The 4PL Relationship
Logistics Industry November 3, 2010
Moving Your Customer to Another Logistics Provider
Typically, a 4pl (4th Party Logistics) relationship has your customer wanting to open a distribution center in a city where you as the 3rd party logistics provider do not have a facility and you as their relationship manager want to control the communication. If you pick the right partner a 4pl can be a new source of revenue for your company with very little labor, time and resources invested; picking the wrong one can ultimately, damage a relationship with your client. These relationships can be tricky for a number of reasons and hopefully this will help in recognizing what to ask and how to manage this partnership.
Non-disclosure agreement (NDA): This is a necessity to both protect both you and your customer. A good partner would never go after your clients, but the challenge is that we all know that relationships can sour and if you didn't pick the right 4pl you can leave your business vulnerable. You may have a better relationship with your customer but your 4pl has both the location they need and if you are marking up the cost, a better price. Suggestions would be to include a mutually agreed upon time frame that the 4pl cannot discuss business with your client; this will most likely be countered by a billing minimum over that time period to make it beneficial to both parties.
Contract/Agreement: Much like any 3pl relationship you should enter into a binding agreement with the logistics company you are planning on joining. This contract should be between the 3pl and the 4pl with limited reference to the actual customer. This agreement then should be mirrored between you and your customer with any markups included. Deviations, from the wording on the original agreement can create problems down the road when issues need to be resolved or there is a large change in the storage and movement of the inventory. If you simple change the wording from the 4pl to you and the 3pl to the customer you can make sure that all three parties are on the same page. It is also worthwhile to go over the wording on the agreement as liabilities and responsibilities can change across different jurisdictions and especially countries. A side note is to make sure to let the client know about the changes in taxes as this is often overlooked.
Understanding the Needs: If you've signed a NDA, then this shouldn't be a problem. Your 4pl is going to ask you a lot of questions about the stock, how it's stored, how many times it turns, what the orders look like etc. You will most likely have to go back to your customer a number of times to get the answers, but any decent 3pl will know that this is a given to starting a solid distribution relationship. Never guess here, your company is entering into the relationship and agreement with the 4pl and you are committing to a certain type and volume of business. Going back and forth can be tiring but it will make sure that everyone understands the business.
Billing and Pricing: The most dreaded and complicated part of the 3pl/4pl relationship can be quite simple. Our suggestion, mark up the costs provided from the 4pl to your customer. Each logistics company does billing and pricing their own way, try to understand their billing rather than asking them to change their model to reflect yours. Also if you try and bill the client on different parameters then your agreement with the 4pl you can miss some costs that can burn you in the long run.
References: When your customer joined you they most likely asked for references, hopefully, they are one for you now. Don't be afraid to ask the 4pl for the same, if the NDA is in place then they should have no problem in getting someone to sing their praises. Excuses at this point can be a large red flag.
Hopefully this helps in getting started with the 4pl relationship, if this sparks some further questions or conversations please let us at McKenna know how we can help.