Choosing a Third-Party Logistics Provider
Don't have a third-party logistics (3PL) provider? Unhappy with your current 3PL contract and/or provider and considering a switch? These steps will help you navigate the 3PL selection process to get the most value from a partner.
1. Sign a contract. The contracting phase is a tell-tale sign for how the organizations will mesh culturally. Good future partners figure out how to work together through the terms and conditions process, just like they will through operational or systems difficulties.
2. Understand that size, services breadth, and experience matter. While prospective logistics providers will describe their differentiators, do your homework and thoroughly vet them to learn their true capabilities and competencies. That's the way to identify a true match.
3. Make a business Case to outsource or switch to a 3PL. Assuming it is not a foregone conclusion, it is important to take the time to determine the value—potential return on investment, switching costs, process, and systems implications—around the outsourcing decision. This can take time, not just from an analysis perspective, but also from a cultural or organizational perspective.
4. Identify the right players. There are a lot of logistics service providers in the market, so determining the right type of partner—whether industry-specific, commodity-specific, technology/automation-driven, geographic, and/or scalability-driven—is crucial.
5. Negotiate. Pricing and negotiations should come after you identify the right partner. These should be long-term engagements, with savings goals, targets, and contingencies based on near-term returns and more partner-friendly pricing based on longer-term needs for service and growth—for all parties.
6. Include service-level agreements. Tie service-level agreements to financial incentives for all parties. Everyone has cost, profit, and inflation considerations, so think broadly about how this will play into pricing, which all too often is one-sided.
7. Understand the 3pl's uniqueness (the art). Due to market structure and complexities around business requirements, it is important to evaluate the providers outside of the RFP and defined process. Your 3PLs are important to your vendor/supplier/customer/carrier partners, and they all need to be an extension of your team. Evaluate 3PLs like they are future colleagues.
8. Compare apples-to-apples (the science). A well-structured RFP and timeline help create a fair and equitable environment for those interested and a fit to propose their capabilities against the defined design and requirements. Providers might try to disrupt this process for a variety of reasons, but that is OK and expected for good reasons: They want the business and they want to help you.
9. Decide on support team members. Have the core project teams and operators on both sides meet to understand who will be working together. It will be obvious if the right team members are involved for a successful relationship. It comes down to the people.
10. Document design and requirements thoroughly. Once you decide to outsource or switch providers, draw up a detailed solution design and requirements document to communicate who, what, why, and how.
Source: Geoff Milsom, Senior Director, enVista