1. Executive Brief
The Heat is On for 3PLs
– Changing the Game and Gaining
Competitive Advantage
Operational Excellence as a
Competitive Strategy
Six Sigma Qualtec

2. Operational Excellence as a Competitive Strategy for 3PLs
The heat is definitely on for 3PLs with ever-increasing
pressure to reduce costs and better manage time and
inventories while, at the same time, offering faster and more
nimble service to clients. This is true with domestic supply
chains and is greatly magnified with global supply chains.
Customers demand faster lead times, more innovation, and
better visibility, and want it all at a lower cost. How do you
balance these seemingly conflicting requirements and
maintain profitability?
In this hyper-competitive environment, operational efficiency
dictates financial success, and possibly survival. At the same
time, customers fully expect 3PLs to deliver the Perfect
Order every time - on time, complete, accurate, and
undamaged. It is a classic case of do more, do it faster, and
do it cheaper.
As the competitive environment changes the way 3PLs do business, savvy companies are
embracing structured process improvement initiatives to support cost reductions and
improved customer value. Successful 3PLs are building high performance, nimble
business process infrastructures that can support rapidly expanding customer
requirements, while still maintaining profit margins. Proven approaches and tools that
mobilize the entire organization to affect rapid, positive change clear the way for 3PLs to
capture an unprecedented opportunity to succeed as true value-add supply chain
partners for their customers.
Tough Business Questions for 3PLs
What do Customers
Is it becoming more and more difficult for you to
Expect? meet customer requirements and expectations at a
cost point that is competitive in the market and
profitable for your company?
Why do companies use 3PLs? In its most
basic form, it is simply the desire to have Are your customers asking you to help them meet a
someone else do the non-core work for multitude of more complex supply chain challenges
them. It's all a part of a core with services that are well beyond your current
capabilities?
competency strategy that has
manufacturers concentrating on
Are you being forced to decrease profit margins to
developing and making their products, remain competitive?
and then letting an outside firm direct
exactly how those products will get to Are your customers demanding shorter and shorter
the customer. Rather than employing lead times?
and managing a staff of warehouse,
transportation or distribution workers, Is increased emphasis on regulations and
many manufacturers now prefer to turn requirement stifling your business?
at least a portion of their key logistics
tasks over to a specialist … the 3PL. Is the upfront cost of implementing unproven
technology solutions hurting your business?
© 2008 Six Sigma Qualtec. All rights reserved.

3. Yet, there is an interesting dynamic at Savvy customers are looking to 3PLs for
play in that most potential 3PL breakthrough innovation to cut supply
customers today say that logistics chain costs and improve competitive
represents a strategic, competitive positioning. Are you up to the challenge?
advantage for their company. So it’s
really not a non-core activity, yet they Continuous Improvement
are willing, even anxious, to outsource
the logistics function. What does this as a Competitive Strategy
mean to 3PLs?
These days, customers are looking for a
Companies want strategic 3PL 3PL relationship that involves far more
partners, but buy tactically, focused than a yearly review of performance
on cost against the original contract. They fully
expect their 3PL partners to clearly
The implication for 3PLs is clear: to demonstrate continuously improving
compete, 3PLs must provide ever performance, and they measure
increasing, strategic value to the improved performance by how much it
customer while, at the same time, reduces their overall supply chain costs.
delivering services at an ever-decreasing Survey after survey shows the same
cost. gripe about 3PL providers reacting to
situations rather than anticipating and
identifying opportunities for
improvement. What does this mean for
Questions Savvy Customers ask of 3PLs? It means that an active and
existing and potential 3PL partners robust continuous improvement program
is no longer a nice-to-have, but a
Can you demonstrate expertise and proven necessity to compete effectively.
performance-based results?
More and more companies are
Can you offer clear and mutually agreed viewing a demonstrable continuous
upon key performance metrics?
improvement program as a
requirement for current and
Do you plan for cost-out and continuous
improvement initiatives?
potential 3PL partners.
Do you focus on a true partnership to So, what does an effective Continuous
support our core mission and objectives? Improvement (CI) program look like for
a 3PL? There is no out-of-the-box
answer as any CI program should be
tailored to the business and cultural
needs of the enterprise. The good news
Strategic relationships are based on is that there is a wealth of knowledge
much greater levels of collaboration and and experience out there from which to
are still a rarity in the market. There are pull. Programs like Lean and Six Sigma
some success stories though. Toyota, have been used successfully for many
with deep and long standing 3PL years in traditional manufacturing
partnerships, has been able to achieve environments. More recently, these
this type of collaboration. Hershey, approaches have been successfully
among other companies, has also applied in more services and/or
realized strong benefits from continual transaction oriented environments like
gain sharing programs with 3PL banking, insurance, and healthcare. The
providers. While still an exception and 3PL business model represents fertile
not the rule, the writing is on the wall for ground for a well-defined CI program in
3PLs that want to be successful in that typical logistics processes are
today’s highly competitive, global
market:

4. fraught with waste, variation, and quality – Encourages teams and projects that
problems, all targets for any CI program. cross existing functional borders.
Functional silos tend to have little in
common with value-creating business
The approach should be as simple as processes.
possible and be based on a simple
objective:
Maybe most important of all, the CI
program must be integrated with
To effectively leverage existing customer relationships. Measures of
human capital resources to make performance should be based on key
rapid and sustainable improvements performance indicators (KPIs) you
to business processes, allowing you develop collaboratively with customers.
to be more nimble and responsive to This brings a needed focus and
ever-changing customer agreement on what matters most to you
requirements. and your customer. Mutually-agreed-
upon KPIs make it very clear how you
Some key elements of an effective CI and the client will measure results, and
program for a 3PL include: makes for practical and realistic SLAs.
Finally, there should be some level of
– Recognizes that different operations gain-sharing defined. If, as a true
may be at different levels of maturity strategic partner, the 3PL is doing things
when it comes to process, and is that reduce costs and/or improve
flexible in its ability to accommodate
performance in the customers supply
different levels of process maturity
chain, then the 3PL should be able to
– Delivers rapid, measurable results with financially benefit from those actions.
clear and immediate ROI. Long-term,
strategic projects are important but
near-term results are critical to build
Conclusion
credibility and create momentum.
3PLs are in a unique and challenging
– Leverages a purpose-built problem position in that they operate in a highly-
solving toolkit that is simple, competitive market where companies
accessible, and effective for your want strategic 3PL partners, but buy
business - pulls from proven
tactically, focused mainly on cost. To
approaches like BPM, Lean, and Six
Sigma, but leaves the unnecessary compete, 3PLs must provide ever
complexity behind increasing, strategic value to the
customer while, at the same time,
– Applies relevant and appropriate tools delivering services at an ever-decreasing
based on company and/or functional cost to remain profitable. Customers
readiness. Works for low-tech as well fully expect their 3PL partners to
as high-tech teams demonstrate continuously improving
performance, and they measure
– Draws teams from multiple levels of the
improved performance by how much it
organization to engage larger segments
of the workforce, as opposed to reduces their overall supply chain costs.
building firefighting teams. They expect their 3PL partner to
anticipate and identify opportunities for
– Encourages customer representation on improvement, without being asked. This
project teams. This can be a key all points to the fact that an active and
enabler for engaging important robust continuous improvement program
customers directly is now an absolute requirement if a 3PL
is to thrive in today’s hyper-competitive
– Takes advantage of existing process
business environment. Are you up to the
expertise. The people already doing day
to day work may have the best challenge?
answers, if they are engaged properly
© 2008 Six Sigma Qualtec. All rights reserved.

5. Your Partner for Continuous Improvement
Six Sigma Qualtec is a premier provider of process management and business
improvement consulting, training, and technology solutions that drive growth, productivity
and value for our clients.
We are unique in our ability to customize the integration of management to meet the
industry-specific requirements of global leaders in logistics, financial services, mining and
natural resources, manufacturing, process and service industries.
© 2008 Six Sigma Qualtec. All rights reserved.