Shopping for a 3PL

Aug 08, 2007 8:34 PM  By

Timeliness of deliveries, product condition, order accuracy and vendor compliance all affect customer satisfaction and ongoing profitability. When a company begins underperforming, improvements need to be made. The choices include making distribution improvements through process, technology and/or management modifications, or contracting with a third party logistics provider.

Companies experiencing notable corporate growth and/or expanding into new markets need to know when their existing supply chain can no longer keep up with growth before customer service starts to decline. This is a time to do a cost benefits analysis between internal improvements and outsourcing options.

Mergers and acquisitions are catalysts for outsourcing logistics, particularly if neither company has the necessary logistics infrastructure in place. The same is for startup companies, which have to tackle the time and effort for operational development, initial and ongoing costs, labor requirements, equipment and technology, transportation options, and the lack of expertise.

Many companies increase their profitability by focusing efforts and resources more on what they do best—whether this is manufacturing product, sales and marketing, operating stores, and/or providing customer service.

What criteria should I look for when considering a 3PL?

Things to consider when going through the 3PL selection process include cost, demonstrated results, client references, flexibility and services—standard and specific to your company’s needs. Most important, only until you’ve analyzed the nuances of your business should the evaluation and selection process be done.

You should first document your operational functional specifications, which include but are not limited to current and projected: material to be handled, storage and transportation requirements, order profiles, necessary throughput, SKU profiles, and value-added services requirements, and delivery schedule. The functional specifications are the criteria that should be included in your request for proposal (RFP).

Companies should conduct upfront research to identify a select list of 3PL candidates to receive the RFP. You should know the candidates’ facility locations and service areas, all of their available services, business partnerships and their reputation in the market.

Contract negotiations are important: You must agree if the 3PL receives a flat fee or will be paid according to pieces shipped. Determine if the 3PL is accountable for the level of accuracy and product conditions. Establish what party will finance improvements if system upgrades become necessary and how it will affect service fees.

It’s important that your 3PL work is a partner with your company. They must strive to be flexible for your order fulfillment needs and accountable for their performance.

This article was written by Forte, a Mason, OH-based consultancy. For more information, visit www.Forte-industries.com