<img height="1" width="1" style="display:none;" alt="" src="https://dc.ads.linkedin.com/collect/?pid=393225&amp;fmt=gif">
Port_of_LA_Pier 300_400 Container Terminals

West Coast and California Logistics Blog

Logistics Costs: The Boomerang Effect of Price-Based 3PL Selection

Thu, Jan 16, 2014 @ 12:20 PM / by Weber Logistics

Let’s face it, competitive transportation and warehouse rates are critical to earning new 3PL business.  Providers need to be ready to look for any and all efficiencies when pricing a deal, because that’s what shippers expect in their efforts to manage logistics costs.  

price based 3pl solution


But, for some shippers, price is the dominant selection criteria, trumping all else.  Users of 3PL services need to recognize that there is a downside to a “lowest price” selection strategy that could more than offset whatever value is created in the price negotiation phase.  Let’s call it the “boomerang effect” of price-based 3PL selection.

For quality-conscious 3PLs, a lowest-price strategy is impossible to sustain.  The investments required – in people, systems, training, and process engineering – preclude such a strategy.  When the absence of profit prevents the organization from investing in the business, gaps are created that impact service.
Quality Gap
Doing more with less can lead to inaccurate orders, missed deadlines, poor-quality packaging.  These, in turn, may lead to retailer chargeback penalties, rework projects, lost sales orders from disgruntled customers, and other profit-draining impacts – all detrimental to keeping logistics costs low.

Technology Gap
Logistics management systems are critical to driving accuracy and efficiency, from strategic initiatives like network optimization to day-to-day tactical strategies, such as intelligent slotting and route optimization.  When the right technology is not available to support such strategies, money is left on the table and logistics costs rise.
Innovation Gap
Innovation is fueled, in part, by engineers and quality professionals who regularly audit processes to identify waste and new and better ways to operate.  A lowest price strategy may not allow for staff investments beyond those required for direct operations.  But the costs for such staff investments typically dwarf the value they create through innovation and continuous improvement. 

We can all agree that PRICE MATTERS in 3PL selection, but what matters most is getting to the LOWEST LOGISTICS COST for the shipper.  A price-based 3PL selection process can actually undermine cost reduction efforts.  We need to avoid the tendency to commoditize logistics services.  Instead, we need to work together to make the Purchasing department partners in a process designed to drive maximum value for the organization.  

Contact  Weber Logistics

Topics: 3PL, Transportation Strategies, Warehouse operations

Written by Weber Logistics

Subscribe to Instant Updates

Recent Posts

Posts by Topic

see all