By Smital Naik, September 11, 2019
Changing over your 3PL?
Make people, process and technology the focal point for a smooth transition to a new 3PL.
This article first appeared in Supply & Demand Chain Executive September 2019 issue. Author: Smital Naik, Open Sky Group
In a perfect world, companies would start working with a 3PL and stay with them forever. Reality and experience show that while many companies hire 3PLs to manage their facilities, the typical contract length is three to five years. Not perfect. Not forever. When those contracts are up, there are three ways it can go—bring the operations in house and do it yourself, renew the existing contract, or hire a new 3PL.
We sat down with a leading 3PL provider to talk about how they approach the situation when they are the new 3PL. If you’re changing over your 3PL, here are some tips with perspectives on people, process and technology to ensure the transition has the least disruption to your operations.
First, the Contract— Read All of the Fine Print
It probably goes without saying that many struggle to understand contractual language and may not spend the time needed to truly read for understanding. It’s especially important to ensure the financial portion of the contract is very clear. Both the customer (you) and the new 3PL need to know what each brings to the relationship, what each is responsible for and exactly what the 3PL is being paid to do. Some important elements to understand are:
- Does the pay structure align with the customer’s KPIs (your KPIs)? If the main goal of the customer is to manufacture more products, then it is important to ensure the 3PL’s fixed and variable rates align with this goal.
- How will overtime be handled?
- Is there a clearly defined scope and definition of work to be performed? How will the scope change process work over the course of the contract life?
- What services does the 3PL offer that don’t currently exist? Will I want those services later and how do those get added? What will the costs be at that point?
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