Third-party supply chain providers (3PLs) are increasingly critical to trade. And those operating in Asia should take note of issues that can make or break a relationship.
Take US-based MTD Products, for example. The company, which operates facilities in Canada, Mexico, Europe, China and Australia, faced lack of visibility of shipments, many manual processes, limited supplier collaboration, and lack of metrics. Much needed was a more cost-effective transportation and supply chain, particularly since the company ships approximately 3,000 inbound and 2,500 outbound containers of outdoor power equipment – lawn mowers, chain saws, leaf blowers, log splitters, and tillers – worldwide annually.
“As we continue to grow globally, our focus is to develop a seamless supply chain,” says an MTD vice president for supply chain. “It also means that we have thousands of employees worldwide that need to view shipping information, follow shipments all over the world, gather information and view regulation paperwork on those shipments.”
Working with 3PL provider LeanLogistics, MTD Products executives realized the company needed a transportation management system (TMS) to optimize supply chain costs and resolve its transportation challenges. Consequently, it employed the 3PL’s LeanTMS system and was able to implement new methods in which it could manage every step of its transportation process from purchase orders for inbound logistics, to interplant communication regarding customer orders and outbound logistics.
In addition, MTD improved collaboration with all of its facilities, suppliers and customers; optimized less-than-truckload (LTL) shipments by introducing better efficiencies; introduced a central data repository that enables viability for analysis of costs and performance measurement to uncover areas of improvement; and decreased freight costs by 12% and increased productivity by 20% with the same number of people, meaning less receipts, putaways and material handling.
“Our suppliers now can go to the MTD portal to identify all of the shipments and releases that are due, and as they check those, it shows data,” the MTD supply chain vice president says.
In the United States, 3PLs typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers’ needs based on market conditions and the demands and delivery service requirements for their products and materials. Often, these services go beyond simple logistics and include value-added services related to the production or procurement of goods such as picking, packing, labeling, relabeling, repackaging, consolidation and returns.
“On top of the list is innovative services – a key differentiator,” says C. John Langley, clinical professor of supply chain management at Penn State University’s Smeal College of Business.
This includes analysis and advisory services, which address supply chain activities and processes to create more agile and reactive logistics/supply chain strategies and end-to-end visibility. Also on the list is IT.
For these and a host of others reasons, both small and large companies in the United States are increasing their use of 3PLs to streamline their supply chain. In fact, the 2015 19th Annual Third-Party Logistics Study, a collaborative work with between Penn State University, Capgemini US, Penske, Korn/Ferry International and EyeForTransport, indicates that shippers are seeing an average logistics cost reduction of 9%, an average inventory cost reduction of 5%, and an average fixed logistics cost reduction of 15%.
In addition to seeing cost reductions, the survey indicated that US shippers have seen average improvements in their order fill rate and order accuracy. It also showed that 73% of those who use logistics services and 77% of 3PL providers are satisfied that they have received open, transparent and effective communication from their partners. A distinct majority – 92% – of shippers report that their relationships with 3PLs generally have been successful. Among 3PLs, 98% say their relationships with shippers have been successful.
Today, not only are 3PLs transitioning from being vendors of individual services; they are becoming logistics partners offering integrated services. Some, in fact, are building meaningful, collaborative relationships with their customers and other 3PLs employed by those customers. This, in fact, is giving rise to an industry encompassing 4PLs, which might be hired to manage a company’s 3PLs or oversee the entire supply chain of a large client.
“The point is, large companies in the United States find that 3PLs can be a significant addition to their capability,” Langley remarks. “For them, it’s a matter of core competencies and choice. Smaller companies are driven to use 3PL services given the likelihood of more efficient operations and the fact they can have some of the same capabilities the larger companies enjoy.”
Echo Global Logistics, a non-asset 3PL, works with customers by either outsourcing or handling their transportation networks and providing transportation services across multiple modes. A distinguishing feature of this 3PL is its focus on a wide range of industries, many of which are small and mid size shippers.
“We may have 20,000 to 30,000 clients at any one time,” says Evan Schumacher, Echo’s chief commercial officer responsible for sales and marketing.
Often small shippers fall short in their ability to negotiate good transportation rates and routes. Unlike large shippers, they simply do not have the volumes that make their freight attractive.
“Small customers also are often less specialized and may have a mix of freight with any one requirement,” he adds. “They don’t have the expertise or a system to support their transportation needs to stand out with service.”
Consequently, Echo acts like a partner in their transportation activities so that shippers can concentrate on what they do best – servicing their clients. This means not only offering consolidation and drop trailer programs, but redesigning supply chains, and determining optimal distribution center locations and transportation networks.
“Companies need a sophisticated carrier network at cost competitive prices,” Schumacher explains. “Everyone is looking for cost savings, but that does not always mean the lowest cost option. What it does mean is developing creative supply chain solutions such as identifying opportunities to change ordering patterns or developing dedicated fleet options that will lower their costs.”
By Karen E. Thuermer
Correspondent | Washington