Many companies do view inventory as their most precious
asset and want to be sure the caretaker understands all their
special needs.

How a business communicates with a 3PL, and within its
own organization, has become even more critical as staffs
are reduced and companies broaden their scope with more
global arrangements. 3PLs often function as communication
exchange hubs.

Two aspects of communication-among humans and electronic interchanges-are important parts of outsourced logistics. The 3PL is in position to standardize, or normalize, communications among its clients and the client's customers.

People to People
How often the 3PL and its client company communicate varies by how comfortable the two companies are with each other as well as the needs of the product. And, while the customer drives the frequency of reporting, says Tom Giovingo, executive vice president at Fidelitone Logistics, Wauconda, Ill., he prefers dealing with the person on the floor. "The person on the floor is closest to the service we deliver," says Giovingo. "That might be an office manager or a distribution manager. If changes in the service are required, we'll go to the people higher up the ladder."

"Mirroring" is a term often heard when talking about 3PL communications. It means matching a person from the 3PL with his counterpart in the client company. Typically, program managers are in daily contact. However, when it comes to technical issues or financial arrangements, it's best to match people in both companies.

At the start of new business, frequency of communication varies, depending on how familiar the client company is with outsourced logistics in general, and the client's expectations. Meetings might be daily or twice weekly until all parties are comfortable. It's typical for the 3PL to drive the agenda of meetings to ensure goals are being met. 3PLs want long-term business, and keeping the client happy is certainly one way of doing that.

Depending on the level of service required, having a person from the 3PL staff inside the client's business, and vice versa, is becoming popular. Having people inside the client or 3PL's distribution center has the goal of making the service run as if it were a single company.

Trust is a key aspect in establishing a meaningful relationship between a 3PLand its clients.
Often, the staff of the 3PL is a surrogate for its client. In distribution centers housing multiple clients, it's not uncommon for the 3PL to answer the telephone using its client's name, or even that of the client's client.

And, in a business where perception often becomes reality, how the customer sees the performance of the 3PL will determine how it responds to more or less communication, innovation on the part of the 3PL and contract extensions.

Handling Electronic Communications
When it comes to establishing the electronic piece of the communications puzzle, the answer is "yes." What ever the customer wants, the 3PL will deliver—in most cases. At the other end of the spectrum are the service providers that specify that the customer must use its IT programs.

Data can range from telephone calls, e-mail or any type of electronic data interchange. Putting it into agreed upon standards is imperative in creating a set of metrics the client can understand. Since there are varying degrees of electronic sophistication among clients, the 3PL becomes the information manager.

This may, in fact, be why many companies are turning to outsourced logistics functions of 3PLs. It's not so much about the need for technical sophistication of the client as it is their focus on doing business in disparate regions.

Another reason why 3PLs have seen increased business has been the high level of merger and acquisition activity, and the need to get all the new companies aligned.

The result of that normalization can be hourly, daily or weekly reports—whatever the customer requires. With its most sophisticated clients, the 3PL might receive production schedules that it, in turn, has to parse out to the suppliers, which, in turn, report back through the 3PL to create one standard protocol for all parties.

What You Need to Know
If you're considering outsourced logistics, what do you need to know?

The key is that the companies find a way to establish trust. Anyone looking to outsource its logistics function review the 3PL's IT services. They should look for a provider that has shown innovation in systems and continues to drive innovation into their business with new ideas, processes and technologies.

Along with the ability to trust the 3PL, looking at the service provider's track record is critical. Are they doing what they say they can do? Do they have long-term relationships? Are they cultivating continuous improvement? These are the questions you should be asking.

Giovingo says, to work with a 3PL effectively, the client company needs to know that the 3PL's offerings are in sync with its needs. Just because the 3PL has worked with big-box stores does not mean it can handle direct-to-consumer services, for example.

While the 3PL can often work with its client's business model, it can be more advantageous if the client is willing to accept the 3PL's model.

Third-party logistics providers are in the fortunate position of seeing how many businesses run, whether it's finding a shipment that went astray last night, or creating a five-year plan. Most companies see only one way of doing business—the way they've been doing it. Outsourcing logistics functions is becoming a major way to create a more efficient supply chain.*

*Edited version of the February 2008 article