Great Partnerships 3PLs and Shippers

(VLR) Many companies have traded old-style transactional relationships with 3PLs for collaborative partnerships that stand the test of time.If you dont have a green thumb, you might hire someone to mow your lawn, trim the shrubs, water the flowers, and ward off Japanese beetles.Or you might find an expert who helps you choose plants tough enough to thrive in your difficult climate and turf that takes abuse from kids and dogs. He recommends flowers that the deer wont eat, and teaches you to attract the kinds of birds that eat the bugs that kill tomatoes.

Many companies have traded old-style transactional relationships with 3PLs for collaborative partnerships that stand the test of time.
If you dont have a green thumb, you might hire someone to mow your lawn, trim the shrubs, water the flowers, and ward off Japanese beetles.
Or you might find an expert who helps you choose plants tough enough to thrive in your difficult climate and turf that takes abuse from kids and dogs. He recommends flowers that the deer wont eat, and teaches you to attract the kinds of birds that eat the bugs that kill tomatoes.

He does such a good job, eventually it takes him fewer hours to handle everyday maintenance. And that might hurt him in the wallet, except that the two of you keep thinking up new projects to work on together.

Whats true for your yard might also be true for your supply chain. Like the homeowner and traditional lawn and garden service, many shippers and their third-party logistics providers (3PLs) engage in purely transactional relationships: the shipper buys a service, the 3PL provides it, and money changes hands.

But a growing number of shippers and providers are forming more collaborative partnerships, focused not just on delivering service for a fee, but on shaping a shippers long-term success.
"At some point, you say to your service provider”, Here are my needs. What is the best way to meet them? instead of, Give me a price for this service”, says Craig Boroughf, senior director, indirect sourcing and transportation at Chicago-based USG Corporation.

Mike Marlowe, vice president of operations at Kane is Able, a 3PL in Scranton, Pa., cites a concept called vested outsourcing, developed at the University of Tennessee by a team of researchers led by Kate Vitasek. "Vested outsourcing tries to break down the walls of the typical relationship between a 3PL and a buyer, moving away from the transactional approach to look at the bigger picture, then determine how to work together to take cost out of the network", he explains.

KIMBERLY-CLARK & KANE IS ABLE: COLLABORATION IS NOTHING TO SNEEZE AT

Kimberly-Clark North America, the producer of popular consumer packaged goods (CPG) brands such as Kleenex, Scott, and Huggies, has started to explore the collaborative approach with Kane is Able. Kane provides distribution and contract packaging services for Kimberly-Clarks Consumer Products and KC Professional divisions from three regional facilities. It also provides regional transportation support.
Kimberly-Clarks supply chain team has determined that collaborating with service providers helps the company gain better service and higher-quality, lower-cost solutions for the entire supply chain. "If we dont take advantage of our partners capabilities and insights, well continue to sub-optimize the supply chain, as each individual focuses only on their own best interest", says Todd Armstrong, director of distribution operations for Kimberly-Clark North America.

Kane and Kimberly-Clark are still working out the details of their budding partnership. But they have already worked together to change the process for designing the packaging that Kane assembles.

A PACKAGE DEAL

Traditionally, CPG manufacturers have created packaging in stages, with each stage performed in its own organizational silo. The marketing department determined how the packaging should look and feel. The packaging group then sourced the materials, choosing products that would get the job done at the best possible price. Then a contract packager such as Kane assembled the units and stored them in the distribution center (DC).

Standing at the end of the process, Kane often ran into problems that had their origins farther up the line. "Sometimes packaging was not designed to optimize storage space, so we saw more damage and less cube utilization in the DC", Marlowe says.
That was bad enough, but the impact could be even worse when it came to the assembly process. "The designers may have created a great-looking container that was fairly inexpensive, but the cost to assemble it in the contract packaging operation was excessive", he adds.

Kimberly-Clark was spending too much on package assembly because it didnt seek Kanes advice on design. Collaboration changed all that. "Once we engaged Kane, and asked them to come back with an end-to-end solution, we found ways to design and manage the base supply so they could assemble it more efficiently", says Armstrong. The packaging materials might cost a bit more, but the savings on assembly make up for that expense.

One tactic that helped in the effort to reduce package assembly cost was a workshop that Kimberly-Clark convened, focused on three product displays. Members of the manufacturers sales, packaging design, and distribution teams met with the vendor that builds the companys in-store displays and with Kane, the contract packager. Then the entire team started to redesign each display unit.

"They were able to pull unnecessary materials out of the display", Armstrong says. Carrying the new designs into a mobile workshop parked outside, the display vendor created some prototypes. Trying them out, the team found that those new units were indeed easier to assemble than the original versions."During the single-day event, the team was able to modify the displays to achieve double-digit cost reductions, while still delivering on marketing and sales expectations", Armstrong says.

MOVING FORWARD TOGETHER

As Kimberly-Clark makes decisions on the design of future packaging, Kane expects one of its own engineers to be involved. Marlowe would also like an executive from Kane to participate in key discussions at Kimberly-Clark on strategic issues that affect the supply chain.
Those decisions might include how to design the distribution network, and what kind of technology to deploy. Technology is a big concern, because many large CPG companies have been working to install the same technology at all their sites for the sake of consistency.
But trying to do the same thing in the same way at every location also may pose problems. "If youre too consistent, youre not allowing the 3PL to push ideas, technology, and innovation", Marlowe notes.

ENSURING ENGAGEMENT

As they work out further details of their partnership, one major question that Kimberly-Clark and Kane must resolve is how to design the right kinds of incentives for the 3PL. In a traditional, transactional relationship, the more work a 3PL does for a shipper, the more money it earns. But what happens when a 3PLs good ideas streamline a process so much that the service partner actually has less work to do?
"In a purely transactional relationship, the 3PL gets paid when it finishes specific work", says Marlowe. "Theres not a lot of incentive to offer savings and innovations, or to make investments in engineering and resources to try to slim operations".

One long-standing alternative is gainsharing, which rewards contractors by awarding them a portion of any savings they help customers achieve. Another option might be to give the 3PL a stake in the customers business, so any success the customer attains becomes a success for the service provider as well.

Armstrong agrees that old compensation models wont work in a new collaborative relationship. "If we just keep doing the same thing, were not going to incent the 3PL to help us be as efficient and effective as we could be", he says. "So we have to come up with some new key performance indicators that focus on not only whether were thinking innovatively, but whether were implementing and getting the results we expect".


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