Case Study: 3PL Audits Lead to Cost Savings and Improve Operational Efficiency

Background

A national baking and flour supplier recently partnered with new third-party logistics (3PL) providers to support their warehouse and fulfillment operations. With a diverse distribution model, fulfilling both wholesale, retail, and e-commerce demand channels, they partnered with these new 3PLs to simplify and consolidate their current distribution network and allow for greater focus on their core business activities and initiatives. Every new 3PL partnership requires a critical transition period, encompassing the documentation of business requirements, negotiation of contracts, system integrations, establishment of reporting frameworks, and development of invoice procedures and templates. With these significant undertakings and transition periods, it is easy to let things fall through the cracks.

Challenge

Given the significant change in shifting operations from their incumbent 3PL partners to their new 3PL partners, the company had minimal resources to validate the invoices of the services being provided by their new partners. Because of the complexity of the operations and the multiple cost components involved, they needed assurance that their monthly invoices reflected the correct charges based on the agreed-upon services. To deliver this assurance, Establish provided a structured and thorough 3PL auditing process to validate the accuracy of their 3PL warehouse invoices.

Our Approach

Our 3PL consultants provided a comprehensive 3PL audit and 3PL improvement service, which involved:

1. 3PL Invoice Validation: Cross-referencing the monthly invoices from the 3PLs against the contracted rates to confirm accurate billing of services and rates

2. Summary vs. Detailed Invoice Verification: Ensuring that the summary invoices aligned with the supporting details and transactional data provided by the 3PL

3. ERP Data Comparison: Extracting outbound sales, inventory, inbound purchase order and transfer order data from the client’s ERP system and comparing it with 3PL-reported data to identify any discrepancies in volumes that were billed

4. Forecast Evaluation: Evaluating the accuracy of our client’s forecast against actual demand

Findings & Solutions

Through our detailed 3PL auditing and validation process, we identified several key issues and provided actionable solutions:

1. Handling Overcharges

   • Issue: One of the 3PLs was charging our client for inbound cases rather than inbound pallets, leading to inflated costs.

     Methodology: Utilizing the inbound ERP data and capturing order, item, and lot details, we calculated the estimated cases to be handled and the estimated pallets to be handled and compared to the volumes that were billed by the

     Solution: We traced the discrepancy to an operational error where inbound handling was not being systematically logged correctly. Our intervention led to a credit being issued to our client for the overcharges.

2. Uncontracted Fee Charges

   • Issue: One 3PL was charging an insert fee per order, which was not part of the contractual agreement.

     Methodology: Utilizing the contract, we reviewed all contracted service areas and determined that an insert fee was for project-specific work and was not supposed to be charged for each order.

     Solution: We identified this as a systematic billing error and worked with the 3PL to ensure this charge was only applied to the project-specific work, ensuring that our client received a credit for the overbilled amount.

3. Warehouse Footprint Expansion

   • Issue: The warehouse footprint expanded significantly over several months, surpassing the forecasted footprint expected, leading to increased storage costs.

     Methodology: Utilizing the inventory data from the client’s ERP, we calculated a substantial number of SKUs having small quantities on hand and/or taking up minimal cube in storage. With these findings, we validated the locations of these items in the warehouse with the 3PL to understand the storage utilization of these locations.

     Solution: By analyzing the storage utilization, we worked with the 3PL to prioritize optimizing the space by implementing more half-pallet positions. This reduced the footprint and improved cost efficiency.

4. Overtime Labor Charges

   • Issue: The client was incurring high overtime charges for outbound fulfillment.

     Methodology: Utilizing the 3PLs outbound data and the clients sales forecast data, we validated the forecast accuracy and determined that the 3PL’s overtime charges aligned with the volume of orders exceeding our client’s forecast.

     Solution: We collaborated with our client to refine the forecasting methodology, leveraging historical sales trends to determine forward-looking forecasts. This adjustment reduced labor-related overtime costs.

Results & Impact

• 3PL Invoice Accuracy Improvements: Identified and corrected systematic billing errors, leading to substantial cost recoveries.

• 3PL Operational Efficiency Enhancements: Optimized warehouse storage utilization to reduce unnecessary costs.

• 3PL Cost Savings: Secured credits for overcharges and eliminated unjustified fees.

• Forecasting Improvements: Enhanced demand planning accuracy, reducing future overtime labor costs.

Conclusion

By implementing our rigorous 3PL invoice auditing and validation process, we helped our client ensure accurate billing, optimize their 3PL warehouse operations, and improve financial oversight of their 3PL costs. This engagement reinforced the importance of continuous 3PL improvement by conducting ongoing 3PL audits and operational data validation as key components of cost management and efficiency in supply chain operations.