Business of 3pl
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Aligning your Business with 3PL

In today’s competitive, tight, and cut-throat business environment, many companies depend on third party logistics (3PL) for their supply chain management in order to reduce costs, improve efficiencies, and ensure smooth operations of their distribution and fulfilment service requirements.

To deliver value and thrive within a difficult market, 3PL providers need to align closely with their parent businesses in terms of mission, vision, and goals.  As the relationship is so significant, most big businesses have well-defined 3PL processes, systems, quality standards, performance, criteria, and best practices already in place and regularly keep a close eye on operations.

In fact, most business are keen to look to partner with vendors who will align and integrate with their own processes and practices. Thus, in a totally aligned relationship, the supply chain “shadows” the processes of the parent company and replicates the parent company’s processes, adheres to their standards, mimics their operating models and becomes an “extension” of the parent company. It is even true to say that they may become fully embedded into the parent company and a “well-coordinated arm” of the parent company.

As this relationship requires careful selection many parent companies have strict and stringent supply chain selection criteria, which they use to screen their supply chain partners. In some cases companies may also train supply chain providers in their best practices and operating procedures to ensure that the vendors understand their business priorities and their own way of operating.

Some companies also craft a strategic plan for the alignment and for the relationship, describing the capabilities that they wish their partner supply chain to develop at different stages of the relationship. These capabilities could be operational, technological, or behavioural.

In order to maintain a sound relationship it can help to carefully define the work flows at the parent-supply chain interface as well as specific goals, outcomes, and expectations. It may also be beneficial to define the responsibilities of the parent company and that of the vendor that may include responsibilities for effort, for job, for the entire system, and for business outcomes.

Wroking in business of 3pl

Sharing performance benchmarks and baselines with the supply chain vendor and of clear unambiguous expectations can also help both parties understand what is expected in terms of performance.

Aligning may also entail integration with a company’s web servers, applications and electronic data interchange standards. This allows for seamless information flow and exchange and utilisation of information between the parent’s business and the supply chain.

Such an integration would allow a 3PL partner to use this information to track and trace shipments and direct this information to the parent company’s website; thus, providing customers with the vital information they need as well as helping to improve customer satisfaction.

Of course, there is the obvious check on physical integration, which ensures that the 3PL has the capabilities to manage the business in questions. Here, some internal questions to be answered could include: “What modes of transportation and what services will you [the business or parent company] need?” “What volumes do you plan to ship and where?” “Do you have specific security or visibility requirements?” and “Are your shipments time-sensitive?” Though these are basic questions given the nature of the business they will be able to filter many potential 3PL providers, which may not be suitable.

Also, the 3PL should be capable of matching the specific needs of the business. Many providers have a variety of strengths and weakness and it is imperative that those most closely aligned to the business’s requirements are at the forefront of its strengths. If the business relies on door-to-door deliveries, intra-warehouse, or last-mile, it is important to understand that the 3PL is on par with this and its strength lie in a particular area.

Additionally, it may be necessary to check on the number of modes the 3PL provider actually has and utilises. The four common modes – rail, road, sea, and air – may be a given on paper by a 3PL but it is wise to ensure that the inter modal services being offered have the right size or fleet as well as hands-on experience to be properly handled.

Further, businesses must undertake thorough research about possible 3PLs prior to confirmation. Reputation, reliability, and responsiveness are key, especially in the logistics and supply chain arena. Also, businesses may opt to review use cases or examples within various scenarios to confirm the handling of specific situations by 3PLs. There must also be a cultural fit and the agreed recognition and understanding of the appropriate protocol, procedures, and hierarchy cannot be understated.

Finally, though clearly a given many businesses fail to check a 3PL’s customer service record. Given the scope for disruptions across the supply chain, the crisis management capabilities or the reputation of the company needs to be maintained and carefully managed. To this end it is paramount that the 3PL knows the plan of action, can ensure regular flow of goods or services, and does not lose control during a crisis.

As businesses rely more heavily on 3PLs getting the right fit to align with both business needs and present-day demands is not an easy feat. Many partnerships have failed, especially when a business has recently moved from one party to another. In this regard and given the high demands on the relationship, both parties need to be on the “same page” prior to any business commitments.

With reduced costs and improved customer service being key in the high-contested logistics marketplace, both businesses and 3PLs require a synergy that can be secure, reliable, and potentially long term. There must be clear and concise dialogue prior to and during all negotiations in order to determine the most apt working relationship once a final agreement has been determined as any hurdles or obstacles cannot be easily overcome “on the field”.

It is evident that today’s customers are fickle, brand agnostic, and ruthless, especially with a mobile in hand and social media apps awaiting comments, tweets or posts. Businesses and 3PLs must work together to create a harmonious working environment for each other as well as for their collective customers.

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Use 3PL services for a growing business

More and more businesses are using third-party logistics service providers. Building an in-house supply chain is expensive, slow and a learning process riddled with mistakes. On the other hand, outsourcing the supply chain is efficient, quick and adaptable. The benefits of using 3PL are more than just reduced initial capital outflow or getting expertise. With ever-increasing competition, businesses need to focus more and more on their core activity and reduce or divert resources from non-core activities while extracting the best out of them. Managing supply chain is one such activity that can be efficiently outsourced. In fact outsourcing such non-core activity can be strategically beneficial in the long run for a business. Here are a few advantages that a growing business can get from outsourcing its logistics.

 

Scalability – Building a supply chain requires time and investment. Underutilized supply chain represents locked capital which is bad for a growing business. On the other hand, peak utilization limits the growth that operations can achieve. However, with outsourcing, the supply chain capacity can quickly increased or reduced without much impact on scale. Quick scalability is one of the biggest advantages an outsourced supply chain can offer to a growing business. Third-party providers are geared to scale their operations depending on their client’s requirements. They invest their capital in spare capacity and clients don’t need to make any capital investment. Further, if the scale of operations reduces for a client, the extra capacity is simply sold to another customer with no impact on the first client.

 

Optimization – Logistics is frequently about optimization of the resources such as packaging, transportation, route and delivery time for most efficient use of resources with minimum time. This planning and coordination requires special skills that are expensive and hard to find. Further using the skilled and costly planners only for one business may not be the cost-efficient. 3PLs bring in planning and optimization as their core skill. They plan for most optimal warehouse locations, delivery modes and routes and club cargo from multiple clients to bring the costs down. High priority deliveries are also clubbed together to bring down their costs (as compared to individual high priority delivery). This degree of optimization is difficult to achieve for a small business without significant investment and dedication of resources, which can burn quite a hole in the pocket, as the company grows.

 

Constant innovation – Supply chain requires continuous innovation in terms of packaging, equipment, processes and even transportation vehicles. For example, newer material for pallets keeps making them stronger and lighter, new methods of merchandise scanning makes tracking more efficient, more modern robots make stacking and picking of products much faster and more comfortable. Similarly, new transport vehicles (newer trucks) keep reducing the cost of transportation. The problem is that all such innovation requires an upfront investment and business cannot make any new investment until ROI from the previous investment is realized. But with higher utilization, 3PL have faster ROI cycles and can bring in capital-intensive innovation much quicker. Besides logistics being their core business, 3PLs thrive on constant innovation in supply chain to reduce costs and improve service.

 

Quick movement between supplier – While it is a good idea to maintain long relationships, business realities sometimes require to change the vendors. This need for change could be for many reasons such as better rates, larger scale of operations, wider network spread, or simply a kind of service that is not being offered by current supplier (even today many 3PL suppliers do not offer cold storage chains). As the business grows, the supply chain requirements will also change. The scale of material handling will increase. The variety of products being sold will also increase, and this will need different logistics skills. In house logistics department will need time to change and may even put up resistance to change. Improving the skill set of the whole department is not possible in a matter of few days (or even few weeks). But changing supplier is just a matter of negotiation (apart from identification of-course). The business operations are not vastly disrupted while the change of supplier happens. As is well known, changing or upgrading a department of the business is extremely slow and tiresome process, but changing a vendor is easier.

 

Lowering of Costs – Development of supply chain needs space, warehouses, packing machines, moving and stacking machines and vehicles (as large as up to trucks and lorries) making them capital intensive investments. Also, logistic operations are equally expensive, if not more. Many times, the supply chain capacity is not fully utilized leading to a high wastage of money. The 3PL absorbs the capital investment and can depreciate the equipment much faster owing to its higher utilization. The capital cycle (for supply chain) is much more efficient for 3PL as compared to in-house supply chain investment. There is no doubt that unless the volumes are huge, 3PL makes a lot more sense regarding costs and investment for any business.

Further, as the product moves through regions, various agencies or external companies come in picture. A product moving across the border will interact with customs, excise, clearance house, export regulators. Businesses need working relationships with all of them for its cargo to move quickly and efficiently through these agencies. Developing and maintaining these relationships needs resources which cost money. As business volumes grow, the interactions with agencies also increase and need more resources. A 3PL maintains these relationships for its customers so that the businesses do not have to it themselves, and they do it more efficiently.

 

Developing supply chain is a slow and costly process and often requires changes that are expensive. As the business grows, the inefficiencies of the supply chain start to glare out. The growth phase is precisely the time when companies need an efficient supply chain. An outsourced, third party supply chain will not only eliminate the inefficiencies, but it will also bring in innovation to handle the large volumes of growing business, that may provide the edge, that a growing business needs.

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Why Co-Packing Services are Necessary for Food Businesses?

Companies that are looking to grow their brand must immediately consider a co-packer. While this approach holds true for every other business, food-specific industries are best served with a co-packer added into the scheme of things. While certain companies prefer outsourcing the manufacturing part, it is important that a contract manufacturer is deployed, in order to speed up assimilation, packing and fulfillment. However, every service provider isn’t functional enough and it takes quite a lot of intuition when it comes to zeroing in on the perfect co-packer for the concerned business. In a nutshell, any food business can easily scale up with a co-packer at the helm as some of the more intricate aspects of packaging are then handled with precision and accuracy.

In the subsequent sections we shall look at the flowchart that helps companies deploy efficient co-packers. Moreover, it is true that every food-specific business needs to work with one, in order to improve scalability and efficiency.

 

When do Companies Usually Deploy Co-Workers?

According to proven surveys, almost one-third of global manufacturers offer outsourced services where they render co-packing benefits to certain esteemed firms. Almost 45 percent of the manufacturers that lack a dedicated unit help other food-specific companies co-pack certain products; thereby assisting producers improve the line extensions. Moreover, a food producer typically hires a co-packer when it moves towards additional certifications, large-scale productions and newer products. Therefore, it can be established that every food producer needs to look up to a co-packer during its business lifecycle.

Understanding the Requirements

The first aspect of hiring a co-packer is to ascertain the industrial requirements, beforehand. Companies that have outgrown their in-house production often need to outsource the packaging and fulfillment services. Majority of food startups start off by producing items in smaller batches. However, upon growing constantly, it becomes hard for them to manage services and the fulfillment requirements, simultaneously. Outsourcing the production, manufacturing and even packaging should therefore be the norm for the constantly growing SMEs.

It must be understood that investing in expansive production techniques and facilities require additional costs and certifications. Moreover, with the ever-expanding clientele expecting improved services, it becomes important to deploy a co-packer that can save a lot of time and effort. This, in turn, allows the business to concentrate more on the kitchen and the concerned production facility while the co-packers take care of the distant metrics.

Learning the Process

One aspect of hiring a co-packer is to gain a better understanding of the recipe, concerned processes and industrial equipment. Being proactive is what separates great businesses from the average ones. However, staying proactive requires the authorities to remain present for the first few lots while making a detailed list of the necessary ingredients. While the co-packing requirements are necessary to cover, food businesses must also check the complexity and availability of the required products before letting the co-packer pick stuffs. Apart from that, businesses must also keep a close eye on the packaging, in order to fulfill the consumer requirements and usability factor.

Ascertaining the Business Volume

Businesses with high production volume should look to deploy the services of a co-parker as the latter thrives when there is a lot to work with. Well-established co-packers need to be convinced about the potential of a food business before they start working with the same. However, validation works both ways as even the concerned SMEs must check the equipment set pertaining to the contract manufacturer and see if it is compatible with the production requirements. In addition to that, the timeline and projection of the business must be matched with the production requirements, well in advance.

Trusting the Gut

Food businesses should trust their gut while hiring co-packers for the job. With the outsourced contract manufacturers specializing in select areas, it becomes hard for the SMEs to select the suitable vendor for shouldering responsibilities. While a proactive and intuitive approach can help, at the end it all boils down to the gut feeling.

Working with co-packers and contract manufacturers can get tricky at times but food companies with a clear vision can easily integrate services as they understand the entire production process and even follow instincts when it comes to preparing food items, selecting ingredients and handling the packaging requirements.