- key performance indicators (KPIs) are accurate
- quarterly reviews are positive
- partners ask: 'What can I do to help you?'
Performance metrics are the only way to get
you there, and can contribute to a much lower
churn rate. Manufacturers are beginning to
demand them, and one leading 3PL
is taking action.