The next phase in the evolution of long-term 3PL partnerships is to have logistics providers so deeply embedded in their customer's business that the two companies truly work as one entity, according to three experts who discussed this evolution during the recent Warehousing Education and Research Council conference in Orlando.

Joining in a roundtable discussion with SupplyChainBrain were Mike Marlowe, vice president of customer operations and innovation at Kane Is Able, a 3PL based in Scranton, Pa.; Bill Lindeke, manager of distribution operations at Kimberly-Clark, a leading manufacturer of consumer packaged goods based in Irving, Texas; and Kate Vitasek, a faculty member at the University of Tennessee's Center for Executive Education in Knoxville.

The concept of embedded 3PLs is the latest development in a continuum that has seen 3PL partnerships deepen over the years, these panelists agree.

"Historically, 3PL engagements have been very tactical, but as CPG companies have progressed and focused more on their core competencies, the skill sets required of 3PL partners also have changed," says Marlowe. "The embedded concept has grown out of the need for a more skilled and professional logistics environment."

Lindeke agrees, noting that Kimberly-Clark is working to develop this type of relationship with Kane Is Able and its other 3PL partners. "We have tried over the last several years to stick to our knitting and focus on what we are good at. Letting folks like Kane run our warehouses allows us do that," Lindeke says. Kane runs Kimberly-Clark's warehouses "from A to Z," he adds, with Kimberly-Clark having no more than one person on site to act as a junction point between the companies. "Overall, we don't have nearly as many people involved in the daily management of moving goods as we did 10 years ago due to the expertise of our partners," he says.

Embedded relationships are marked by significant investments in facilities and technology by 3PLs, by more transparency and sharing of information, and by mutual commitments to each partner's success, these experts say.

"As partnering companies become more comfortable sharing information that they have not shared in the past and engaging in vested arrangements, their actions begin to feed on themselves and, in time, they create a relationship where the two companies work as a single unit, with each being invested in the other's success," says Vitasek.

Lindeke agrees. "As long as the relationship is mutually beneficial to both parties, then both will continue to work at it and develop more value," he says.

Production planning is one area where Kimberly-Clark is working to benefit both sides of its partnerships. "We are doing a pilot in which we have improved some production planning tools to enable us to give our 3PL partners a longer view into our co-packing and production scheduling process," says Lindeke. The goal is to push a six- to eight-week planning horizon out as far as 12 to 15 months, he says. "That would allow our 3PLs to do more strategic planning. With a time horizon of that length, they would better know when they might need to purchase equipment or move equipment to a different site or hire more people. This is not the end of the story but it is a good first step."

Marlowe says his vision as an embedded 3PL is to become involved further upstream in the supply chain, engaging in areas like design or marketing, not to influence the product but to know what a final display or product will look like and what it will require in terms of supply chain execution. "We want to do everything we can to become an indispensable partner and to continue to add value," he says. "That means getting out of the tactical day-in and day-out rhythm that typically has marked 3PL engagements and becoming a part of the strategic team."

Kimberly-Clark already hosts an annual forum where it discusses strategic topics and long-term objectives with its 3PL partners, Lindeke says. "While it is very important that we remain in lock-step tactically, we are taking it to the next level to share information about what we are planning on the horizon."

Measurements of success for embedded partnerships include all the traditional metrics, such as margins and costs, but there also are soft benefits, such as end-customer satisfaction, says Lindeke.

"Kane and our other 3PL partners are our face to the customer. Customer satisfaction and treating customers very well is particularly important for CPG companies and is a key barometer of our success. In our relationship with Kane, we have had no customer issues. In fact, when customers come through our warehouses that are run by Kane or our other 3PL partners, they have no idea the facility is not being run by Kimberly-Clark. We are all marching to the same drum beat."

Because outcomes like customer satisfaction are both critical and hard to measure, building them into a business relationship requires a significant amount of trust, says Marlowe. "You have to build trust with your partner before you head down that path because there is not an absolute measurement involved."

Pay for performance is another aspect of embedded partnerships. Kimberly-Clark has reached a point with Kane and other of its partners where it is using performance bonuses in some areas, Lindeke says. "As our relationships evolve, we are getting more and more into situations where we have objectives over and above contractual items. If performance exceeds objectives, extra money is involved. Ideally, we would like to see that expand and to have situations where there is more money at risk on both sides and we rely more on win/win situations and less on fixed costs."

As a provider, Marlowe supports this approach. "We want to be paid for value rather than transactions," he says.

Since it has started this initiative, Kimberly-Clark has met its monetary and soft goals, says Lindeke. "As we look out over the next five to 10 years, the challenge will be to continue to improve on those results and to further incorporate the partnerships we have with our 3PLs to our joint benefit. We need to continuously improve our metrics and costs."

"This is a journey," says Marlowe. "Preliminary results indicate that the concept is successful, but we are interested in the long-term and what lies around the corner in terms of these relationships still is unknown. But we are pleased with the trust and commitment that we have developed and are hopeful that we will continue to see good results."

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