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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; John Langley Jr., Ph.D., professor of Supply Chain Management, Georgia Institute of technology; Cliff Lynch, Executive Vice President, CTSI; Kurt Ritcey, Partner, Deloitte; Dave Thomson, Director, Global Transportation, Nortel.

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

Ben Cubitt: They way we did. As a company that’s grown through acquisitions, we have different system platforms to deal with. We did a major acquisition this year, and what helped us integrate Transplace quickly was a very capable IT department. We said to Transplace, our 3PL, “You’ve done this multiple times and we haven’t, so show us what you prefer and we will figure out if we can do that, or we’ll propose alternative suggestions.” Because our 3PL could interface and was a hosted system, it was an ideal platform. They knew what data needed to pass between a host system and a TMS and they had a vision. Our IT guys worked together with theirs on what we could or couldn’t support.

LQ: What do you feel are some of the key benefits of benchmarking the value of a 3PL–customer relationship? (John Langley Jr.)

Ben Cubitt: The benefit of benchmarking the value is that you can determine objectively whether the project was successful. Internally, we look at where we were before we started the project and at our performance metrics; once we’ve started the 3PL relationship, we compare them. Then we look at external benchmarks, for instance, how many shipments per day a planner could do. We understood where we were before we implemented, then we figured out where we are today—what’s good and what’s great. “Good” wasn’t 55 loads a day, it was 50-plus; closer to 70 was “great.” Some measures were quantifiable and some were soft, but equally important. Benchmarking helped us understand what improvements we’re making and how we compare to others in our business.

LQ: What do you feel are some of the key issues and challenges in benchmarking the value of a 3PL–customer relationship? (John Langley Jr.)

Ben Cubitt: We didn’t have great benchmarks in all areas for our existing performance, so in some places we had to estimate. When we established our internal benchmarks, we talked to enough people to feel that they were good enough benchmarks, if not absolutely definitive. Externally, the benchmarks didn’t have to be perfect; we just needed an estimate of “good” so that we could work toward a goal.
With a 3PL initiative, some people will be supportive and some will not. We looked at measuring the value because we wanted to do things with that information. First, we wanted to gain initial executive support, because some people do not like change. Problems caused by change can be measurable; some could be related to the project, but issues outside the project could be causing challenges. We wanted to measure the value of our project; our company has a lot of engineers, and numbers speak to them. If I have numbers saying we’re increasing the number of loads per plant or improving on-time delivery, it helps support change management, the internal sell. We had to demonstrate to upper management that we were delivering what we had promised, and we wanted to communicate to folks at the local level who were shouldering the impact of the change. Even if they were supportive, we wanted to show them the benefits of the transition they were going through.

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

Ben Cubitt: We have an absolutely great site manager; competent on a day-to-day basis and instilling confidence in the company. We had to make changes with our carrier base; it was important for them to have confidence in the 3PL too. So they have to do a good job from day to day and they have to be an active partner in strategy and continuous improvement. Transplace has done a good job challenging some of our practices—they have helped us improve.

LQ: Do you provide information to your 3PL about your own logistics strategy so they can ensure their strategies on your behalf coincide? (Cliff Lynch)

Ben Cubitt: They have been very aggressive with that. We liked Transplace’s customer base, growth profile, carrier-management program, and senior management, and we felt they could improve our long-term strategy. We have involved them in our strategy development and its execution. They’ve been a good partner, and we continue to challenge each other.
People think they can flip something over to the 3PL and they’ll know it and know it better. For a 3PL to implement your strategy, they have to meet with people in your company and understand your opportunities and constraints, your IT infrastructure and so on.

LQ: What is the biggest barrier to forward progress in the relationship between shipper and 3PL? (Kurt Ritcey)

Ben Cubitt: One or both can become complacent because both are glad you’re executing day-to-day operations. The 3PL may move to bigger accounts or take you for granted, or the shipper can take the 3PL for granted. Sometimes executing day to day becomes a struggle; you can’t move forward because you’re just attempting to get orders out the door.

LQ: Have you seen examples of a truly strategic shipper–3PL relationship? What distinguishes those alliances from the more traditional relationships? (Kurt Ritcey)

Ben Cubitt: More commonly, a shipper has a clear strategy and is outsourcing to achieve clear, limited objectives. Sometimes they just throw their mess over the wall and expect the 3PL to clean it up. The shipper must be a participant. Truly strategic 3PL relationships usually involve companies experienced with outsourcing part of their logistics, that know their goals and how to collaborate with the 3PL to meet those goals. For a successful strategic relationship, both sides have to be engaged.
I’ve been in supply chain for 15 years, both on the shipper side and with consulting firms. In my experience, two things drive failed 3PL relationships. One is poor selection process. The second is that companies can have all kinds of capabilities, and a 3PL can have great IT resources and senior management, but it really comes down to the site manager or account manager, who plays a huge part in whether the relationship is successful. If the 3PL moves the account manager to another opportunity, the transition can cause a problem if it’s not handled correctly. The challenge of succession planning is that there’s usually not enough communication, planning and transfer of knowledge ahead of time, often ruining 3PL relationships.
Really successful 3PL–shipper relationships usually work to achieve a very specific objective or initiative. For instance, we want to grow our intermodal from the current 8 percent to 14 percent over the next year. What drives success in these relationships is specific, previously agreed upon, quantifiable goals.
What are we getting in addition to the basics (service, quality, cost), for instance, sharing of best practices, evolution of logistics networks, industry news, preparation for upcoming changes (e.g., the Certified Cargo Screening Program), and so on?
One of the reasons we chose Transplace is because they have deep capabilities in the supply chain area. We also liked their senior and mid-level management and their customer base. They are well connected in the industry, so if we have questions about, for instance, rail, Transplace has reached for outside resources to help us. We like that they have resources we don’t. We have asked them to review our benchmarks and offer feedback; we have also called on their expertise in areas we don’t have experience with.

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)

Ben Cubitt: Earlier this year, my boss, who is the CFO, asked me to look at our strategy in transportation and fuel costs. Sustainability is a big issue to our customers, and they have asked us about our approach to sustainability and environmental stewardship. Also, we have been talking to our senior management about truckload capacity and where the truckload market going. We have tried to react to all those changes, and we have asked Transplace what strategies are others using that they think we might consider. We use them as another data point. What is nice about having a 3PL with these capabilities is they can give you two perspectives; they know your network, so they can give you specific feedback, and they can also give you generic feedback about industry trends.