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3PLs are Leaving Money on the Table

5 January 2022, 2:54 pm
wms for 3PL

How can 3PLs ensure they’re being paid what they’re worth?

3PLs are an invaluable tool for today’s retailers, wholesalers, and manufacturers. Despite their inherent value (and all the perks they so often bring to the table), many 3PLs aren’t reaching their earning potential. Why not? How can they change that?

It’s All in the Billing
3PLs typically use one of two types of billing: manual or activity based.

Manual billing is done, well, manually. A contract is written up and whoever is responsible for billing uses the terms of the contract and the activity recorded to draft an invoice.

Activity-based automatic billing is often built in to supply chain software. The system picks up the activity and generates an invoice, then the responsible party checks it for accuracy and adds in any relevant accessorial charges. The invoice is then sent through whatever accounting system is used to handle invoices.

When 3PLs bill manually, there’s very little data available to help them make smarter business decisions down the road. Automatic billing, especially when it’s tied into software that spans the supply chain like WMS and LMS systems, can help provide end-to-end visibility into KPIs that matter.

Auditing Helps, But Data is Critical
How do you make sure that your customers are being billed appropriately? You conduct audits.

Of course, auditing invoices is important. However, without data that tells you how much time and money you’re spending on a particular customer, you don’t really know if what you’re charging is contributing to profitability or taking away from it.

A Common Scenario
Say a 3PL has ten customers. Their labor force is spread across those ten customers. The nature of one customer’s business means that they cost you several times as many man-hours as other customers. Within the same contract terms as their fellow customers, they’re simply not profitable. However, without quantifying that with hard data, it’s difficult to bill that customer appropriately.

Even more pertinent in the long run, it’s difficult to effectively renegotiate that customer’s contract so that they are contributing to overall profitability.

Seeing a customer-by-customer accounting of expenses and income can give you the tools you need to renegotiate contracts (or know when to cut ties). Furthermore, seeing how much certain processes cost you to carry out can help you set more favorable contract terms from the beginning with new customers in the future.

It’s Not All About Seeing
The ability to audit effectively is important, but so is the ability to pivot. 3PLs have seen so much change in the past couple of years due to the pandemic. Their customers needed to do things differently to service their customers, and that means changing the scope of the work for which they engage 3PLs.

When the services customers needs are ever-changing, 3PLs have to be more flexible than ever. That’s difficult to do with stagnant software. To stay profitable and continue to meet customer demands, today’s 3PL needs a suite of supply chain software that provides both end-to-end visibility and speed to pivot.

Are Your Customers Helping or Hindering?
Some customers contribute to your gross profit and some customers drag you down, negatively impacting the bottom line. Do you have the tools you need to tell the difference? Better yet, do you have the tools you need to effectively change the things that are dragging you down?

If you answered no to either of those questions, reach out to the experts at Made4net to request a complimentary supply chain assessment for 3PL providers to learn how our built-in billing solution can help make billing more efficient and provide the visibility you need to be more profitable.