3PL Economics and Partnership

Considerations

ASCM Grand Rapids

Monthly Professional Development Meeting
May 12, 2022
 Blair Y. Thomas
Vice President, Client Services
Columbian Logistics Network
bthomas@columbian.us
616-994-3433
LinkedIn
 Agenda

• 3PL Economics
• Handling Costs
• Space Costs
– Sq Ft Calculations
• Accessorial Costs
• Relationship Considerations
• Outsourcing Resources
• Outsourcing Headwinds

3
 Economic Drivers for 3PLs

Expense Makeup

1% Revenue Makeup
Building Expense
7% Warehouse Labor
G&A Labor Expense
35% Warehouse Operating
Expense
32% Interest/Bad Debt 3%

Storage
25% Handling
47% Accessorial

50%

• Handling Per Unit
– Billed at time of receipt
– Covers receipt, putaway, and
full-pallet shipping
– Invoiced automatically by
WMS
– Does NOT include breakdown
or restacking
• Those fall under Accessorial
Charges (Slide 10)
Handling Costs
• Handling Per Hour
– Billed at end of week
– Covers ALL direct
handling activity
– Invoiced manually in
WMS
– Often invoked for ad hoc
or unknown business
processes
5
 Storage Charge Types

Receipt & Renewal

• Billed by the Pallet

Storage by Space
• Billed by the Sq Ft
6

• Split Month Storage
– Charge is per pallet/unit
– Covers the month in which
the pallet is received
– Billed at the time of receipt
– Billed at 50% discount after
the 15th of the month (“Split
Month”)
– Bill generated by WMS
automatically
Receipt Storage
• Anniversary Storage
– Charge is per pallet/unit
– Covers the anniversary period
in which the pallet is received
– Anniversary period is typically
a number of days or weeks
– Full charge at time of receipt
– Bill generated automatically
by WMS
7

• Split Month Storage
– Bills on 1st of month for
what is in-house
– Covers the future month
– Bills full month charge
(just like an apartment
landlord)
– Bills automatically in
WMS
Renewal Storage
• Anniversary Storage
– Bills on receipt AND 1st
day subsequent
anniversary period(s)
– Covers the future period
– Bills full anniversary
period charge
– Bills automatically in
WMS
8
 Storage by Space

• Storage Per Square Foot (Fixed)

– Billed at BEGINNING of the month
– Covers contracted gross square feet only
– Invoiced manually in WMS
• Storage Per Square Foot (Flex)
– Billed at END of the month based on space used at “high
point” of the month
– Covers gross square feet above the contracted space
– Invoiced manually in WMS

9
 Gross Square Feet

• Gross Square Feet is the actual storage space used,

PLUS allocated common or unusable space such as:
– Aisles
– Dock Areas
– 18” Perimeter
– Support Beams throughout warehouse
– Workable Empty Space
– Breakrooms, Office, Bathrooms
– Forklift Parking/Charging Area

10
 Accessorial Costs

• Accessorial Revenue is charged to customers for

services or products incurred outside the scope of the
contracted rates
• Accessorial charges are typically tied to 3 types of
expenses:
– Warehouse Labor
– Clerical Labor
– Warehouse Expenses

11
 3PL Relationships

• Agreement Type & Term

– Public vs Contract
• Pricing Options and Structure
– Space Rate vs. Unit Storage Rate
– Hourly Rate vs Activity Rate
– Accessorial Costs
• Organizational Integration
– How deeply into your business are you willing to let your 3PL
partner climb?
 Strategic Advantage

• 3PLs can be leveraged for strategic advantage

through:
– Delayed Differentiation
– Expertise
– Speed to Market
– Capacity & Scale
– VAS Offerings
– Financial Considerations
 3PL Selection Criteria

Hard Factors Soft Factors

• Pricing • Culture
• Contract Term • Project
• Technology Management/Startup
• Service Profile Capabilities
• Profit/Gainsharing • Continuous Improvement
• Expertise
• TRUST!
 Cultural Differences

Cultural Differences in Purchasing Goods vs Services

Goods/Inputs Services
Governed By PO Contract
Pricing By Unit Task
Key Factors Properties Processes
Frequency of Use As Needed/Business Case E.D.D!
Defined By Market Specs Performance Metrics
KPI’s $/Unit, Fill Rate OTD, Perfect Order
Leverage Points Qty purchased, Frequency, Margin
Terms, Material Quality
 Outsourcing Resources

• Industry Associations:
– International Warehouse Logistics Association (IWLA)
– Retail Industry Logistics Association (RILA)
– Association for Contract Packagers & Manufacturers
(CPA)
– Food Shippers of America
• Trade Press
– Inbound Logistics Magazine
– Food Logistics Magazine
– Multiple Vertical-specific Publications
 Outsourcing Headwinds

Headwinds that Entrepreneurs Face with 3PLs

- Account Minimums
- Storage
- Handling
- Assessorial Costs
- Account Prioritization
- Specific Skill Sets
- Industry Knowledge
- Technology Gaps Between Shipper and Service
Provider
 Outsourcing Logistics

• Key Questions to Ask:

– What’s important to you?
– What’s important to the vendor?
– Do you get value as you grow? What if you shrink?
– Do they ring the cash register accordingly?
– Are you being honest with yourself?
– Do I want to work with them?
• Logistics is to a business as the hand is to a
body…
 Outsourcing Logistics

• Do you want this?

 Outsourcing Logistics

• Or this?