Maximizing Logistics Effectiveness: Best Practices for a Successful Partnership with 3PLs

In early 2020, Spin Master’s North American warehousing and logistics team was challenged to transform 3PL warehouse operations to reduce costs and improve customer service. To-date, we have reduced annual warehousing operating costs by 35%, reduced annual retail non-compliance charges by over 80%, and improved on-time shipments to 99.7%. Following are some of the best practices for successful 3PL partnerships that we learned along the way.

Building a close partnership

Fundamental to a successful relationship with a 3PL provider is finding a partner with whom you can establish a high level of trust. In my view, the ideal business relationship is far more than a transactional, “zero sum” relationship in which each partner is focused only on their own profitability. My preference is always to seek out synergistic relationships, where the 3PL is a trusted partner that treats the customer’s business as their own, not only providing world-class service but proactively showing the customer ways to improve operations and reduce costs. In return, the customer is always watching for opportunities to make the 3PL more effective, which can be as easy as simplifying order processes and sharing forecast information that will help the 3PL to plan labour schedules. As with any relationship, this requires good communication, mutual respect, and the willingness of both partners to always seek out the “win-win” in every scenario.

At Spin Master, we have also domiciled our own, small on-site operations teams at each site. While regular video calls were useful in maintaining ongoing coordination at the peak of the COVID-19 pandemic, they are not a substitute for the informal communication, relationship building and “walking the floor” that is possible by having our own team resident in our 3PL facilities. As time and budgets permit, we also prioritize site visits by our senior leadership, including holding at least one Business Review on-site at each facility, each year.

Invoice scrutiny and dispute mechanisms

Even in the most trusting relationship, invoicing errors can and do occur. One of the first steps that our team took was to implement a rigorous invoice review process that thoroughly validates the services, rates and billable materials and assessorial charges on each and every invoice before it is paid. While it seems common sense, this due diligence and review process has resulted in significant savings for Spin Master on an annual basis, by finding and correcting rate errors, double-charges for the same work, and incremental charges for items already included in the basic statement of work. 

It has also resulted in numerous healthy “win win” conversations that have improved operating practices and identified opportunities to reduce waste.

" Establishing a successful partnership with a 3PL provider requires building trust, open communication, sound business practices, and a commitment to mutual success "

To facilitate this review process, contracts should always contain a clearly-defined scope of work and rates for each type of service provided, to minimize subjective interpretation by either party. Shipment profiles should also be clearly defined, avoiding assumptions and “blended rates” without a clear range of tolerance and mechanism to update rates if the business or labour market changes. A clear definition of which inbound and outbound activities will be billed at each rate, circumstances in which overtime is and is not billable, financial responsibilities for consumable and non-consumable materials and supplies, as well as any assessorial expenses (think yard shunting, security, etc.), should also be established.

Plan capacity and share information openly

A portion of Spin Master’s warehousing cost overruns in 2019- 2020 were due to excess inventories that drove us into offsite overflow warehouses. Early in the transformation, we created a capacity management role, responsible for compiling various streams of information from our S&OP, customer orders, and inbound logistics specialists, to provide a weekly, 12-week view of anticipated inbound and outbound activity, and to collaborate on appropriate labour capacity plans. This role also provides rolling nine-month views of projected inventories and warehouse capacity utilization, which allow our sales and supply planning teams time to act on projected excess inventory, and adjust purchases accordingly to avoid pushing Spin Master back into overflow warehouse mode. This cross-functional teamwork has placed Spin Master in a favourable competitive position as the industry struggles with high inventories due to the recent economic slowdown and fears of recession.

Ensure the 3PL has "skin in the game"

While 3PL partners will typically give good “lip service” to retail compliance, in practice it is difficult to get real focus if they don't share financial accountability for retailer chargebacks related to warehouse non-performance. We have updated the language in all new warehouse contracts that provide for non-compliance charges to be passed through to the 3PL, as well as assigning financial penalties for not meeting defined performance targets. Our retail compliance teams meet with 3PL site leadership on a weekly basis to review new customer requirements and any non-compliance charges that have come through, and work together to identify and correct the root causes that lead to such service failures.

Maintain your own internal distribution expertise

3PLs are in the business of being distribution experts, and many companies rely on them to take responsibility for this “non-core competency” on their behalf. Unfortunately, this too often means that customers are left with insufficient internal distribution expertise to effectively manage the 3PL relationship, blind to such basics as whether the facilities and equipment are being fully and appropriately utilized, and whether the labour and equipment being billed are really necessary and being charged appropriately. Just as smart car owners benefit from leveraging basic mechanical knowledge when dealing with auto mechanics, Spin Master has benefited from building internal distribution expertise that allows us to work more effectively with our 3PL partners. A sound internal knowledge of basis warehouse operations has also allowed us to be a better partner, anticipating our 3PL partner’s needs and more effectively developing the “win win” scenarios that lower costs and increase profitable for both parties.

In conclusion

Establishing a successful partnership with a 3PL provider requires building trust, open communication, sound business practices, and a commitment to mutual success. At Spin Master, we have prioritized developing synergistic relationships with our 3PL partners, which has fostered collaboration and innovation, resulting in significant improvements in cost, customer service, and operational efficiency. By following these best practices, companies can similarly maximize their logistics effectiveness and unlock the full potential of their 3PL relationships.