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Third-Party Logistics: Governance and Collaboration in the 3PL-Shipper Relationship

In the wake of the Great Recession and the still lethargic economic recovery, the importance of sound governance practices across the supply chain is more crucial than ever in building and maintaining effective, collaborative 3PL-shipper relationships. Positive news in the authoritative 18th Annual 2014 Third-Party Logistics Study: collaboration between shippers & 3PLs is up. The majority surveyed say their relationships have grown more collaborative over the past three years, "with shippers even more likely than 3PLs to say they are much more collaborative." – Kate Vitasek, faculty, University of Tennessee’s Center for Executive Education and Founder, Supply Chain Visions

Third-Party Logistics: Governance and Collaboration in the 3PL-Shipper Relationship

Collaboration is the best—and some might contend only—option in today’s difficult global economic climate. Economic growth is tepid, freight volumes are inconsistent and the emphasis on cost and risk containment continues unabated. Many shippers are concentrating their outsourcing spend on a few strategic suppliers, as indicated in the recent Dell/GENCO and Mondelez supplier arrangements. There are also signs of a shift in shipper-3PL interactions—embodying a new set of attitudes and expectations. Shippers and 3PLs closely agree that the ability to provide continuous improvement is crucial when it comes to partnering with a 3PL, along with such factors as solid experience/expertise in the shipper’s specific industry and established ongoing relationship with the shipper.

That’s why governance structures matter; a good governance framework is critical. Research conducted by the  University of Tennessee shows that some of the best outsourcing relationships create a kind of symbiotic, synergistic relationship—in which the parties are committed to each other’s success. This research developed Five Key Rules, or tenets, of Vested. Rule No. 5 underscores the necessity of creating a governance structure based on insight, not merely oversight and bean-counting. 

In the Vested business model, a sound governance structure is essential. It provides the shipper and the 3PL with a blueprint for consistent, flexible and transparent management both for the day-to-day and for continuous improvements, along with jointly established policies, processes and decision rights that enable them to work together with solid insight.

A Vested governance framework includes four elements: 

A Relationship Management Structure – It formulates and supports joint policies that emphasize the importance of building collaborative working relationships, attitudes and behaviors. The structure is flexible and provides top-to-bottom insights re: status of the parties’ desired outcomes and the relationship between the parties.

• Transformation Management – Change is always on the horizon and governance provides a flexible framework that supports transitions as well as improvement of end-to-end business processes. The focus is on mutual accountability and the creation of an ecosystem that rewards innovation and a culture of continuous improvement.    

• Exit Management – The future is unknown. Even the best plans fail. Events change the business environment. An exit management strategy provides procedures to handle these unknowns.

• Special Concerns/External Regulations – Shipper/3PL relationships often involve complex, global supply chains; governance frameworks should accommodate unique factors, special requirements and regulatory protocols. A governance framework may need to include additional provisions that address specific market, local, regional and national requirements: in supplier and supply chain relationships involving information technology and intellectual property, security concerns may require special governance provisions outside the normal manufacturer-supplier relationship.

When done correctly, the governance framework enables the parties to manage performance and achieve transformational results throughout the life of the agreement.

                                                  The Outlook

While the global economic outlook remains stubbornly uncertain, sound governance structures can guide the shipper-3PL relationship to lucrative levels of collaboration, efficiency and continuous improvement. 

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