Posts Tagged ‘Third Party Logistics’

Today, every 3PL is looking for ways to increase margins and increase the cost of change for their customers.  They want to figure out ways for their customers to be as loyal to them as they are  to their customers.  One way is to develop additional services and many consider developing reverse logistics capability.

If you are a 3PL executive who is considering this, there are a few things you need to keep in mind.  First, the priorities in returns are completely different than normal forward logistics.  Timing is not as critical but having the ability to profile each individual SKU as it comes in is much more critical.  Every item can be handled one of six ways and you must know how to determine the disposition and what characteristics drive that disposition.

Returns processing could require a basic understanding of repair techniques, parts management, liquidation, and recycling.  The degree of each required depends on your customer and the category of product you will handle.

Finally, your WMS system will not work in reverse.  Your WMS provider may tell you it can but you will need Reverse Logistic Software to help manage the product flow and disposition.

It is possible to put together a virtual reverse logistics solution for your customers but your customers will expect a certain amount of expertise.  Time has shown that companies that simply offer to be the 4PL manager without any real value additive services are quickly by passed by the “real” service providers.

Does the development of reverse logistics capabilities make financial sense for most 3PL’s?  It depends on the 3PL.  For the most part, fees in the reverse world can be twenty to forty percent hire than traditional distribution and transportation.  It really comes down to the needs of your customer base, internal capacity to take on developing new services and your appetite for investing in a development process that may not see any real profits for eighteen to twenty-four months.

Today, every 3PL is looking for ways to increase margins and increase the cost of change for their customers.  They want to figure out ways for their customers to be as loyal to them as they are  to their customers.  One way is to develop additional services and many consider developing reverse logistics capability.

If you are a 3PL executive who is considering this, there are a few things you need to keep in mind.  First, the priorities in returns are completely different than normal forward logistics.  Timing is not as critical but having the ability to profile each individual SKU as it comes in is much more critical.  Every item can be handled one of six ways and you must know how to determine the disposition and what characteristics drive that disposition.

Returns processing could require a basic understanding of repair techniques, parts management, liquidation, and recycling.  The degree of each required depends on your customer and the category of product you will handle.

Finally, your WMS system will not work in reverse.  Your WMS provider may tell you it can but you will need Reverse Logistic Software to help manage the product flow and disposition.

It is possible to put together a virtual reverse logistics solution for your customers but your customers will expect a certain amount of expertise.  Time has shown that companies that simply offer to be the 4PL manager without any real value additive services are quickly by passed by the “real” service providers.

Does the development of reverse logistics capabilities make financial sense for most 3PL’s?  It depends on the 3PL.  For the most part, fees in the reverse world can be twenty to forty percent hire than traditional distribution and transportation.  It really comes down to the needs of your customer base, internal capacity to take on developing new services and your appetite for investing in a development process that may not see any real profits for eighteen to twenty-four months.

In the supply chain world, turnover is an area that can have a big impact on costs, production, and quality. Many distribution centers live with 33% to 100% turnover per year.

It has been estimated that the recruiting, hiring, orientation and training of warehouse workers can cost $4,000 per worker. If you run a facility that has 200 people and have to replace 60 people every year due to turnover, this will cost your company $240,000. Clearly, retaining trained, dependable employees is a great way to increase the bottom line.

If you have a turn over problem in your supply chain, develop relationships and programs to hire disabled people. Disabled people have many advantages over hiring employees off the street, from the general public.

Most disabled people are hired through a non-profit organization. These organizations will provide special job coaches and training classes that you don’t have to pay for. Many will provide on site supervision as well.

Speaking from first hand experience, disabled people are very reliable. They take great pride in their job and follow direction much better than most employees. Once they are trained, you have a dependable employee for life.

In a recent article, Walgreens said they opened a new DC with 40% disabled workers. This is great for the community and really says something about Walgreens. However, Walgreens will see a big win financially as well. While unemployment for the disabled is over 70%, their turnover rate, once trained and oriented, is much better than the average employee workforce.

It has been proven through numerous studies that over time, productivity for the disabled is equal to that of a “non-disabled” workforce. This is true for quality and safety as well. Disabled employees have better attendance and less workplace issues than other employees. This combined with the support, training, and oversight a company gets from the numerous non-profit organizations makes hiring disabled workers a best practice for supply chain managers.

Bottom line – turnover costs business a lot of money. Every manager wants a dependable workforce that is enjoyable to work with. You can dramatically improve your turnover rate by hiring disabled employees without sacrificing productivity, quality or safety. Oh yea, one more thing, you will feel really good about making a huge difference in a disabled person’s life. Now that is really cool.

More and more companies are outsourcing critical supply chain functions to third party logistics companies (3PL’s). For the uninitiated, managing these relationships can be a bit challenging. When do you get involved? What do you do if you don’t like what they are doing? When are you being too hands on? How do help your 3PL avoid catastrophe?

The answer to all of these questions really comes down to one thing. COMMUNICATIONS! You have to establish multiple ways to communicate with your 3PL. There are three best practices you can use to ensure you have great communications with your 3PL.

First, talk with the single point of contact every day. For some 3PL’s this would be the facility manager, or the regional operations vice president. Titles don’t matter. You want to talk with that person who can give you answers, make decisions and cause change. Typically this isn’t the sales person or “account executive”. You want the operator. Get to know this person. Call them a lot and establish a relationship where you can work with them so they know your expectations and you understand their limitations, challenges and needs.

Just as important as regular informal communications is to set up a monthly review process. This is where you have a standard set of metrics you review every month. These metrics should reflect the metrics used in the contract and the budget process.The agenda for the monthly review includes the following:

• Results from last month
• What went well and why Areas needing improvement
• Action plans and updates on past action plans
• Expectations for the next 30 days

This monthly review can be done on a conference call or in person. Once the format is established you’ll find it takes no more than an hour and is a good monthly review. This is also a great way to review your billing issues in a timely matter.

The next best practice in communicating with your 3PL is to set up quarterly review meetings. These should be face to face meetings and should be done in the facility. Plan on taking the entire day.  The agenda is similar to the monthly updates but with more content.  Generally, you start off by touring the facility together with the 3PL leadership team.  A lot of great information and issues will come from this tour.  After the tour, you review the numbers but results are reviewed on a monthly, quarterly, and year to date basis. This is where you will be able to figure out if you will achieve your goals for the year and what you and the 3PL will need to do to meet expectations.

Companies hire 3PL’s because of their core competencies.  However, there is an expectation of oversight and like all multi-million dollar expenditures, you will want to keep a close eye on how your money is spent.  With a 3PL, it is all about communications.