Logistics Encounters of the Third Party Kind

BUSINESS

The range of services being offered by today’s 3rd Party Logistics Providers (3PLs) are increasingly extensive as the highly competitive market drives development and innovation. 3PL contracts now regularly expand beyond the traditional warehouse and distribution activities, and have evolved to incorporate customer call centres, procurement, assembly operations and even production. However, the overall benefits of the 3PL service offering have remained the same; they provide the expertise, specialist resources, and asset investment that will enable you to focus efforts, and capital, on the core business.

The increasing number of 3PLs in the market, the range of services offered, and the ever-increasing pressure for businesses to reduce costs, is facilitating significant growth in the contracting of 3PL services. As this growth continues, it is ever more important for potential clients to properly consider how 3PL services are engaged, and what the 3PL will deliver. To select the best 3PL for your business, and maintain a mutually beneficial relationship, truck shipping companies you need to ensure that the appropriate service is selected in the first place. There are many cases where relationships have broken down between the 3PL and client, due to expectations of either one or both parties not being managed from the outset. The erosion of the relationship can start as early as the initial meetings, where the service requirements are first established.

For example in February 2010 a High Court judgement ruled against the service provider in the case of BSkyB Ltd v. HP Enterprise Services Ltd. Whilst this case relates to an IT project (not a 3PL contract) there are aspects of the case which need to be borne in mind by those involved in any aspect of pre-contractual discussions for service provision. In its judgement, the court was particularly critical of the way in which the supplier’s proposal had estimated resource required to undertake the project; specifically, the approach of giving a deliverable which the customer was seeking (as opposed to properly determining the extent of effort required).

The court’s decision confirmed that it is not possible to exclude, or limit liability, for a fraudulent misrepresentation made during the sales process; and that no subsequent contract clause could be engaged to prevent a claim for that misrepresentation. Whilst not new law, this judgement has reinforced the importance, for service providers, to act within the confines of what they are able to deliver. It also underlines the need for those service providers to undertake appropriate due-diligence, ensuring that the service they are offering is not only deliverable, but is fully consistent with their client’s requirements.

Sometimes, ‘misrepresentation’ from a service provider can be a reflection of the client not fully assessing their exact requirements and therefore the services they need. To mitigate this risk, you need to both fully analyse your businesses requirements, and ascertain how you will integrate with the service provider. Both of these things need to be completed well in advance of initial discussions with a 3PL.

Where logistics services are being procured, clients should be prepared to undertake an internal supply chain review, developing a full understanding of their logistics and service level requirements, and identify all potential benefits within a well-structured business case. This business case will provide the prospective 3PLs with an appropriate requirement specification; in turn, this specification will assist the 3PLs to design a solution that meets the client’s actual needs.

 

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