A Conversation with Ron Lee
President, TransGroup Worldwide Logistics

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The questions for this CEO Executive Interview have been questions developed by members of LQ's Board: Graham Allen, Program Manager, BPS Supply Chain Secretariat, Ontario ministry of Finance; Cliff Lynch, Executive Vice President, CTSI; Susan Promane, Director, Supply Chain, Whirlpool Canada; Kurt Ritcey, Partner, Deloitte; Dave Thomson, Director, Global transportation, Nortel

LQ: Given the growth in nontraditional business sectors moving to 3PLs, how do you develop your expertise to meet client requirements? This assumes that the expertise has to be built from scratch, as none of the existing employees move to the 3PL in the case of outsourcing, or the business is a start-up and there are no employees to transfer. (Graham Allen)

Ron Lee: We meet with clients to assess their existing or desired employee handling procedures and the information technology (IT) development or integration requirements between our firms. We then work with them to develop and deploy customized operating procedures and protocols to meet their needs. In other words, our customer relationships are based on providing value through “customer-centric” solutions, whether that means working together to improve efficiencies and reduce costs within the existing infrastructure or transitioning them into an outsourced operation to us.

LQ: How do you quickly build effective IT interfaces between your system and the client’s, given the difficulty that many IT systems have in “talking” to each other? (Graham Allen)

Ron Lee: Proprietary software and a Web-based system make it much easier for us to develop the programs necessary to provide compatibility between disparate and legacy systems. In our case, our logistics management tools are designed to facilitate a seamless and integrated flow of goods and information across a client’s entire supply chain. These tools are programmed and supported in-house by our own IT staff, which provides us the flexibility to quickly customize any or all of them, not only to fit a client’s specific needs but also to be easily interfaced or integrated with their own systems, via electronic data interchange (EDI) or practically any other form of data interchange required by the client.

LQ: One of the concerns in dealing with 3PLs is that the client does not have a direct relationship with the carrier (the trucking or container company). What can the client do to ensure compliance with delivery standards, and what happens when these standards are not met? (Graham Allen)

Ron Lee: We have direct relationships with most of the carriers in the U.S. and our systems are interfaced with those carriers, so our clients can track shipment progress once it departs our warehouse, or other location, destined to the consignee. Our job is to manage carrier relationships and provide clients with a single point of contact for customer service and issue resolution. So I would say that partnering with a third-party transportation and logistics service provider offers firms more control. Their business is leveraged with multiple other shippers against one provider, with multiple service options available to ensure that their standards are met over the short and long term. To put it another way, working with a 3PL rather than managing multiple carrier relationships themselves makes them a big fish in a single pond rather than a little fish in multiple ponds.

LQ: How often does a 3PL tell the client that its service standards need to be adjusted? (Graham Allen)

Ron Lee: Today, with the ever-increasing cost of doing business, the client relationship must be as honest and forthright as possible. As transportation costs escalate, adjustments to service standards or carrier selection may be necessary to keep overall costs in line. The client should be told when pricing is jeopardizing the ability to achieve service standards. This level of communication should be ongoing, and other options for time and price should be given to the client.

LQ: Is this just a polite way of saying that the delivery standards are unreasonable? (Graham Allen)

Ron Lee: No, delivery standards can be met, but price will dictate the carriers that can be used. Those carriers used in the past may need to be changed if their service-level pricing or capabilities change. The client should also have the option of being involved in the 3PL’s decision-making when changing to different carriers, to ensure that the service they are so used to receiving is not jeopardized.

LQ: In your opinion, what constitutes a good 3PL partner? (Cliff Lynch)

Ron Lee: One that not only looks at change within their own firm but also helps to develop changes for the client to improve cost of handling from door to door, pick and pack, inventory solutions, and so on. In all businesses, change presents an opportunity to evaluate current practices and explore ideas to drive new growth for the firm. I believe that smaller, more flexible firms with the ability to adapt or develop their IT systems as necessary tend to make the best 3PL partners.
In our case, transportation logistics makes up a very large portion of our service portfolio. Our advantage is that we are not as rigidly structured as the LTL carriers and integrators. Therefore we have the ability to provide solutions that can be changed quickly to accommodate individual clients. For example, since we are primarily non-asset based, we are not stuck in a structure that says you must fill this truck or this plane. And because we have access to all aspects of transportation and solutions, we can draw from a diverse pool of vendors, which enables us to provide our clients with the kind of innovative service solutions they need. Simply put, we are flexible, and if nothing else, that sets us apart from others who are dealing with routes and equipment they need to fill each and every day.

LQ: Which do you consider most important, price or service? (Cliff Lynch)

Ron Lee: I believe the commodity will dictate which is most important to a client. I have found in the past that the higher the value, the more important is service.

LQ: Statistics indicate that the odds of successfully renewing a 3PL customer contract decline as you hit the third and fourth contract renewal. How do you keep a strong, successful 3PL customer relationship in the long term, especially once the “honeymoon period” is over? (Susan Promane)

Ron Lee: Continuous communication and working on improving what is being done daily.

LQ: Have you had partnerships fail? (Susan Promane)

Ron Lee: Yes. When you start a relationship, you hope you have all the answers, but as time goes on your direction or your client’s direction may change in ways that make the partnership less of a good fit.

LQ: What has been the root cause? (Susan Promane)

Ron Lee: Change, or lack thereof. Either may require more or less flexibility, and if one of the parties cannot or will not adapt, then it makes the ability to continue the partnership impossible.

LQ: 3PL start-ups, especially with new 3PL customer relationships, can be difficult. Have you experienced major difficulties during this critical phase?(Susan Promane)

Ron Lee: Yes …
LQ: What was the key reason?(Susan Promane)

Ron Lee: … especially when the information you receive in the beginning does not match what you actually encounter during the start-up phase.

LQ: How do you really measure the success of a start-up?(Susan Promane)

Ron Lee: You are able to get through the “dating” process and make it a “marriage” between the client and the 3PL.

LQ: What is your perspective on the pros and cons of cost-plus contracts versus unit-price contracts for 3PL relationships? (Kurt Ritcey)

Ron Lee: Cost-plus certainly will put everything up front for all, and with a client that may occupy the majority of your facility, this should be a win-win for all. Unit-costs to me would be best for the smaller and mid-size client.

LQ: How do you define success? (Dale Thomson)

Ron Lee: In terms of customer and employee relationships, I’d say that when a client gives recommendations to other customers about your service, that certainly qualifies as success. Likewise, when employees leave for “greener pastures” but return shortly because they miss what they have left. In terms of sales, I think success comes down to service of the client—flexibility and client-focused, value-added services will keep clients closer to you any day than will selling yourself short on the dollar.

LQ: Are we getting what we expect in terms of SQC—service, quality and cost? (Dale Thomson)

Ron Lee: No one is ever fully satisfied with any of these—and shouldn’t be either, if they want to improve in all fields.

LQ: What are we getting in addition to the basics (SQC)—sharing of best practices, evolution of logistics networks, industry news, preparation for upcoming changes (e.g., Certified Cargo Screening Program), etc.? (Dale Thomson)

Ron Lee: A well-rounded knowledge portfolio, value added, and specialized services are important for successfully serving multiple clients. Certainly there are marketing-focused products that fall into this category, such as company newsletters to share practices and industry news, but more important, being active in various associations and government–industry partnerships helps to keep you at the leading edge.
I don’t mean to sound self-promotional with this, but two examples that come to mind are our involvement with the Air Forwarders Association, of which I am currently serving as chairman, and our company’s green initiatives. First, the Air Forwarders Association serves as the voice of the air forwarding community. Under the leadership of its managing director, Brandon Fried, we are advocating for our industry and taking a proactive role in working with the government to establish a fair and attainable means by which the Transportation Security Administration’s (TSA) air cargo security goals, including certified cargo screening, can be met without adversely impacting our members’ ability to provide the services their clients depend upon.
Second, I recognize that freight transportation and other logistics activities play a significant role regarding the environmental impact associated with our customers’ operations. Therefore our firm has been looking into ways that we, as a primarily non-asset-based transportation and logistics provider, can assist our customers in measuring and mitigating those impacts.
A few examples of our freight-focused environmental initiatives are our involvement with the U.S. environmental Protection Agency’s SmartWay transport partnership, which is a voluntary collaboration between EPA and the freight industry designed to increase energy efficiency while significantly reducing greenhouse gases and air pollution. One important aspect of this program is that it gives us the tools to identify environmentally preferable carriers for our carrier outsourcing activities. We also developed TransNeutral, which we believe is the forwarding industry’s first carbon-neutral shipment solution. It’s an opt-in program that calculates shipment-specific carbon footprints and enables our customers to offset the CO2 emissions resulting from their shipments. In addition, we provide asset recovery and disposition services that enable our technology- and other asset-laden customers to recover and properly recycle and/or dispose of obsolete equipment.
In short, what the client gets in addition to service, quality and cost is a partner firm that collaborates with their various supply chain stakeholders, as well as with government agencies and the carrier base, to identify and explore opportunities to improve our collective freight transportation and logistics operations.

LQ: Is the key contact for the 3PL one of the first people you call if you have an issue with the logistics network, where the path forward is unclear? (Dale Thomson)

Ron Lee: As a 3PL you need to relay a comfort factor to your client, that you will find solutions for any upcoming challenges or problems. Within our organization, all accounts are provided a toll-free number for general customer service issues. This allows client access to the station for 24/7/365 customer service. In addition, all customers are provided with a single point of contact for issues that go beyond the scope of normal Support and Customer Service operations.

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