Executive Briefings

The Value of Good Governance in 3PL Relationships

When contracting for 3PL services, most companies focus on the statement of work and give little attention to issues of governance. These priorities need to be reversed, says Kate Vitasek, a faculty member at the University of Tennessee's Center for Executive Excellence.

The importance of governance issues was highlighted in a recent white paper from the center that identifies best practices among highly successful 3PL partnerships.

"Most 3PL contracts follow the golden rule: those who have the gold, rule," says Vitasek. "This usually results in a company outsourcing a logistics service, because it is not a core competency, and then trying to micro-manage the supplier. We wanted to write a white paper to show how some of the best companies handle this issue of governance."

To point out the difference between good and bad governance in 3PL partnerships, Vitasek uses the analogy of insight vs. oversight. "Oversight is about preventing someone from doing something wrong," she says. "Insight is about going to the next level with your supplier and working side by side to solve business problems. You see yourself working with your supplier rather than as having your supplier work for you," she says.

A company wants to control or have oversight over its supplier when there is a lack of trust, she says. "At the beginning of a relationship, the 3PL has to deliver to establish a level of trust; then the buying company needs to release some of that control and move to the insight model. Many are unable to make that shift."

Best practices at leading companies can provide guidance on how to achieve this next step, says Vitasek. Three key practices identified in the University of Tennessee study are:

* Have a tiered management structure, with governance at the day-to-day tactical level, at the management level and at the executive level. Too often good ideas get stuck at the lower level because people don't have the authority to make changes, so there needs to be a structure to ensure that these ideas get vetted, approved and implemented.

* Align the organization so that there is a lot of peer-to-peer communications.

* Develop a cadence or rhythm to the business, supported with regular meetings and planning sessions.

To view video in its entirety, click here

When contracting for 3PL services, most companies focus on the statement of work and give little attention to issues of governance. These priorities need to be reversed, says Kate Vitasek, a faculty member at the University of Tennessee's Center for Executive Excellence.

The importance of governance issues was highlighted in a recent white paper from the center that identifies best practices among highly successful 3PL partnerships.

"Most 3PL contracts follow the golden rule: those who have the gold, rule," says Vitasek. "This usually results in a company outsourcing a logistics service, because it is not a core competency, and then trying to micro-manage the supplier. We wanted to write a white paper to show how some of the best companies handle this issue of governance."

To point out the difference between good and bad governance in 3PL partnerships, Vitasek uses the analogy of insight vs. oversight. "Oversight is about preventing someone from doing something wrong," she says. "Insight is about going to the next level with your supplier and working side by side to solve business problems. You see yourself working with your supplier rather than as having your supplier work for you," she says.

A company wants to control or have oversight over its supplier when there is a lack of trust, she says. "At the beginning of a relationship, the 3PL has to deliver to establish a level of trust; then the buying company needs to release some of that control and move to the insight model. Many are unable to make that shift."

Best practices at leading companies can provide guidance on how to achieve this next step, says Vitasek. Three key practices identified in the University of Tennessee study are:

* Have a tiered management structure, with governance at the day-to-day tactical level, at the management level and at the executive level. Too often good ideas get stuck at the lower level because people don't have the authority to make changes, so there needs to be a structure to ensure that these ideas get vetted, approved and implemented.

* Align the organization so that there is a lot of peer-to-peer communications.

* Develop a cadence or rhythm to the business, supported with regular meetings and planning sessions.

To view video in its entirety, click here