When it comes to 3PL (Third Party Logistics), you can’t just send monthly checks and hope that your goods are being distributed in a timely manner. Be prepared to closely monitor and manage your goods on a constant basis; otherwise, you are bound for one bumpy ride! We sat down with consumer goods industry leaders Paul Crawley, CFO at Mighty Leaf Tea, Jon Gianini, Director of Business Development at W.J. Byrnes & Co., David Minnick, President at Purity.Organic and Walt Blum of Walt Blum & Associates, and here is what they had to say:
Not all 3PL’s are created equal – With every aspect of business, you must do your homework and research all options and vendors before signing any contract. Remember that not everyone has the same passion for your brand that you do. Once you have established your relationship with a third party vendor, it’s important to set up regular meetings, including face-to-face. Stay on top of everything and be sure they are delivering your goods on time.
Finding manufacturers – Trade shows are a great resource and opportunity to talk with other business leaders and industry experts. Ask them about their vendors, what works and what doesn’t. Creating connections within your industry will pay-off when you need future referrals and advice. Find similar brands and products and tap into their resources when possible. Look into what countries are supplying like-products and start from there.
Approaching third party vendors – If you don’t own your own warehouse or delivery trucks, you’re having to compete with other brands for your vendors’ production and distribution time. However, the upside to not doing it all in-house is that you have more time to focus on margin and growth.
Planning for disruption – 93% of top companies stated that they are unprepared for supply chain disruption. You will want to set aside funds for when, not if, disruption occurs. This could be shipping delays, government law changes, rise in cost of supplies and many other factors which would stand in the way of your supply chain.
Having great networks and being loyal to your vendors will help when you are in need of a favor. Bigger companies like Coca Cola, for example, are able to purchase lemons several years in advance, as to avoid annual price hikes. Smaller companies are not always able to afford such practices, so you must plan ahead for each change in process along the way.
When shipping freight is backed up, air freight is the next best option; however, this is surely going to make your profit margins go down, as air freight costs a great deal more. Knowing all of your options ahead of time will come in handy; when one shipping port is out of commission, you will need to know the next one and the next after that. It’s vital to have a plan in place; even holding regular practice run-throughs with your team will help when real-life risks are presented.
Finally, be sure to have enough Power SKUs in place to avoid disruption on your core products.
Leveraging relationships – Volume is important when establishing a vendor relationship; depending on how much you buy will either make or break a deal. Challenges will happen, so it’s important to maintain a good-standing relationship with all of your vendors, as you will need to ask for additional help and favors from time-to-time. Remember that your vendors have your product specs and formulas; if anything negative should happen to dissolve your good-standing, that vendor could turn around and use your information for their benefit. You need vendors you can trust and rely on. Plan quarterly or annual visits to meet with your vendors in person to establish and retain your relationships. Have backup suppliers – you will need to create relationships and place orders with all vendors for last-minute deadlines. If you can’t offer your goods to clients on time, you will lose out and be replaced by other brands and essentially lose clients.
Redundancies are needed – This will depend on your industry, but you may need to keep your lines busy year-round to avoid lack of suppliers. If you don’t have enough product to make, vendors will choose more in-demand companies to work with over yours. Provide incentives to help to get your suppliers to work with you again when you need them later on. It’s also helpful to have multiple suppliers on hand at any given time; having just one or two could lead to possible setbacks.
Addressing expectations – How fast do you need product and how much can you pay? Knowing this will always be important when trying to meet the demand of supply for your clients. You don’t want to extend yourself too far out; keep supply and expectations within reach of meeting target dates in order to keep the shelves full. Otherwise customers will go elsewhere and you will lose space to someone else who can meet that demand.
Managing KPI’s – You can’t manage what you can’t measure. Some legal agreements will include KPI goals; it will vary from one provider to the next. Keep track of who’s on time, who’s always late and measure the data constantly. KPI’s can be measured on a daily or even hourly basis. Have a plan in place, including your company’s allowable percentage of waste.
You can write KPI goals into your contract and set penalties for when goals are not met and give them a reward, such as 1%, if they are on time. If possible, have at least three vendors so you can compare your metrics and measure them out together. Be sure to have quarterly reviews with your vendors. If KPI’s aren’t being met, this could be an indicator that it’s time to end your vendor relationship and move on.
Getting products is relatively easy. When it’s not, shipment hold-ups are most often caused by non-compliance, often due to being subject to different laws in different states and countries. Be sure to have working systems and software in place that fits with your company and supply chain needs. This was a challenging factor across the board, as the panel discussed that many companies are having to use outdated computers to support older software. Finding the right EDI (Electronic Data Interchange) consultant will help ease the burden of managing and tracking data on a large scale and should allow you to measure data with more thorough insight.
If you would like more information, please contact your advisor:
Larisa Rapoport, Partner, DZH Phillips
David A. Ghirarduzzi, Senior Vice President, City National Bank
Marjorie S. Fochtman, Partner, Nixon Peabody