Provider Damnation #69: 3PL Firms

Today we tackle our first provider damnation — Third Party Logistic (3PL) firms. These firms, or providers, provide logistics services for part or all of the organization’s supply chain management functions. Unlike trucking companies, ocean cargo companies, or air freight companies which simply manage trucks, ships, and aeroplanes, 3PL firms specialize in integrated operations and manage both multi-modal transportation (where the goods are trucked from the plant to the dock, shipped on a cargo carrier to a foreign port, loaded onto a truck for the local warehouse, and then loaded on another truck to the local airport when expedited air freight is needed) and warehousing on behalf of the client (that might need goods from multiple suppliers simultaneously cross-docked and shipped to local warehouses and storefronts across the country from a central warehouse).

For many under-staffed, under-supported, and under-platformed logistics departments, 3PLs are a blessing because, without enough staff to analyze options or modern technology platforms to crunch the numbers, 3PLs offer the organization an instant cost savings, a substantial time savings (because they do all the work), flexibility (as they can adapt to new regions and new demands quickly), and focus (allowing the logistics department to just worry about the warehouse and local distribution / shelf restocking).

These advantages are there for a reason, to cloud the disadvantages that 3PLs also bring — because they are a true double edged sword that, depending on the angle you see it from, shines as bright as the sun or drowns you in the darkest night of the abyss.

In exchange for cost savings obtained by the 3PL, the organization gets IT headaches. In exchange for flexibility, the organization gets a loss of visibility. And in exchange for focus, the organization gets a complete loss of control.

The 3PL is going to use their own TMS (Transportation Management System) to manage your organization’s freight, and this is going to contain the data your organization needs to complete import/export and global trade documents, the data Finance needs to confirm the invoices, the data Accounts Payable needs to match the goods receipts to the invoices, and the data Sourcing/Procurement needs to analyze the total spend. And if you think they are going to have an out-of-the-box import into any of your systems, think again. Unless you use one of the three systems they decided to support, it is CSV or XML dump and good luck Mr. and Mrs. Client.

The 3PL is going to manage the carriers it uses, the lanes they take, the cross-docks they use, and so on. Your visibility, especially if you don’t have a tight integration, might be limited to ship date, status, expected delivery date. Not very good in today’s world where you might need to know where that critical shipment is at all times.

Finally, the 3PL is going to contract the carriers it uses, and if they suck, well, too bad for you until the contract is up. You might get a carrier that, instead of showing up an hour after your warehouse loading dock opens, as per the contract, consistently shows up an hour before it closes that uses refrigerated trucks that only cool to 5C above mandated transport temperature and that occasionally “forgets” to lock the back leading to inventory regularly going missing, resulting in a lot of claims to the 3PL and/or your insurance company. Remember, if you give the 3PL the authority to negotiate contracts on your behalf which can’t be terminated until the carrier is insolvent, your organization is, simply put, screwed.