Four Questions to Ask a 3PL Provider

Feb 07, 2007 9:58 PM  By

A general once said, “Amateurs talk about tactics, but professionals study logistics.” While this is no doubt true in combat, it would be fairer and more accurate to say that, in business, successful firms focus on their core mission and leave logistics to professionals. That’s why many companies outsource their fulfillment to a third-party logistics (3PL) provider.

Because 3PLs specialize in logistics, they can take advantage of a level of scope and scale that most multichannel merchants can’t. Third-party providers build the performance platform, the infrastructure, the relationships, and the skill set necessary to make logistics as efficient as they possibly can. Their business relies on it.

Before contracting with a 3PL, however, you should get the answers to the following questions:

1) Does the 3PL have demonstrated expertise, and can it supply proven performance-based results?
Any company that you seriously consider collaborating with should provide clear case studies to prove its ability to execute and achieve demonstrable results for a client with a similar distribution or supply chain challenge. Further, these examples should include an accountability recipe–a methodology or approach that makes clear how the 3PL and the client measured their results.

2) Can the 3PL provide clear and mutually agreed-upon key performance metrics?
The 3PL should report line-item details of costs, quality, and performance weekly that address the key performance indicators (KPIs) you develop together. This brings a needed focus on what matters and most affects the operation. It also creates a closed-loop type of accounting system for the actual costs associated with a given level of performance and allows you to measure real results.

3) Will the 3PL provide an annual plan for cost-out and continuous improvement initiatives?
Third-party providers keep a close eye on the relationship between costs and services. As service levels expand, costs can increase, requiring the 3PL to maintain a balance between implementing service levels that achieve your objectives and maintaining an economical cost structure. An effective 3PL will be constantly striving to identify potential cost savings in a clients’ supply chain, using tools such as Six Sigma/DMAIC methodology. A 3PL should also meet with the client regularly to prioritize improvement opportunities.

4) Does the 3PL demonstrate an uncompromising focus on a true partnership?
As businesses work to expand their markets and increase their customer base, a strategic partnership with a 3PL provider who understands their clients’ business cycles is an invaluable asset. Economies of learning, which are most often linked with organizations experiencing high growth, enable a consultative 3PL organization to draw upon its myriad of experiences across many industries and applications to develop unique solutions, tailor-made to optimize each merchant’s supply chain and logistics processes for today – and into the future.

Stephen Olds is executive vice president of Portsmouth, NH-based TMSi,(www.tmsilog.com) a third-party logistics provider.