These 3PL optimization techniques will boost profitability.
Third-party logistics (3PL) providers are an effective way to reduce overall transportation costs, according to 86% of shippers. But outsourcing logistics operations isn’t a "get it and forget it" task. You have to maintain a strong working relationship with your 3PL partner.
As a shipper, you might work with a 3PL to boost network efficiency, save on operating costs, or meet customer demand in a new location. In any case, you rely on them to act in your best interest, including choosing the most cost-effective logistics decisions.
Relationships built on good performance—on-time deliveries by 3PLs and fast payments from shippers—nurture trust and confidence.
Let’s look at how fostering these types of solid relationships boosts efficiency and profitability. We’ll also share some tips to cultivate those bonds.
How a good 3PL relationship encourages profitability.
Cost savings and better operational efficiency are probably your two main goals for partnering with a 3PL. But how much time and money you save on shipping and transportation costs depends on whether you’re on good terms with your third-party logistics provider.
Consider how the following can boost profitability for you and your 3PL:
- Fair and transparent pricing agreements: Good contracts don’t have any hidden transportation costs or terms. Both you and your 3PL should have full visibility into contract conditions and agree on reasonable pricing. Then, you can budget shipping costs accordingly.
- Clear and frequent communication: Have you set clear expectations for your working relationship? Do you and your 3PL keep in touch regularly, especially if unexpected issues arise? If so, there should be no surprise charges on your invoices.
- Consistent on-time payments: 3PL providers rely heavily on cash flow. If you submit timely payments, they’re more likely to trust you and make you a Shipper of Choice. They may offer you better pricing or services in return.
- Accurate invoices: A good 3PL provider will double-check that all charges on your invoice are correct before sending it to you. In turn, you spend less time auditing and addressing errors and can enjoy more financial predictability. You can also submit payment to your 3PL faster—everyone wins.
These best practices can help you reduce costs and enhance efficiency across your network. But there’s more to say about the effort it takes to maintain a healthy working relationship with your 3PL provider.
5 ways to optimize your 3PL relationships.
1. Ensure data accuracy.
High-quality data analytics promote contract compliance and accurate invoices.
When considering partnering with a 3PL, make sure they offer real-time shipping data. You need access to all metrics related to booking a load: accessorials, core fulfillment centers, scheduling delivery shipping times, and more.
Feed all of this info into your in-house data repository. Having it all in one place will give you visibility across your transportation network.
Of course, increased visibility is only valuable if your data is accurate. Use logistics-AI to make sure it is. Access to error-free data allows both parties to identify opportunities for cost savings and supply chain optimization.
2. Streamline payment processes.
Most 3PL providers rely on bank credit lines to run their business. They often float dollars to their carriers and drivers to manage mismatched payment terms and maintain positive cash flow. Because of this, they need customers who reliably pay invoices on time. In turn, you need efficient processes for both audits and payment.
Adjustments are necessary from time to time. However, if they appear on every invoice, payment processes slow to a crawl. When you find a 3PL that bills accurately, match their performance and pay on time.
As a shipper, if you have fast audit turnaround times, you can offer quick pay financing to pay carriers the same day for a small discount. Quick pay is a win-win for both shippers and carriers.
Pro tip: Consider offering 24-hour resolution times for invoice disputes. It's a great way to earn 3PL trust and enhance efficiency.
3. Score performance based on agreements.
You need to verify that your 3PL meets the agreed-upon conditions, including delivery times, routes, and drivers. Create scoring criteria that cover service key performance indicators (KPIs):
- On-time pickup and delivery on core lanes versus backup lanes
- The average lead time for each load, lane, carrier, etc.
- Site-specific metrics, including loading and unloading time, detention, and appointment scheduling accuracy
- Invoice accuracy, average accessorial costs, fulfillment speed, and days to pay
This granularity will help you appreciate the context of your 3PL’s performance. If your logistics partner consistently misses the mark, increased costs are inevitable.
However, external factors beyond a 3PL’s control can sometimes impact performance. Maintaining some flexibility will keep your relationship amicable. For example, are you scoring your broker similarly if they are taking a last minute load for you at 5PM on a Friday as you would a load that has proper lead time? You should probably give them a little leeway.
Great data will give you valuable insights to help you decide whether you need to change providers.
Also, remember that performance scorecards work both ways. You'll be a more valuable customer if you consistently meet your 3PL's payment terms.
4. Leverage logistics-AI to automate audits.
Legacy audits are time, and labor intensive. Automation is the way to reduce costs and boost your operational efficiency.
Upon receipt, logistics-AI software like Loop instantly validates each invoice line item. It’s trained on your network data to spot errors quickly so you don’t overpay. Plus, AI continuously improves as your supply chain grows and evolves.
In the case of Great Dane, the time to audit invoices has gone down from days to just two hours with 98% of invoices requiring no human touch.
Leveraging technology built for the logistics industry clearly has huge potential for freeing up your time. Just as important, it’s powerful for maximizing your cost savings. (Great Dane has used Loop to identify more than $73K in overcharges in 2023.)
5. Maintain effective communication and be fair.
The freight market is cyclical. Every two to three years, it shifts from having high demand (favorable for 3PLs) to more capacity (favorable for shippers).
Strong relationships with 3PLs will help you secure cost-effective contracts no matter what supply chain market fluctuations occur. If you have a reliable 3PL that is core to your transportation performance, you want to avoid price-gouging them when they're in a challenging market and risk them going out of business.
Good relationships also come in handy when other needs, issues, or supply chain disruptions arise. That’s why it’s essential to foster good rapport and open dialogue.
Communicate your shipping and lane demand so your logistics partner can plan accordingly to meet your needs. They’ll appreciate your proactivity and volume consistency (to the extent that you can provide it).
Pro tip: Create carrier of the year awards to acknowledge leaders and innovators within your network. It acts as a thank-you to and free marketing for 3PL providers, highlighting how their work makes an impact.
Optimize your 3PL relationships and reduce costs with Loop.
Successful 3PL-shipper relationships are a two-way street.
Your third-party logistics provider should be transparent about pricing, delivery and invoicing according to contract terms, and communicate well. You should also communicate clearly and often—in addition to making timely payments—to help your provider keep their operations running smoothly.
What’s the most efficient and reliable way to hold up your end of the bargain?
Use Loop to consolidate your data analytics, quickly audit invoices for accuracy, and resolve discrepancies. It’s the most painless way to prevent late payments and overpayments. Get in touch today for more on how Loop can help you.
