Third Party Logistics: 6 Tips for Choosing a 3PL

Experts offer advice on how to prepare for evaluating and choosing a 3PL that is a perfect fit for your operations.


Be clear about your expectations: Include the service levels you expect and the level of reporting you require, Sullivan says. “Do you want 99 percent inventory accuracy and 99 percent order accuracy, for instance? These kinds of expectations need to be determined and expressed upfront.”

Establish a uniform communications source: This could be the consultant, notes Patterson. No matter how good the RFP is, questions will still arise and having one person oversee the communications process will give bidders a better chance of offering apples-to-apples quotes.

2. SHARE A COMMON MINDSET

The partnering companies need to share a common mindset regarding the relationship, says Sullivan at Tompkins. “People have to understand this will be an ongoing relationship involving a lot of give and take.”

Ideally, the relationship between your company and your 3PL partner should be one based on reciprocal trust and respect. Kenneth Cubberley and Ed Stevens can certainly attest to this. “The only way to achieve a great partnership is for Keystone and its customers to share in the successes as well as the difficulties,” says Cubberley, president of Keystone Logistics in South Bend, IN.

Ed Stevens, vice president of operations for Darifair Foods Inc. of Jacksonville, FL, recently booked with Keystone a shipment of frozen pies worth about $45,000. Confusion during a delivery delay resulted in the reefer being turned off long enough to thaw out the product.

“Ken delivered us a check for the full amount of the loss,” reports Stevens. “He told us he knew the carrier would eventually cover the damages, but he didn’t want us to be out that amount of money in the meantime. I will tell you that kind of commitment goes a long way in our relationship with Keystone Logistics. They are a special 3PL to us and we will be dealing with them for a long time to come.”

While Keystone did recover about 75 percent of the claim, Cubberley resolutely defends his company’s philosophy. “We treat our customers as if we operate as a first-party provider in that we will settle claims immediately with our customers; then we go to the carrier to collect,” he says.

Marelli at New World Pasta and Riviana Foods offers a word of caution regarding mature relationships. “I would sensitize companies looking to outsource to be very committed because as the relationship matures, there is only so much cost that you can get out of it before you start looking at how to take out margins for the provider,” he says.

“For example, your financial folks might want you to squeeze margins to save more money because all the efficiencies have already been driven out of the supply chain. But when you do this, the relationship is no longer a viable business opportunity for the provider and the relationship can sour quickly. You have to be reconciled to the fact that 3PLs are in business to make a profit.”

3. REQUEST TECHNOLOGICAL SOPHISTICATION

One main reason companies outsource is to avoid investing heavily in warehouse management systems and transportation management systems. The experts stress finding a 3PL whose operating systems are scalable. “The WMS should be robust enough to handle the changing requirements of your customer base,” says Marelli.

Practice due diligence to assure the 3PL’s systems capabilities integrate well with your ERP, continues Marelli. Whether it’s an out-of-the-box solution or a homegrown one, be certain that the system continues to be state-of-the-art and that it provides the functionality you require for communicating EDIs and ASNs.

“Make sure they offer real-time visibility on inventory and that they can manage stock rotation parameters,” he suggests. “They should have the ability to identify where product went in the event of a recall.”

A 3PL’s TMS should also be robust, with good EDI communication between the carrier and the provider. “I want to know when an item is picked up and when it is delivered to my customer so I can measure on-time delivery performance. So shipment event tracking is very important,” Marelli says.

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