My 3PL guru once explained to me how negotiating a contract with a potential customer works: “We start by talking to the client’s logistics team mapping out their requirements and then carefully working together to create an operation that meets those requirements. The logistics team is happy and we are happy.
“What happens next is that the customer’s procurement team take over with a brief to cut the price to the bone. The customer’s logistics team is unhappy that their carefully worked out plans have been decimated, and we are unhappy because our margins have been slashed.”
So perhaps it is not surprising that a survey by consultancy Scala has found that procurement specialists are routinely being sidelined by logistics teams when contracts are being negotiated.
Scala thinks this is a bad thing. It argues that by not using procurement specialists in the negotiation of logistics contracts companies are potentially losing millions.
The survey found that at selection stage, 32 per cent of companies said that procurement teams weren’t the main driver or didn’t play a significant role in the process.
And 94 per cent of companies also said that procurement teams never, or only occasionally, played a role in contract maintenance.
Scala managing director John Perry acknowledges that there can be confusion or even hostility between logistics and procurement teams, but he points out that “the findings of our research are made even more concerning by the fact that so few companies are satisfied with the performance of 3PL relationships.”
Certainly, the Scala research highlights a mismatch in perceptions of satisfaction with the relationships. For example, 18 per cent of clients said they were very satisfied with the relationship, but 38 per cent of 3PLs thought their clients were very satisfied. On the other hand 15 per cent of 3PLs thought customers were very dissatisfied, while no customer said that – though 18 per cent were slightly dissatisfied.
At the same time, 23 per cent of companies said they were not confident that they were getting a good deal from their 3PLs.
Scala’s research highlights the positive impact that good procurement can have, including cost reductions, improved KPIs, better contractual terms, and a clear method for monitoring and maintaining on-going performance of the 3PL.
“And during the running of the agreement, effective procurement was found to have led to improved performance, better relationships and the avoidance of conflict between companies and their 3PL partners.”
These are strong arguments. Nevertheless, I’m not sure that my 3PL guru will be won over by them. There is a lot of suspicion about how companies have used procurement in the past, and achieving a rapprochement is not trivial.
But perhaps it is time for a truce – it could reap real benefits.