Over the past decade the business landscape has changed dramatically, leading to fresh and innovative ideas in every phase of the business world. E-commerce shopping and direct to consumer shipping has changed the face of retail, leading to large-scale changes within the supply chain for companies everywhere! 3PLs, which were once thought of as a purely transactional portion of business are now seen as a strategic partnership for business moving forward.
To be considered a true partner, 3PLs must provide value for clients in more ways than one. What can a 3PL bring to the table in areas such as services, expertise, or strategic planning to make business more effective? Instead of providing service based solely on pricing, we operate as an extension of our client’s business with data, support and innovative plans custom designed for their evolving needs. Ideas are brought to the table for process improvements, equipment upgrades or space configurations to keep accounts running at peak efficiency.
Communication is a key component for operating a successful partnership. Business reviews (whether they are completed quarterly or yearly) are a time when open and honest conversations about timing, costs and plans for the future take place. Some companies conduct a formal quarterly business review, supplemented by check-in calls to learn where pain points are for either party. Other companies operate under the assumption that if there are no problems, there’s no need to discuss. Neither way is wrong, just be sure that you can discuss changes and concerns openly if they do arise.
3PL pricing structures and billing can change based on the relationship between the client and the 3PL as well as the type of business provided. There are three main pricing structures along with incentive based solutions that can be implemented for pricing logistics services.
Variable Rate Based
Variable cost – you only pay for what you use. Storage rates can be charged per pallet, per piece or per square foot saving you the investment of an entire warehouse. Service rates can be charged in a similar manner as well as on an hourly basis. This is the most common pricing platform due to its simplicity and clear understanding for everybody involved.
Percent of Business
With certain partnerships and the right amount of data from both sides, a percent of business pricing structure can be put in place. This is where the fee for 3PL storage and services is a mutually agreed upon percent of the value of the products being handled. Numbers are agreed upon over the life of a contract as both parties learn the more about the nuances of the operation.
In theory, a cost plus pricing structure is the most simple. The 3PL calculates its cost for space, materials and service hours, adds an agreed upon margin, and then bills the client. Although this rate structure is not used as often as other models, it can be an effective form of pricing in some situations.
Performance Based Logistics or Gain Sharing
Performance Based Logistics or Gain Sharing are variants in pricing structures that add incentives to help the operation run more efficiently for the 3PL and client. Performance based contracts have metrics that the 3PL must hit for service and storage efficiency throughout a given cycle. If the 3PL hits their targets, a bonus is applied to the payment due to the savings that the 3PL provided the client. In a gain sharing situation, if the 3PL finds improvements in storage efficiency or processes during distribution, the savings are split in an agreed upon percentage.
With the changing face of business, what are you doing to get the edge on your competition? Working with a 3PL is a great place to start! Whether a 3PL is working in a retail effort shipping to stores and consumers or supporting a manufacturing plant through just-in-time shipping with raw and finished goods, working as a partnership rather than a transactional relationship is beneficial for the strategic plans of a company as well as the bottom line. Having trust, open communication, a fair pricing structure and plans for the future can go a long way in improving business within and outside of the supply chain.
Have a wonderful day!