The challenge
A company evaluating its 3PL agreement needed a commercial model that could flex with demand, protect service, and encourage continuous improvement. Traditional cost-plus provided flexibility but could allow hidden margins in embedded overhead, labor burdens, or third-party purchases—and offered limited incentive to eliminate expense.
Our approach
Compare commercial models
Evaluated cost-plus, fixed-price, and hybrid fixed-variable structures, including the risk allocation and incentives created by each.
Limit the fixed component
Separated genuinely committed facility and management expenses from costs that could reasonably be linked to actual work.
Build activity-based pricing
Defined measurable handling and fulfillment units—such as receipts, storage, picks, and shipments—with clear inclusions, volume bands, and change-control provisions.
Assign controllable risk
Placed productivity, staffing, and process efficiency responsibilities with the operator while allowing adjustment for material changes outside the agreed operating assumptions.
Create a verified gainshare
Recommended sharing independently validated savings from genuine productivity, process, or technology improvements, with baseline normalization, auditability, and service-level safeguards.
The recommendation
The recommendation favored a primarily variable fixed-variable agreement, rather than an open-ended cost-plus approach, with a meaningful share of verified savings available to the 3PL. That gave the customer clearer unit economics and reduced exposure to embedded markups while allowing the provider to earn upside by taking some performance risk and improving operations.
The ADK Advisory perspective
A 3PL contract should not simply set a price. It should establish who controls each risk, how performance is measured, and how both partners share the value created by doing things better.