As many companies have discovered, finding a logistics partner who continues to meet their requirements year on year is challenging at best and requires open communication and ultimately, strong relationships and ongoing management of the partnership to be truly successful.
This in itself is difficult enough to achieve and various surveys conducted with companies and their 3PL suppliers worldwide continually confirm that about half of all outsourcing arrangements terminate within 3-5 years.
And, while many companies are satisfied overall with the level of service they receive from their 3PL suppliers, a constant theme has continued to plague even the best relationships. It’s about ongoing cost reduction, or more to the point, in most cases, cost containment. AMR Research in the US referred to it a few years ago as the ‘slide to disillusionment’ where, in their experience (and one that I share), many companies achieved cost reduction in the initial 1-2 years of their outsourcing agreements, followed by a steady increase in the years following.
If this is true (as it appears to be for many companies), then why does this happen? Obviously, the reasons are varied, which I won’t go into in this blog, but as many companies have learned, there are a few ‘tools’ that companies can adopt to ensure the overall competitiveness of their existing outsourcing arrangements. In this blog, I’d like to discuss one very effective, yet often overlooked tool: The 3PL Audit.
Why consider a 3PL audit?
A periodic (typically annual) audit of the 3PL operations and agreement is a very useful means of ensuring that the initial intent and promise of the outsourcing arrangement remains on track. The audit should always be completed jointly and it is often advantageous to have an independent, experienced consultant conduct the audit. Engaging the services of an experienced consultant, who is motivated only to bridge any gaps in communication and find opportunities to improve the existing relationship, can deliver lasting results for both parties.
The fact is, despite the best intentions of many companies and their 3PL partners, the audit is often either overlooked or the client waits until the relationship has soured before seeking help to fix what is broken. My advise is don’t wait until it’s too late! The alternative is at the very least, continuing frustration and inevitably, termination of the contract at some point.
It’s also important to note that reasons for under-performance do not rest solely with the 3PL. Many performance issues which surface during the term of an agreement have their roots in either lack of proper planning and oversight prior to and during implementation or inaccurate data provided to the 3PL during the initial planning phase of a project.
What does a 3PL audit cover?
An effective audit of the 3PL arrangements should include a thorough review of the following issues:
- Commercial – adequacy of pricing mechanisms, resourcing, improvement initiatives
- Operational and cost performance – actual compared to expected; underlying reasons for underperformance
- Contractual – inherent business risks, performance measurement and expectations, review mechanisms, accountability
- Management and reporting – availability and adequacy of reporting and information systems; account management and relationship
The 3PL audit and methodology outlined above sounds straightforward, however, it is the detail behind these points that give them weight and value. In the end, an audit of your 3PL is only as good as the experience, insight, and creativity of the individual(s) who are leading their execution.
A 3PL audit is a very effective tool that can help you to avoid the fate suffered many companies and their 3PL suppliers and re-set the partnership for ongoing mutual benefit.
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