The use of 3PLs by manufacturers, distributors, and MROs are noticeably on the rise. This article will examine the phenomenon.
First, what is a 3PL?
As the illustration below demonstrates, a 3PL (3
Party Logistics) performs logistics processes on behalf of manufacturers and distributors. In other words, your material is being inventoried by a company who specializes in warehousing.
Why use 3PLs?
Everyone is looking for ways to trim and simplify operations, reduce overhead, and save on costs. For all these reasons 3PLs are on the rise. Typical reasons include:
Warehousing is not your core competency, why not outsource this task? You expect to be entering into an agreement in which you will acquire or be consigned a large inventory which exceeds your current storage capacity; you’re not sure if the storage capacity requirement will be permanent, so you don’t want to invest in long term brick and mortar You need to downsize and have less employees. A proposed business relationship requires that you place inventory in a geographic location far away from your existing place of operations.
Did you know 3PLs can be Accredited to the ASA-100?
There’s a little-known nook in the ASA website which lists the current 3PLs which are accredited to the ASA-100. Here’s the link:
Some Accredited Distributors are already performing 3PL operations, but are not holding themselves out as such
Are you Accredited but have empty warehouse space, and consider yourselves experienced with expertise for logistics and warehousing? Why not make that space more productive! Consider diversifying your services portfolio and holding yourself out as a 3PL.
If you are already ASA-100 accredited and entering this growth area, consider asking the ASA to post your firm among the separate list of 3PLs.
Operational, Quality, and Contractual considerations between the 3PL and inventory owners
No two 3PL arrangements I’ve seen are exactly alike. There are peculiarities in every situation. The following should be considered for operational, quality, and inclusion in subsequent contracts or agreements between the parties:
If AOG service is part of your operations, will the 3PL have personnel availability? The Roster. This is interesting and will vary. Does your Roster include those who are authorized to perform functions such as receiving and shipping inspections? It may be that you keep your own inhouse Roster and create a separate one for the 3PL. Or, if the 3PL is already ASA-100 accredited perhaps you rely on theirs. The Roster topic suggests two other subjects: training, and documentation such as your Material Certs. Training: The ASA-100 requires training for Unapproved Parts and Counterfeit Parts. “Personnel involved in procurement, receiving inspection, shipping inspection and material control shall be trained in these topics” Does your 3PL already have this or will you assure it is imparted and documented? Will they be handling ESD parts? Are they trained and equipped? Will they be handling Hazmat/DG? Are they trained? Certs: Material Certifications or ASA Statement Forms or ATA Spec 106s or equivalent: Will the 3PL or you be issuing these? If the 3PL does it, will you authorize them on your Roster or theirs?
Scrapping: Who will perform this when needed, and how will it be documented? Shelf Life? How will this be tracked? Records: The distributor is responsible for records. Is the 3PL creating any documents considered records? How will you bring these into your records storage system? Many of you use a Receiving Discrepancy Log as a means to have a Quality History for your approved suppliers (ASA-100 5.C.). If so, how will this be implemented with a 3PL arrangement? Make sure your 3PL is on your Approved Suppliers List or equivalent. Packaging details: Will the 3PL use your shipping labels on the outside of the boxes/containers? Pictures: Many of you take pictures of the products to be shipped for insurance purposes and protection against allegations of damaged goods. Will the 3PL do this for you? Defense/Government. Some of you engage in DoD/Government work. ITAR guidelines have strict requirements regarding inventory storage and security. Is your 3PL able to address these? Also, many military and defense contracts require packaging which is strictly compliant to the MIL-STD-2073. If so, how will that be handled? ERP integration: This will vary considerably if at all. For example, will they have access to, and be able to make entries into your ERP system such as Pentagon, Quantum, or Avsight? If yes, this will increase your own productivity, but is also likely to increase your costs.
Will your inventory be covered by the 3PL’s insurance? Are you empowering a possible competitor? Careful. While interviewing people for this article, a person advised that if you use another distributor, they’ll have access to who your customers are, and the parts being sold. Protect yourself with a clause in your agreement similar to a non-compete; talk to your lawyer for the proper language. Of course, if the 3PL is a firm that does this and nothing else (they are not an existing distributor), this scenario is less unlikely. Self-Audit: Your self-audit should include the operations of the 3PL. Even if the 3PL is ASA-100 accredited (meaning they’re required to have their own self-audit program), their self-audit sampling may not include your inventory, or the scope of the contracted responsibilities between you and the 3PL. Records: Unless the 3PL is making direct entries into your ERP system, there’s the possibility that files originating from the 3PL which are records (for example, pictures, scanned documents, etc.), are being emailed to you. If so , make positively sure that those files are moved from your email server to your applicable record files. Your Quality Manual: A favorite word I often use is ‘transparency’. For your manual, plainly state what it is you’re doing with the 3PL, particularly if the 3PL is fulfilling any portion of the ASA-100 Quality System you would otherwise perform yourself if not for the 3PL.
Over ‘n out
Roy ‘Royboy’ Resto