Adapting to Model changes of 3PL Costing and Structure
As more companies are using 3PL warehousing and transportation to outsource goods, the model of pricing is changing rapidly and frequently. The driving factor for the change is more large scale companies, all the way down to mom and pop companies that have switched to outside logistics providers to reduce their supply chain costs, improve accuracy and flexibility in inventory, while speeding up shipments across the country. This triggers different pricing models due to sizes and expanded markets.
Over recent year the import business has increased, allowing more sectors to open small to mid-sized businesses. This has increased apparel, outdoor sporting goods, and hard line businesses to grow. With reduced costs from importing versus buying domestic, companies have grown rapidly, thus not allowing them the capacity, or adequate staffing to fill the volume need, especially in an already tight unemployment market.
Importing has changed how we originally priced goods. The old way of pricing has changed from unloading full truck loads by pallet, to unloading containers by hand. From charging pallet In/out to handle, to charging by CWT (hundredweight), or case handling in, and pallet handling out. Transportation has also had to be a factor here, because now you are providing drayage from the rail yard, and offering LTL, FTL and brokering outbound.
The new model has changed the workforce from a more stable employee, to a part time/temporary employee, based on when the product arrives, which is hard to schedule based on the time frame from overseas to the US, along with port and rail timeliness.
Larger companies have really tried to eliminate some assessorial cost and tying most fees into the handling and storage fees. Large companies also like to work off of a management fee structure with KPI’s (Key Performance Indicators) attached to the percent of fee that is paid out to the logistics provider. Some of these KPI’s are on time performance, cost per case for direct and indirect labor, inventory shrink, error rates, etc. As larger companies are tying much of the standard assessorial fees into the standard rates, they are also asking for more administration assistance from the 3PL. This is mostly due to utilizing their SAP systems. That is sometimes not recouped from the 3PL provider.
Technology has also played a key role in changing the pricing structure. 3PLs are now charging for the use of WMS systems. A practice we have stayed away from. That has increased the costs dramatically to stay in touch with the ever changing landscape of customer’s inventory requirements. It has become imperative to track product several different ways, especially if food, pet industry or chemical industries. We are now tracking lot #’s, expiration dates, temperature data, ETC. this requires much more data entry and records management electronically.
Customers are also requiring EDI (electronic data integration) this allows there inventory to be updated, and documents to be passed back and forth between the 3Pl provider system and the customers systems.
Pricing and Flexibility:
As pricing and flexibility plays a key role in the success of a 3PL provider, and the list of customer markets grow, customers are looking for cost savings and flexibility in their storage requirements. The provider must adapt quickly and offer the customer what they are asking for at a reasonable price point. As service is the main player in keeping customers happy, pricing and flexibility are paramount in retaining a long term relationship with that customer.
Keeping that in mind, the 3PL provider must know their expenses, and what price point works for their facilities. Often times when bringing on a perspective client, the 3PL provider will price them too low, only later to find out they are losing money on a particular account. This typically happens when the customer’s business model falls out of the originally agreed scope of the agreement. It is fair to ask for that increase after time, and to make sure that both parties agree that a healthy relationship is one where both parties are making money. It is imperative to quote the account accurately when bringing on the perspective customer, and to quote the customer according to the numbers provided by your P&L.