criteria for selecting a third party logistics provider for your business
TRANSCRIPT
Criteria for Selecting a Third Party Logistics Provider for
Your Business
By Angela Cox
Why Outsource to a 3PL?
“3PLs introduce efficiency and effectiveness into a company’s operations, allowing shippers to conserve costs and resources, while also helping to provide higher service levels” -John C. Langley, Professor of Supply Chain Management, Georgia Institute of Technology
Factors to Consider
• Service Capabilities
• Flexibility/Scalability
• 3PL Reliability
• Cost
• Geographic Location
• Information Technology Capabilities
• Corporate Culture
• Company Stability
Service
Before searching for a 3PL provider, develop a list of “must have services” and “wanted services” with your key team members. Compare this list with the service capabilities of potential 3PLs to eliminate those that do not perform the necessary functions. Take into consideration how well these services are performed. The purpose of outsourcing to a 3PL is to improve your current operations. Outsource only those services that the chosen 3PL can perform better than your business. Communicate your expectations and needs to your 3PL clearly so that there is a mutual understanding.
Service
Ensure your 3PL can also effectively handle exceptions and emergencies such as:
• Custom packing requirements • Short-notice orders • Recalls • Sensitive inventory items
Flexibility/Scalability
Do not settle for “one size fits all” solutions. Select a 3PL that has the capabilities to meet your needs now as well as in the future. Your plan is to grow your business and your 3PL must be there to help, not hinder. Evaluate their capability to adapt and scale:
• Warehouse space • Workforce size • Service portfolio • Technology • Infrastructure
Ask 3PLs for an example of an instance when they provided customized solutions to meet a customers needs. This customer should have similar requirements to yours.
Reliability
As an extension of your business your 3PL must be able to guarantee your customers will receive the same, if not higher, service levels when handling inventory and fulfilling orders. Finding a trustworthy and reliable 3PL will help retain customers and increase customer loyalty. When selecting a 3PL request customer references from businesses similar to your own. A third-party, objective opinion is helpful in determining the reliability of the 3PL. Also take into consideration the customer retention rate of that 3PL. This will speak volumes about the reliability and consistency of service.
Cost
Although cost is an important factor in the 3PL selection process, do not make your selection based solely on this factor. Determine what your decision drivers are and select the 3PL provider who can offer the best combination for you. Also ensure your 3PL effectively manages cost. As an extension of your supply chain they are responsible for cost reduction both short-term and long-term. Understand how the pricing structure will apply to your operation before making a decision.
Geographic Location
An effective 3PL partner will have a strong geographical profile. Search for a provider that has facilities located in the strategic locations that will best serve your customers. Consider future growth when looking at the 3PLs geographical profile. Does your business plan to expand nationally or globally and will your 3PL be able to handle this expansion?
Information Technology
As markets become more competitive, many 3PLs are investing in technology to better meet shipper needs and reduce costs. The most commonly used technology for 3PLs include:
• Warehouse Management Systems (WMS) • Transportation Management Systems (TMS) • Electronic Data Interchange (EDI) • Mobile Solutions (Mobile Computing Devices)
Information Technology
Compare your list of “must have services” and “wanted services” to the 3PLs current technological capabilities. Can they handle all or most of these services? Also consider the ease of use and information accessibility of their software systems. Make sure that the 3PL you select can provide you with the reports, documentation and real time inventory visibility that you need to manage your business. Knowing the status of orders, on-hand inventory and other information will help your business adapt and respond to situations more effectively.
Corporate Culture
The cultural fit between the shipper and 3PL will play a large part in whether the organizations and their representatives will be able to efficiently and effectively work together. Asking questions now will help determine if the 3PL is able to understand and manage your expectations.
Here are some examples of questions to ask:
1. Can you provide an example of a time when you invested in updated infrastructure to better meet an existing customer’s changing needs?
2. Please explain a case where one of your customers encountered an issue and your staff was able to resolve it. How did they resolve it?
Corporate Culture
Cultural fit will be a consideration of both the shipper and the 3PL. In some cases, 3PLs will decline bids if they are aware they cannot or are not willing to meet expectations of the shipper. When considering corporate culture, ask yourself “Would I feel comfortable working for this 3PL and why?”
Company Stability
Inquire about the financial standing of the 3PL to determine financial stability. Look into issues such as:
• Status of outstanding loans • Recent profit statements • If publicly owned, dividends paid to stockholders
Protect your assets by negotiating and developing an agreement that will ensure the safety of your product if the 3PL goes out of business for any reason.
