So, let me ask you, what do you think the number one mistake is that people make
when they're outsourcing logistics operations? I mean the outsourcing
logistics has been around for a very long time, and over 85% of companies
outsource, some part of their logistics operations and there's a lot of benefits
for it. So that trend is certainly continuing, but there's a number of
mistakes that people make and I'll put a link either above or below this video to
some more tips for logistics outsourcing, but right now, I just want to talk about
the number one mistake that people make and I've been lucky enough over the last
20 years or so to help hundreds of companies through this process, selecting
3PLs, evaluating them, transitioning into 3PL
relationships, and still, I see this mistake coming out. Now it's probably not
that obvious? It's data. So just think about it for a moment. If you are
actually asking a number of third party logistics companies to bid for, let's say
doing your warehousing, if you don't provide enough data, it's a little bit
like going to an architect and say "Hey, I'm married, I've got three kids, build me
a house," and what are you going to come back with? They really don't know what
you want and so they're going to be factoring in things that perhaps are
unnecessary, maybe there's going to be things in there with, you know, additional
costs because they're really not sure exactly what the client wants, and it's
exactly the same with outsourcing, whether it be transport or warehousing,
or any other part of your logistics or supply chain operation. Data is essential, really
accurate data. So from the client perspective, let me give you an example
of how much data is required. First of all, I'd be giving a complete master file
of products. So imagine you know however many hundreds or thousands that
you've got, all of the product codes and descriptions, the pack sizes, do they
come in tens and twelves, all that kind of thing, the weights and dimensions are
really important, because if you're going to put together a warehousing solution,
you need to know how big these things are, so how will they fit into the
picking slots? How much storage space do you need?
You need then order data so, you know,
maybe a month's worth 12 months' worth.
I've certainly worked with clients who have had hundreds of thousands of order
lines to, you know, to analyse the throughput of the products, and why is
that important? Because one of the biggest costs in warehousing is labor,
and if you don't know how many times those products are being picked for an
order, you know, how many go on an order line so imagine the the data file. You
know you've got order one, two, three, and then you've got three different products,
and there's two of these, and four of those, and six of those. You need that
level of information to work out how many staff or what type of technology
you're going to use to actually pick the products. So if you're picking a 60 picks
an hour or 100 picks an hour, hopefully you can start to see how important that
information is. So if you can provide that kind of level of data, the 3PL has
got a really good chance of coming up with a solution, and the resources, and
the costs that are right for their operation. you see know what happens if
they don't have that data? They start to make assumptions. The really good 3PLs
will ask questions, lots of questions, but sometimes that's difficult, because the
client has said "Oh every time somebody asks a question, we'll share the answer."
You know, and the 3PLs can get a bit reluctant, like maybe the others
haven't asked, but you know the really good ones will ask, because they know
that they need that level of information. So if they don't have it, if maybe
they're not a very experienced or mature 3PL, they're going to start guessing, and
when they start to guess, what happens is they'll put in extra resources, extra
assets, and that means extra cost. So the whole contract gets, you know, padded out
with contingency, and that's why you've got to have really good data. The other
reason to have good data is that the third party logistics company needs to
really understand the operation, warts and all, so, you know, if you've got 2%
returns or 5% returns, you know you've got to share that as well, because
otherwise what happens? Six months down the track, you know you've implemented
the contract, it's all going well, and then these returns start to happen, and
if that wasn't declared early on, the 3PL company is going to be saying,
"Hey, we didn't know about this, this is extra tasks, we need extra resources," and
so the costs go up. So it's all about visibility
of data right down into, you know, lots and lots of detail. Now hey, the 3PLs are
not totally blameless in this either. As a third party logistics company, if
you're not getting, you know, the level of data granularity that you need, you've
got to be asking. Also what can happen is that you get a lack of visibility and
granularity from the 3PL side. From their, you know, from their tender document from
their response to the request for quotation, whatever you want to call it,
and the biggest thing that the clients want to see is visibility of resources,
and costs, and productivity, because they want to have confidence in the 3PL. That
it's been, the solution's being put together really well, and it's
appropriate, and there's the right number of resources, and there's the right
assumptions around productivity, because if they don't have the visibility of
that, they start to doubt the solution, and saying, you know, is a million
dollars or 10 million dollars or 20 million dollars the right cost for this
contract, because we can't see all of the resources that are going into this
contract, and we can't, you know, work back through the assumptions and work out if
the costs are right, so data visibility from both sides of the coin, but
particularly from the clients, is probably the number one mistake that I
see in logistics outsourcing, and if you don't get that right, people are guessing,
and things are going to get off to a pretty bad footing commercially, so
that's the number one tip, if you have a look on the link I'll make sure that
there's some more tips in there. If you're seeing this on our blog, I'll put
a whole bunch of tips down below, all about outsourcing. So just remember to
share lots and lots of data, accurate data, so that people can put solutions
together in the right way, with the right resources, and at the right cost.