By Andy Hunter, Sr. Director of Supply Chain
Effective Labor Management Strategies for 3PLs: Maximizing ROI
For third-party logistics (3PL) companies, managing time and resources efficiently is crucial, especially when dealing with typically short, three-year contracts. Labor costs, often accounting for over 50% of total operating expenses, are significant. It’s crucial for 3PLs to adopt a strategic, cost-effective approach to labor management to ensure profitability in a low-margin industry. 3PLs are essentially a labor-management company – the right tactics and strategies for their people are critical to their success.
Establishing a Robust Pre-Contract Framework
Winning a profitable business begins with precise labor cost modeling. Meeting tight RFP deadlines requires the ability to develop exact solutions and determine labor needs rapidly. Many 3PLs use baseline reasonable expectancies (ex, cases per hour) for labor modeling, but having these rates off just a little has significant implications for the overall budget. A more precise approach mitigates that risk: creating a detailed industry labor standards and productivity database tailored to your network’s specific systems, processes, and building characteristics – built from the bottom up. This database forms the backbone of your overall budgeting model, helping to avoid costly miscalculations that could impact contract viability.
Solidifying Labor Requirements within the Solution
The RFP just hit your inbox, and you have two to three weeks to respond with a formal proposal. Approvals are needed from leadership, and business development needs time to build the customer-facing material. Unfortunately, this leaves you only a few days to develop labor needs that will account for over 50% of the costs of your response. Here, the groundwork you’ve laid with your database becomes invaluable. Modeling specific customer volumes using this pre-established database allows for an accurate labor model, forming a reliable base (including detailed assumptions) for future contracting and implementation efforts.
Streamlining Implementation: Leveraging Pre-existing Data
Upon winning a contract, it’s crucial to leverage your preparatory work. There are many complex deliverables as part of a new implementation – getting the right labor plan and labor management solution does not need to be one of them. By utilizing your pre-established industry standards database, achieving a realistic Labor Management program for day-one operation is straightforward and does not require a heavy engineering resource investment. Integrating these standards into your labor management system while adjusting for site-specific factors like XYZ coordinates allows for efficient setup and ongoing performance variance analysis. Understanding the reason for any variances in performance (scope, profile, etc.) is part of everyday life as a 3PL.
Transitioning from Service Provider to Partner
As the prospect of a second contract term approaches, investing in a more comprehensive Labor Management Program, including engineered labor standards and individual performance incentives, becomes viable. A solid partnership between the 3PL and the customer is built on a foundation of executing the basics and investing in the future together – through operational improvements, innovation, and automation. Getting a cost-effective Labor Management program live early is a soundproof way to a long-term successful partnership.
To learn more about Connors Group’s 3PL Practice and explore opportunities to enhance new or existing 3PL environments, visit Connors Group 3PL Solutions or call (800) 813-7028. Follow Connors Group on LinkedIn.
About Connors Group
Connors Group is a leading provider of productivity and operational improvement solutions, helping clients improve their efficiency through its continuous improvement, performance management, and WFM system implementation services. The firm builds upon and honors the legacy of H. B. Maynard’s success in Industrial Engineering and Lean business practices to deliver on-time and on-budget world-class solutions that drive sales and profitability.