Third-party fulfillment outsourcing does meet many companies’ business requirements. Will it meet yours?
Only an objective study of your requirements and discussions with 3PF users and clients can shed light on the advantages and disadvantages. Objectivity is a key word.
Experienced fulfillment consultants that are vendor independent and have 3PF outsourcing experience can greatly help with the objectivity, add knowledge of vendors and potential solutions, and bring practicality to your potential business environment.
The initial research regarding the 3PF vendors’ estimated expenses and services available can be conducted on a “blind” basis, where the client is not identified until later in the selection process.
The following are the 11 steps of a competitive bid process that will help you evaluate and select the finalists in your search.
1. Use a competitive bid process to compare not only projected costs, but each system’s functions and technology, warehouse locations that might be advantageous in terms of reducing time to customer and inbound and outbound freight costs, etc. Develop a series of spreadsheets for the “apples to apples” comparison of the details by vendor.
2. Develop an accurate pro forma for your business so the 3PF vendor can understand the volumes, service costs and resulting cost per order that can be calculated. If you don’t take into account things such as the number of orders, average lines and average units per order, receipt of single SKU cartons vs. mixed SKUs, reserve and forward pick space requirements, inventory accuracy, back orders processed, returns, etc., you will understate your projected 3PF costs.
3. There are many important items to be included in the RFP: Pro forma statistics about your business; Detail services required; Systems and technology functions required; Request for client references to be contacted; Request for vendor implementation methodology; Request for boilerplate contract materials; Selling materials.
4. Identify a short list of vendors to whom you’ll send your RFP. Broadcasting your RFP to too many vendors is a mistake, because you won’t have the time to work at a detailed level with a large numbers of vendors. It also wastes the vendors’ resources.
5. As vendors respond to your RFP, follow up with them where they failed to answer your questions—but in a manner that will not allow comparison.
6. As you receive the fully filled out RFPs, create the side-by side-comparisons.
7. Remember that while cost is important, the services that your business requires; the service levels quoted (general services and value-added); and the systems (such as order fulfillment, business intelligence, inventory management provided, etc.) may radically affect your fulfillment and your ability to manage your business through a 3PF. It isn’t just an analysis of costs.
8. After you have analyzed the vendors’ responses, prepare a side-by-side comparison using spreadsheets of the key criteria. Then select the short list of finalists.
9. Get down to two or three finalists. Ask the vendors for a list of references whose businesses parallel your business in terms of size, product, services and systems requirements. You are not trying to get an exact match, but to make sure that the core competencies of each 3PF vendor is a general match with your requirements. Develop a scripted set of questions you intend to ask all the vendors. This will allow you to use multiple people in your company to make the reference calls.
10. For the finalists, schedule site visits to the specific facilities the vendors are proposing to use to process your orders. It’s also a good idea work up your questions in advance and send them to the vendors so they can be fully prepared to answer.
11. Side-by-side comparisons of services and costs, reference checks, site visits, contract review and your overall confidence and trust in the 3PF vendor will determine the most qualified 3PF vendor.
For more on 3PLs, download Multichannel Merchant’s 3PL and Fulfillment Service Guide.