While there are many factors to consider when choosing a 3PL service provider, cost and customer service are two of the most critical factors.
Finding the right balance is the ultimate chicken and egg situation for all logistics managers. If they can crack this, they can get a step closer to creating a better and more effective supply chain.
Why The Conundrum?
On the one hand, organizations have a set budget to spend with a 3PL partner on transportation, warehousing, and related activities. On the other hand, the logistics partner is not only accountable to provide precise, efficient, and affordable logistical services to the organization but is often the face of the company for the end customers – regardless of the organization operating in the B2B or in the B2C space.
For both sectors, the 3PL is the first point of contact with the customer and more often than not, it has multiple contact points in the end-to-end supply chain.
This is why, for logistics managers, choosing a 3PL partner is the crux of their job.
This is why, for logistics managers, choosing a 3PL partner is the crux of their job. The right decision may make the difference between success and failure. The wrong choice wrecks havoc not only in the logistics department but company-wide. When negotiating a contract with a 3PL starts logistics manager should:
- Conduct a thorough cost-benefit analysis of the proposal sent by the 3PL
- Understand and calculate an estimate of the lost opportunity cost of choosing a low priced service at the expense of efficient customer service.
- Find out if the lost opportunity cost would be less or more than than the cost of hiring a 3PL which provides a premium customer service
- Understand the management’s position on overshooting the logistics budget
They should also ask the following questions:
- Can the organization accommodate an increase in logistics cost?
- How will it impact the bottom line if the costs were to be absorbed by the organization?
- Is there a scope to increase the product price? How will it affect sales?
Now that we know why the decision is critical and why it poses a challenge, it’s also important to know why both of these factors are individually critical.
Why Is Cost Important?
The cost of hiring a 3PL forms a part of the complete product cost and thus impacts the pricing. While a slight increase in the pricing for high-value goods may not affect a customer’s purchasing decision, it may impact sales of fast-moving consumer goods (FMCG). Sometimes even a slight increase in the price for FMCG goods can negatively influence its sales, giving the competition room to gain market shares.
Why is Customer Service important?
Like cost, customer service also plays an important role in the complete packaging of the product. How long can an organization sustain its business with a transporter who delivers goods late or in damaged condition? Or a warehousing facility that is not able to maintain the goods in a sale-able condition? Not for long. Sooner or later, these aspects – late delivery and poor product condition or damaged products will start to impact the product image in the market, and thus start to adversely impact its sales.
How a 3PL handles customer queries related to product delivery, or processes returns also form a part of customer service and affect the overall perception of the customer about the product and the company.
In addition to the above aspects, how a 3PL handles customer queries related to product delivery, or processes returns also form a part of customer service and affect the overall perception of the customer about the product and the company. Thus, both of these factors have the ability to influence the success or failure of the product or an organization. Then how does a logistics manager choose on which factor to focus on and where can he take a little leeway?
So, What Is More Important?
As we have seen, if the cost for a 3PL goes up, it will to some extent affect the product pricing. And depending on how the company chooses to deal with extra cost, it can also have a bearing on its profit margins and the bottom line.
An article in CMO by Adobe shares that according to a survey by PwC titled Experience Is Everything, “52% of the respondents would pay for speedy and efficient customer service”. For 73% of the respondents, “a good experience is key in influencing brand loyalties”, and “60% said they would stop doing business with a company if they experienced unfriendly service”.
A survey carried out by Capgemini in 2017 talks about consumer willingness to pay for a better service. According to the survey, 81% of the respondents are “willing to increase their spend with an organization for a better experience”. According to an article in Multi-Channel on a 2018 PwC survey titled: Future of Customer Experience, “customers across a wide variety of industries said they were willing to pay as much as a 16% premium for better service”.
The importance and need for good customer experience are only going to become more critical.
These statistics spread over a couple of years adequately highlight the growing importance of good customer experience. In the interconnected global business environment, the importance and need for good customer experience are only going to become more critical.
The above survey results also highlight two very crucial points related to customer service: the first, if it is good, it can help retain customers and even bring in new ones; the customers are willing to pay for quality customer experience and service. The second point that these surveys bring forth is that customers can discontinue business based on even single poor customer experience. In the long term, poor customer service will tend to have a larger impact on the bottom line than a slightly higher cost of the 3PL’s service.
And if the surveys on customer service are anything to go by, efficient and timely customer service will be able to persuade the customers to bear a slightly higher product or service cost. If you choose the right 3PL, in addition to good customer service you get many other benefits as well.
BlueGrace knows both these aspects are critical in creating a winning product proposition. We help build a cost-efficient and customer friendly supply chain, get in touch with our team today!