How to smartly select the best third-party logistics provider?

Introduction

A third party logistics provider, also known as 3PL or TPL, provides ready-to-integrate specialized expertise to an organization. These providers offer their proficient knowledge in various areas of business. They are expected to merge their mastery of best practices into a company’s existing supply chain.

Trustworthiness, efficiency, cost-effectivity are few of the critical qualities a good third-party logistics provider must have. Prior to choosing one, it is essential that you know how third-party logistics providers will benefit your company.

Below are detailed descriptions of what the services of a 3PL will do to your business.

Expand your network
Create cost-efficiency
Increase your company’s productivity
Increase your supply chain’s scale

Third-party logistics providers bring with them a network of relationships with different carriers. Their experience gives them an in-depth understanding of various routes and how performances can be optimized for each. Essentially, all these results in improved customer experience, route expansion, and savings.

Be aware that handing over to a 3PL a large percentage of your business’ supply chain costs – including a percentage of your revenue – is a major decision. It is therefore critical that you select a provider wisely.

There are numerous factors involved in choosing the proper third-party logistics provider for your business. Though there is currently a large number of existing providers in the industry, not all of them are able to meet the requirements of your organization. To streamline your selection process, do focus on 3PLs which provide solid data on how they could primarily help you reduce your expenses.

The specific ways on how to select the best provider that can meet your needs are indicated below.

Assess the strengths and weaknesses of your organization

Before choosing the correct 3PL, the search process demands that you first have a comprehensive idea of your own company’s requirements. Gather data on your business’ most recent freight logistics, costs, supply chain, as well as a costs-per-mile estimate. Similarly, review your relationships with existing carriers and determine if extensions or improvements need to be conducted.

This information will be essential in helping you know what to look for in a 3PL. It will guide your decisions and give them a solid basis. Having sufficient internal knowledge also helps you know what to expect from your chosen provider, one of which is the service level agreement of your logistics contract.

Know your organization’s weaknesses by properly assessing the areas where your supply chain is having problems. Ask the following questions and give honest answers. Doing so helps you know which features you need to look for in a 3PL.

Which area is your supply chain having difficulties with?
How can a third party logistics provider help your business?
What are the issues your supply chain is having trouble with?
How do you want to collaborate with your chosen 3PL?
How much technology plays a role in your supply chain?

When these questions are resolved, you will be able to know the services you want your chosen 3PL to provide, and then base your selection from your responses.

Conduct thorough research

Look for a company that possesses the resources you need, and which has shown evident results from their efforts. Do in-depth research on the 3PL you are targeting. Find out their ability to integrate their system with yours. If you need to acquire the services of an outside entity in order to completely understand a specific 3PL’s operations, do so.

An external entity could help you know the potential profits your company could receive upon hiring a specific 3PL. Their assistance can simplify your search process, and decrease the time and energy spent in finding a 3PL. To broaden your selection, compare at least three third-party logistics providers. Have the external entity know each provider thoroughly by conducting detailed research and evaluation on all three. Be aware of the services your potential 3PL offers, it’s equivalent rates, and how effective are their services. Have the courage to ask difficult questions such as:

Were there situations when a 3PL is unable to cover a load? If yes, what happened?
Was there ever a time a 3PL ran out of capacity?
Have you ever run out of space during the busiest season?
How long has the 3PL been in operation?

Take note of instances where a potential 3PL deliberately evaded or refused to respond to any of your questions. You could take this as a sign that they may not be appropriate for your business.

Organize an internal team tasked to evaluate the 3PL

Different departments must be appropriately represented in the team. Staff from the information technology group, supply chain, sales and marketing, finance department, and purchasing must be included. This guarantees a unified corporate-wide agreement once you have made the decision to choose a specific 3PL.

However, the evaluation must be done systematically. A process must be in a place that will make each specific step clear. The expected results must be similarly defined. Base your evaluation on your needs checklist. Plus, use the research you called to find out the specifics you need to see in the contract.

Determine if you can build an authentic partnership with your chosen 3PL

Trust is necessary when establishing a partnership with your 3PL. For trust to occur, both parties must mutually engage in a transparent exchange of data and communication. It is ideal if both parties share the same values and culture. It is also ideal if the 3PL completely comprehends the priorities of your supply chain. In order to get a complete view of your prospective 3PL, the following questions and issues must be addressed:

Request a list of the 3PL’s partners and ask them pertinent details on their experience with the 3PL.
Were payments consistently made?
Were there disagreements that occurred during the partnership? If so, how was this handled?

The point of these questions is to provide you with a complete picture of how the 3PL has handled, and how it will probably handle, your business. Communicating with the provider’s previous partners will highly likely reveal their ways and means of collaboration.

It is ideal if the 3PL you choose as a partner has a network of locations. They must also have a strategic approach to determine the proper distribution center for your business. Their end goal should optimize your current and future business’ success. It is a plus if their network of facilities can easily pop up in a new location with the intent to further address your needs.

Interview to the industry references the 3PL provides. Ensure that these references provide excellently, and not just fair or passable, remarks. Your prospective 3PL must have provided a reliable and secure service, and their references should express these. Ask the references about the 3PL’s culture and overall character. One sign a 3PL is a good choice is if it has delivered a high-value proposition, not just basic efficiency.

Value stability

Choose a 3PL with a long history of evident success and financial stability. This can be determined if they are continually and consistently investing in systems, facilities, human resources, and equipment. Determine too if they have long-term clients, and if so, how many?

Measure success in values that are quantifiable, and which adds further value to your company. An economically stable 3PL will not easily fold up despite difficult challenges. It will also be able to support you during times when you may be suffering from mismanagement.

Consider if you’re technologically compatible

The 3PL you choose must be technologically robust and is capable of delivering advanced technology solutions. Be aware that technology is continually evolving. The process of managing inventory, systems, freight market programs, advanced load tracking systems, and artificial intelligence are tedious, detailed, and costly. However, these systems are all necessary for the proper operation of a lucrative supply chain.

Determine your own technological requirements in order to know the type of 3PL you are looking for. Excellent 3PLs will provide you with the latest logistics technology as well as be compatible with the technology you are currently using. When both your systems match, expect a seamless and smooth operating supply chain.

Consider their capacity for scalability

Supply chains are constantly dynamic. They change when the market changes. They grow when the consumer market grows. The 3PL you choose must be able to adapt to these economic and market-related shifts easily. The provider should be able to grow or scale down as needed, whether this is dictated by market forces or consumer demand.

A 3PL that is able to balance the needs of its numerous customers as well as fulfill their immediate requirements without having to heavily invest in permanent labour, equipment or space, has mastered the intricate process of scalability.

Therefore, the provider you choose must have the ability to scale its operations in order to address your specific business needs.

When a 3PL is unable to adjust its operation to service a supply chain network, their process may be too inflexible to suit your ever-evolving needs.

Businesses go through numerous patterns of growth and decline. Demand fluctuates due to various reasons. A 3PL that is quickly able to scale its process as according to your supply chain requirements will have a major influence on your company’s efficiency.

Select a provider that has had previous, and successful, experience with a company’s fluctuating demands. They must have also handled small and large organizations, and have appropriately made adjustments to their system as necessary. For instance, they must have the ability to multiply or combine shipments if you so require.

Choose a provider with omnichannel proficiency

Omnichannel is a sales approach that offers customers with multiple ways of integrated and seamless customer experience. Since omnichannel is currently a mainstream phenomenon, the provider you choose needs to have an in-depth and experiential understanding of omnichannel commerce. They should also have knowledge of how to optimally deliver to customers.

Select a provider with evidently successful performance. They must also have a business model that can be easily replicated and has adequate experience in your industry. Check your own company’s performance in every aspect of the supply chain. What is the performance of your freight transportation department? How about warehousing or inventory control? Acquire a third-party logistics provider that can expertly fill your knowledge gaps with their expertise.

Create and document a solid agreement

When you have narrowed down your selections and are to formally start meetings with prospective 3PLs, acquire the assistance of your legal team to create an enforceable and mutual non-disclosure agreement. This document is essential prior to develop a value proposition.

Once you have made your final choice, set a definitive time to hand over specific responsibilities to your 3PL. Indicate the tasks you will continue to perform in-house. This is a critical first step before a formal relationship begins.

Communication is key especially during the initial stages of your relationship with the 3PL. Any communication breakdown could cause long-term issues. Always maintain proper contact and mutual understanding.

Choose a provider that is committed to continuous improvement

3PLs that are focused on providing excellent service, as well as in bettering themselves, pay focused attention to the details of their processes, and solutions in order to attain expected results. An effective third-party logistics provider is more than willing to customize the perfect solution for your varied needs.

Conclusion

When choosing a third-party logistics provider, avoid hiring too many of them. When your supply chain is bombarded by numerous providers, their presence could cause your costs to increase as it removes critical market capacity. This could be explained by the following scenario: if you hire four providers to handle your transportation needs, and there are a thousand trucks bidding on freight within the area, the 3PL you hired will not cause truck numbers to increase. What will increase is the demand for such trucks. Eventually, the law of supply and demand will cause truck prices to climb.

You should also have a comprehensive idea of your logistics, and the specific areas that need to be improved in your supply chain. Know the goals you need to achieve and let these serve as a guide to choose your 3PL. Consider too the reputation of the 3PL as this can dictate how efficient and reliable they will be in fulfilling your expectations.

All in all, once you treat your chosen third-party logistics provider as a valuable part of management, and not simply as an external vendor, this will intrinsically cause them to be further accountable, responsible and genuinely interested to meet your company’s goals.