International Freighting Weekly
Delivery chain needs metrics and maturity
David Warrilow on how
improve 3PL relationships
Good relationships are based on trust and
mutual understanding, which require honesty
and openness. It is no wonder divorce is so
popular. There is a disconnection between what
goes on in the real world and what goes on in
people's minds. It is the old problem of reality
against expectation. The result is loss of faith
and subsequent ill-feeling between the two
Business relationships often mirror the
personal. In both, the financial impact 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 3PL and customer (for
example, a manufacturer of high-value goods),
when the 3PL lays its performance figures on
the table and the customer objects.
The big issue, and the cause of friction
between 3PL and customer, 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.
For reasons that this paper addresses, the business processes found in global logistics tend to be very
immature.They are hardly off the starting block, yet the sector behaves as if the situation is normal and OK: a
result of muddling through and not knowing any better.
The financial cost of immaturity is immense. Being low in process maturity will not yield the same return
as a high process maturity level. The fallout from immaturity includes higher costs and inefficiencies
resulting from overstaffing, warehouse overcapacity, volatile service levels and underperformance and an
unhealthily high churn rate between customer - for example, a manufacturer of high-tech goods - and 3PL.
The churn rate is a result of the 3PL not meeting the expectations of the customer, despite claiming at
quarterly reviews that its performance is very good.The facts speak otherwise, as might be expected where
process immaturity is common.
These kind of conversations are all too
3PL: "Your freight has arrived at our import gateway."
Customer: "Are you sure?"
3PL: "I have the paperwork sitting in front of me!"
3PL: "We received three shipments for you."
Customer: "I don't know if these are complete."
Service level agreements (SLAs) are left in
tatters, for reality on the ground can tell a very
different story from what the 3PL in the office
is saying. Where metrics are in place and
based on physically driven reporting,
measurements are triggered by the physical
event - not by a logical, or office-based,
conclusion. Freight can be received and
processed at a piece level and events computer-generated, making reporting of
them clear, unambiguous and honest.
Typically, after three years of wrangling, a
disenchanted customer may walk away and
try 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
delivery chain process, but this will not happen
without reliable performance metrics. The 3PL
must be able to show that the performance
figures it is using are reliable and objective. It
must 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 (KPIs)
- come from genuine event recording using
unambiguous time stamps.
The fault is not all with the 3PL. Maturity
comes from shippers better committing to 3PLs
and consequently reducing their number of 3PL
partners. In turn, 3PLs should invest in the
processes and technology that will enable them
to improve service levels and keep the customer
Shippers may have their faults, but also
legitimate concerns. In a survey (Outsourcing
Logistics Report, Eyefortransport,
December 2005), 51% of shipper
respondents said they had
problems monitoring and
evaluating 3PL performance.
Clash of culture between shipper
and 3PL firms was also an area of
concern. In addition, "latent
information asymmetry", or information
divergence, was seen as a threat to business.
The threat to business is as crucial as any,
owing to the current (and likely future) status
of global logistics, which is that globalisation
has elevated the importance of the
supply/delivery chain and the importance 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 hence better 3PL
relationships - will not happen without reliable
performance metrics. Good metrics are
fundamental to a relationship's success and
how an event is measured is as important as
what is measured. Processes can only be
improved if they can be measured and
quantified, leading to sound service levels that
can be the basis for a long-term relationship.
The ingredients for a successful
- SLAs are central to the relationship
- KPIs are accurate and unbiased
- Quarterly reviews are positive
- Partners ask "What can I do to help you?"
- Performance metrics are the only way to get you there.