3PL FEATURE
A FITTING FEE STRUCTURE P
Companies outsourcing their logistics processes are more likely to find a service they want at a cost that fits their budget if they choose a 3PL capable of offering the right type of charging mechanism, explains William Walker of Walker Logistics
icking the third party logistics (3PL) partner that will be right for your
business can be a daunting process. Whether you are outsourcing for the first time or looking for an alternative supplier of logistics services to the company that you already use, there are many things to consider: Does the company have a proven track record? Is its geographic location right for you? Will it offer a scalable service capable of growing with your business needs? Does it offer the range of services: warehousing, packaging, transportation and distribution you need? Then, of course, there’s the financial aspect. With overcapacity in the logistics market many service providers are adopting aggressive pricing policies so if cost is your key driver finding your ‘ideal’ partner should not be too difficult. In my experience anyone that buys an outsourced supply chain solution on price alone is unlikely to feel the same way about their chosen 3PL six months into the contract as they did when they were first wooed by them. So, while budgetary considerations should never be the overriding concern when vetting 3PLs the pricing structure of any outsourced e-fulfilment agreement is clearly an important consideration. There are a number of different approaches that logistics companies take when costing their services and picking the method most suited to your needs will go a long way to ensuring that you get the supply chain benefits you are looking for at the most cost-efficient rate. Essentially, logistics companies
charge for the work they undertake in one of three ways: transactional, cost plus or hourly rate.
TRANSACTIONAL
The transactional charging method is perhaps, the most popular particularly among online retailers. In simple terms, the client pays a pre-agreed fee for the pallets stored and beyond that only incurs costs as and when the 3PL processes an order. If you’re not busy you’re not paying much. These agreements are popular with companies who experience both spikes and sluggish periods in their order patterns.
COST PLUS OR OPEN BOOK APPROACH Under the terms of a cost plus or open book approach the logistics company undertakes to store, pick, pack and dispatch (along with anything else required) its client’s products at cost price before adding a ‘management fee’. The 3PL should share information about all of the overheads incurred in running a cost plus contract with its client openly and honestly. The management fee – usually worked out as a percentage of the costs - is added on a monthly basis. Clients often find this way of working reassuring as they are able to see precisely how much profit the 3PL is making out of the contract. Cost plus agreements often work best in situations where the client company offers a wide range of products that require different processing procedures and therefore are hard to accurately budget for using the transactional charging method.
SCHEDULING SYSTEM REDUCES 3PL COSTS BY UP TO 40%
Since implementing Magenta Technology’s Maxoptra vehicle routing and scheduling system Optimum Dental Studio -a full service dental laboratory providing high quality prostheses-has reduced third party transport costs by up to 40%. “Our original transport solution didn’t have any
mapping o we switched to TomTom which was great for navigation and traffic updates,” comments co- owner Tina Whatley. “However, it didn’t help with the daily headache of scheduling deliveries and devising optimal routes so we looked for a compatible solution. Maxoptra allows us to view the whole picture in an instant: deliveries, collections
and possible headaches. It gives us the intelligence to react and respond, allowing us to maintain our high levels of service while reducing costs. We need the Maxoptra solution to compete.” Short notice collections feature prominently in
Optimum’s daily transport planning and schedules can change with little or no notice. Reaction times are critical and a fast turnaround is essential to minimise patient chair time and reduce rescheduling.
Magenta Technology T: 020 7494 7510
www.magenta-technology.com
HOURLY-RATE PRICING A fulfillment solution based around an hourly-rate pricing proposition could be described as a combination of the transactional and cost plus methods. The client company is assigned a fixed amount of storage space within the 3PL’s warehouse at an agreed rate and charged on the amount of man-hours the 3PL has to dedicate to processing orders. The client is only billed for labour when the 3PL needs workers to service the account so the company knows what its fixed storage costs will be and beyond this is only invoiced when work that has to be done.
Regardless of which charging system is chosen, if the contract is to be successful the 3PL must be willing to take a partnership approach to its client relationship. It is particularly important that the client is satisfied that the workers for whom it is paying are productive and working at optimum efficiency.
LABOUR-TRACKING SOFTWARE At Walker Logistics we employ labour- tracking software to ensure that our warehouse staff are performing to the levels expected of them throughout their shift. RF data capture scanners allow us to record when each employee starts and finishes a task; a facility which enables us to be sure that no one is under-delivering. We are able to share the information
with our clients so they know that the order processing time for which we are charging them is fair and reasonable. So while price should not be the
primary concern when reviewing a 3PL’s tender it is a significant influencing factor and your prospective 3PL partner should be able to offer advice and guidance on the type of charging mechanism that best suits your company’s fulfillment needs. By avoiding operators that attempt to shoehorn you into a certain type of fee structure you are, in my experience, more likely to find a logistics partner that will provide the service you need at a cost you are comfortable with and can budget for.
Walker Logistics T: 01488 73848
www.walkerlogistics.com
/ MATERIALSHANDLINGLOGISTICS MATERIALS HANDLING & LOGISTICS | MARCH/APRIL 2016 S9
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