Over the last few years, businesses have seen their costs increase – energy costs, labour costs, freight costs. In your own operations you would take measures to control these costs, but if you have outsourced to a 3PL, what can you do?
Many 3PL contracts will have provisions tying cost increases to general labour rate increases or a published cost index. The impact of this cost index – negotiated at the time of contract award – frequently appears as a start of year or contract anniversary notification.
Changes to social provisions, healthcare, sick pay, rights of temporary workers and pension entitlements have all contributed to higher labour rate inflation in recent years.
What we have seen work well in contracts is an acknowledgement that costs will increase with inflation, but a joint commitment to find projects and efficiencies to offset these cost increases. This needs to be put in place at the start of the contract and needs continued effort by both parties, regardless of the cost environment.
There are other options, however, that may be more in your control:
- How much are you paying to store inventory that’s slow-moving or obsolete?
- Is your product range too large – driving high storage requirements for decreasing levels of revenue?
- Are you solving supplier problems inside your 3PL warehouse – relabelling, sorting, quality checks – that should be fixed further upstream?
- Do you have a clear returns disposition policy, or are items sitting and accruing storage cost while decisions get made?
- Are your service level requirements causing your 3PL to overstaff, and is there room to streamline bespoke packing requirements?
- Can automation and AI streamline some of the administrative and reporting requirements to service your account?
- What freight service levels are you using? Are there other options that would meet customer requirements at a lower cost?
There are always possibilities to work with your 3PL partner to reduce charges, but if you understand the activity drivers behind them, many of them are in your control.
Is it time to look in the mirror before blaming your 3PL for escalating costs?
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