Cushman & Wakefield’s Hamilton offers up take on state of 3PL sector

Editor's note: This article originally appeared in Supply Chain Management Review. 

When the 3PL Value Creation North America Summit 2018 convenes in Chicago this October, shippers will hear from a diverse group of industry experts on how to drive the best deals with their lead providers in both the global and domestic arenas.

The consultancy plans on helping shippers gain fresh insights on 3PL trends and forecasts. At the same time, shippers will be seeking advice on how to establish and sustain relationships of trust and mutual benefit.

Rich Hamilton Managing Director of Cushman & Wakefield’s 3PL Advisory Group shares some of his views on industry in advance of his participation in the Summit.

Supply Chain Management Review: What are the greatest challenges facing 3PLs today in the domestic and global marketplace?

Rich Hamilton: The top three would probably be: Labor shortages, Price (Profit) Compression and the speed of change and the cost of Technology. Labor shortages impact all areas, but the most pronounced shortages are for drivers, hourly associates, first-line supervision and middle management.

Price compression, which drives profit compression, has always been a tough spot for 3PLs, and as labor costs and technology costs escalate, that along with simple ”competition for the deal,” makes profitability a constant battle.

The rapid development and zeal to deploy new technologies that enhance visibility within the supply chain means investing – and reinvesting – and constant reevaluation of leading edge technologies to stay current and/or lead the competition. The rapid development and deployment of these technologies is very expensive, and in many cases, it’s the price of entry to pursue many a new customer’s business or retain an existing one.

SCMR: How can 3PLs best demonstrate competence in an ever changing business area?

Hamilton: Competence is best demonstrated with hands-on experience. Clients look for 3PLs with a ‘brag book’ of experiences providing the exact or vary similar services that the client is wanting to outsource. Thus, 3PLs need to develop experience in new industries or verticals.

This means investing in these new industries or verticals. How? It may mean taking business at reduced profit margins or getting existing customers to provide them with assignments in areas where the 3PLs skills are limited or non-existent.

It also can mean looking for smaller clients who they would typically not pursue, but who offer the 3PL the opportunity to learn new skills with lower risk if things don’t work out.

Some 3PLs have gone so far as to develop an ‘R&D Lab’ approach. What do we need to learn how to do? Where is the industry headed, and how do we make sure we get there ahead of our competitors? How do we train or retrain our associates with the skills needed to stay ahead of the curve? What other organizations can we partner with to share technologies/experiences?

SCMR: What do shippers need to do when evaluating the best 3PL?

Hamilton: The first step in evaluating a 3PL is evaluating your own organization. Why do I want to outsource? What are the goals for this project? Do I know my business well enough (processes/costs/customer requirements) to accurately articulate them to potential 3PL providers? Once you can answer those, then there is one more question (if you are already outsourcing to a 3PL and are contemplating changing providers): what isn’t working? Is it the 3PL? Is it us? Probably the answer is a bit of both. Do an honest assessment before venturing into a new relationship.

Once that self-assessment is complete evaluate 3PLs based on the following (in no specific order):

• Experience with them providing other services – if they were good at another part of the supply chain, they could be good for the current need.
• Referrals: Ask industry peers and colleagues who they have worked with and what their opinion is.
• Trial Run: If time permits – give them a smaller (less risky) project to assess capabilities, performance, management engagement, and cost adherence.

Recognize that perfect doesn’t exist, but it is totally reasonable to expect something very close. Most important, how does the 3PL react to an issue? Do they respond with speed, dedication to getting it right, and a post-episode review of what went wrong and how it will be avoided in the future?

Also, you as the client need to assess whether your organization and/or processes (or lack thereof) had any hand in the episode and work with the 3PL to jointly anticipate issues before they become problems in the future.

SCMR: We hear a lot about collaboration. Is that still practical?

Hamilton: Not only is it practical, it’s practically essential!

Today, with supply chains as complex and long as they are, collaboration is the only path to success. Collaboration begins with the client’s self-assessment, continues with the joint assessment of the right client/3PL partnership and how that will be designed to work.

It continues with the client and 3PL coordinating with other providers the client may have hired for other areas of the supply chain or other locations to insure there is synchronization across the supply chain. In addition, there are the administrative elements of the organizations where collaboration is critical.

These can include accounting, IT, legal, human resources, and engineering – to name a few.  Finally, and probably most important, it includes the client and the various other supply chain providers collaborating with the client’s ultimate customers.

All parties provide inputs and outputs within a working supply chain. The collaboration across and among these various audiences is the key to success.

SCMR: Finally, how many 3PLs should most shippers engage every year? Can one alone meet all their needs?

Hamilton: The 3PL industry would want you to believe that ‘sole sourcing’ is possible. In fact, in some specific situations, it may well be possible. However, that vast majority of outsourced supply chain networks are a collection of best-in-class providers linked together to provide the best solution for the client.

Let me add that there are many clients who have what I will call dominant 3PL relationships—where the vast majority of the work is performed by one firm. But invariably there are other 3PL firms supplementing the primary 3PL because of geography, service line, skill set or some other variable.

One final thought on this would be less is more. Try not to use a different 3PL in every city or for every service. Managing 3PL providers is like any other management responsibility, so economies of scale make sense.

Managing several relationships (versus tens of relationships) will lead to better understanding, better collaboration and a more efficient and successful outsourcing experience.