As the benefits of establishing a partnership with a third-party logistics (3PL) service provider have become increasingly understood, more operations have come to rely on them over the past decade. 3PLs provide value by allowing their clients to focus on their core competencies as they outsource their inventory storage, distribution, fulfillment, transportation and delivery needs to service providers. Indeed, some of the largest growth in the 3PL field has come from e-commerce retailers seeking to more affordably, accurately, and consistently deliver on customers’ expectations for fast, free delivery.
If your organization has decided to outsource some or all of your fulfillment and distribution needs to a 3PL, there are a variety of factors – beyond cost – that should be considered when evaluating prospective service providers. When assessing potential partners, it’s important to ask the following questions as you determine if a specific 3PL will be the right match for your organization.
1. Does the 3PL specialize in a specific market or industry? Some 3PLs specialize in retail or e-commerce fulfillment. Others specialize in handling consumer packaged goods (CPG), temperature-controlled (frozen or refrigerated) food or pharmaceutical products, electronics, and so on. The optimal fit will likely be with a service provider whose expertise and operations align most closely with your industry.
2. Where are the 3PL’s facilities located? In general, 3PLs are either regionally based, or have a national footprint. Depending on the scope of your needs geographically, one type may be better suited than the other. If the majority of your customer base is on the East Coast, for example, it might make more sense to work with a regional provider also located in the eastern half of the country to reduce shipping and transportation costs. Conversely, if your customers are distributed nationwide, a 3PL with a larger network of facilities strategically located in multiple areas throughout the United States may be better situated to serve your current fulfillment needs, or to accommodate your changing needs should your business grow.
3. How many clients does the 3PL serve per facility? Some 3PLs operate out of a single facility, storing and fulfilling their clients’ customer orders across shared resources. This situation is most common when the service provider handles multiple small clients, some of whom might be direct competitors and pose a conflict of interest. Others will dedicate a facility entirely (or mostly) to a single customer. Understanding where your operations will fit in with those of the other clients a 3PL serves can help to determine how its resources will be allocated to your operations and what level of service you can expect to receive.
4. How does the 3PL manage their labor? Some 3PLs emphasize cross-training of their workforce, enabling greater flexibility to handle shifts in volume. For instance, if an inbound shipment is delayed, cross-trained associates in receiving can be reallocated to outbound shipping to help meet carrier cutoff times more efficiently. Additionally, 3PLs that utilize Labor Management Systems (LMS) to develop, monitor and train their associates to meet engineered performance standards – as well as to incentivize higher productivity among their workforce – may experience less turnover and more consistency than those who pay flat hourly rates.
5. Are the 3PL’s facilities located in major transportation hubs? This can be a positive if you’re hoping to increase shipping efficiencies while reducing transportation costs. Conversely, if your 3PL’s network optimization planning has resulted in their facilities being located in the same cities as many other warehouses, the labor market in that area may be extremely tight. That could translate into high turnover, staffing difficulties and higher wages, as facilities in close proximity to one another compete for a finite number of available warehouse workers. A tight labor market at a 3PL’s location could negatively impact its ability to serve your customers, as well as cost you more. If you suspect this to be the case, it might be worthwhile to investigate service providers with operations located in less competitive areas, where associates are easier to hire and retain and hourly rates are lower.
6. What type(s) of software does the 3PL use? Software systems that are reliable, secure, and accessible in real-time by the 3PL’s clients are important to ensuring customer, inventory, and order data is captured, stored and analyzed for continuous improvement. For 3PLs serving a client out of two or more facilities – such as one in the East and the other in the West – the ability to provide distributed order management (DOM) can be an important factor in controlling costs while better serving customers. These systems track inventory across a multi-node network and utilize sophisticated algorithms built around a client’s pre-determined inventory rules. DOM systems automatically figure out the most cost-effective, time-efficient location from which inventory should be sourced to fill an order based on where it is stored and where it is going. If this provides your organization with a strategic advantage, you might pinpoint your focus on the 3PLs who offer it.
7. Does the 3PL’s operational and corporate culture fit with your organization? The majority of client/3PL partnerships are contracted for three to five years. This timeframe ensures that both sides benefit from the 3PL’s investment in setting up the associated operations in a given facility (particularly if doing so calls for the acquisition of automated solutions to support the client) and the client’s expenses in integrating with the 3PL. Further, both sides will be spending a considerable amount of time developing plans for implementation, training, and daily operations that will be followed (and likely adjusted as the client’s needs evolve) throughout the lifetime of the relationship. It is important to meet the team at the facility designated to manage your operations and verify that there’s a good fit. This is a key factor in forming a successful partnership, as you’ll be interfacing with the 3PL’s team routinely to address issues, discuss changes, look for areas of improvement, and more.
8. Are additional services offered by the 3PL? Perhaps warehousing and fulfillment services aren’t enough to meet the needs of your operation. You might be looking for a 3PL to provide transportation management as well. Some solution providers own trucks and trailers, providing long-haul, less-than-truckload (LTL), or last mile delivery services to their clients. Others broker shipping services on behalf of their clients. Still others offer the ability to analyze your transportation needs as part of an optimization study and make recommendations for strategies and solutions that best meet your needs in terms of costs, cut off times, and customer service. A prospective 3PL’s total service package is something to consider, even if you don’t need every offering at the outset of the relationship.
Need more help determining if outsourcing to a 3PL is right for your organization? Connect with us.
Scott Singer, Systems Sales Consultant, firstname.lastname@example.org
A 10 year veteran of the 3PL and material handling world, Scott’s career has been focused on solutions engineering and design, business development, and sales consulting. Scott spent most of his career developing cost saving innovative designs for 3PLs and their clients. He leverages this experience to help 3PLs generate flexible high return solutions. In his free time, Scott spends his time exploring the four corners of the world in culture and the great outdoors.