How to Select a 3PL Provider

How to Select a 3PL Provider

 

As businesses are scaling fast, there is an increased need to change traditional approaches to product distribution and customer service. Companies focus on core competencies for survival and outsource other activities to professional companies. One of the services that the logistics industry provides is third-party logistics (3PL).

3PL helps firms of all sizes to fulfil their business performance and production and in 2020 revenue of the global 3PL industry was 961.8 bn US Dollars.

Third-party logistics (3PL) plays the leading role in supply chain management. As a result, it has experienced remarkable growth. The demand for 3PL providers has become the primary approach for companies to offer better customer service, reduce costs, and gain a competitive advantage. Instead of building costly infrastructure for transport and warehouses, companies focus on entering new markets and adapting to competitive forces.

However, choosing the right and reliable 3PL partner is quite challenging. Several 3PL providers claim non-stop high-quality services. It is a significant decision for a company as their brand’s reputation and success depend on the reliability of the 3PL provider they choose.

Let’s dive deeper into this matter to clarify possible factors that can help you make the right decision.

This blog post contains the following information:

What is a 3PL provider?

Benefits of Hiring a 3PL Provider?
• Time and Money Saving
• Boost Operational Capability
• Industrial Expertise
How to Select the Right 3PL Provider?
• Know Your Strengths and Weaknesses
• Research for the right 3PL Provider in the Market
• Talk with Their Clients
• Assessing Credibility and Reliability of 3PL Partner
• Safety and Security
• Analyze Customer Service of 3PL Providers
• Customization
• Cultural Fit
• Establish Relationships
• Pricing
• Technology and Innovation
• Assessment of Smooth Integration
• Disaster Management and Responsiveness
Conclusion

What is a 3PL provider?


Image: flickr.com
Before addressing factors for choosing a reliable 3PL provider, let us understand more about 3PL.

Third-party logistics (3PL) refers to the division of labor by outsourcing the logistics operations of a firm for either distribution, warehousing, or fulfillment services. Its desirable characteristics like cost and time savings, low capital commitment, focus on the firm’s operation, and flexibility make it more favorable for small and medium-sized firms.

A 3PL company provides all the services you require to outsource your operations. Some services are

● Warehousing and inventory management
● Picking and packaging
● Shipping and Receiving
● Kitting and customization
● Return handling

The most outsourced logistics processes are domestic transportation (80%), warehousing (66%), international transportation (60%), freight forwarding (48%), customs brokerage (45%), and reverse logistics (34%).

Different 3PL companies have other capabilities. Some operate for cold fulfillment, like managing and distributing cold beverages and dairy products that need refrigeration.
Some are suitable for handling hazardous materials like chemicals, foods, etc.

Benefits of Hiring a 3PL Provider

The traditional approach of handling all operations in-house isn’t always the most productive choice. This is especially true when market demand is variable for most of the year.

Professional companies providing logistic services or 3PLs are well suited to all demand options. They can quickly mitigate the impacts of fluctuating supply and demand; that’s their core competency. They can help you scale up and down to meet your demands and save the extra money you spend on storage space, equipment, and labor.

Besides this, taking help from a 3PL provider has several advantages ranging from the know-how of the industry and knowledge of best practices that might come in handy for the company’s plans.

Some of the significant benefits include:

Time and Money Saving

As a new company, you need to cope with your expenses, so a 3PL provider can help you avoid costly decisions. You don’t have to focus on the business logistics; you can focus all your effort on business, marketing, and improving the quality of products and services. Their efficiency and effectiveness in running supply chain operations can help you save money.

Boost Operational Capability

With the help of 3PL, companies and businesses can save valuable time and invest in product development and sales, and marketing. Also, companies can expand enterprises to new markets without commitments, check and analyse their capabilities and make adjustments and improvements in supply chain processes.

Industrial Expertise

3PL companies are knowledgeable about industry best practices and trends. They can provide valuable suggestions about your work area and help you avoid common mistakes. Mainly, it gets easier to comply with international regulations while working with 3PL. 3PL removes the extra stress of learning and following international shipping regulations and packaging.

How to Select the Right 3PL Provider

Although practitioners have proven and observed how 3PLs help companies focus on core competencies and leave the rest to them, many such ventures failed severely due to complexity and incompatibility, fear of loss, and uncertainty about the quality of service. So, it is essential to carefully monitor and analyze all the ins and outs before deciding on how to choose 3PL software or a provider for your company.

Here are a few factors to consider before choosing any 3PL provider.

Know Your Strengths and Weaknesses

It is a very practical approach to know well about your company, its strengths, and weaknesses. Determining all the information gives you an idea of where your company is lagging and needs the most help. In this way, you can choose a complementary partner who will cover your weaknesses. Merging your strengths with your partner indeed gives you remarkable results because 3PLs have distinct capabilities. Having a clear understanding of your needs helps you choose the right 3PL provider.

Research for the right 3PL Provider in the Market

There are multiple 3PL providers in the market but selecting the right one is crucial. After you understand your strengths and weaknesses, it’s time to choose the appropriate 3PL. It’s up to your geographic needs whether you require a nationwide provider or a location-specific one. Create a brief questionnaire and ask 3LP partners to provide information. Now shortlist the ones who have expertise related to your industry. Before making a deal, compare your needs with their capabilities and assess their infrastructure, whether they have warehouse management or transportation management systems. Go beyond basics, look for business intelligence solutions, and ensure your partner provides you with data and visibility about order fulfillment and shipments.

Image: flickr.com

Talk with Their Clients

When you take an interest and talk to previous clients of 3PL providers, you can foresee your future with them. Does it give an insight into whether they are competent enough to provide you with your desired services? Are their customers satisfied with their service? What are the possible benefits you will get while working with them? Also, when you compare your needs with theirs, you get the idea of which 3PL provider is the best fit for your requirements.

Assessing Credibility and Reliability of 3PL Partner

Choosing a credible and reliable 3PL partner has rewarding outcomes. You cannot just rely on someone if you don’t feel confident about your trust level. However, it is impossible to strictly judge their reliability but look for specific indicators to make an assessment.
● How much time have they spent working in the industry?
● Can you access previous records or customer data or approach their customers for references?
● Do they have experience in the markets and locations you’re operating?
● What benefits and changes have they brought to customers’ businesses?

Check whether they hold any accreditation or recognition from industry bodies; they are reliable and trustworthy if they do. This information also provides insight into their capabilities to handle your work.

Safety and Security

Ensure your 3PL partner complies with changing safety regulations for your assets and personnel. Always opt for 3PL partners with solid safety and security protocols to protect your data and resources. They must have accreditation from trusted bodies, and they stay up to date with the latest safety initiatives.

Also, you’ll want them to have strong connections in the industry to safeguard your rights in case of any problem. It also ensures non-stop operational capability and saves you from any loss.

The financial health of your potential 3PL partner matters a lot if the company fails. Then you can lose all your logistics overnight, leaving your company in a desperate situation. Talk with their clients about their size and how long they have worked with them? And also what kind of investments they are making to ensure the financial stability of their company.

Analyse Customer Service of 3PL Providers

Customer satisfaction matters a lot for consistent business growth. Always choose a 3PL provider with a proven track record of excellent customer retention and problem-solving after all, your 3PL provider is your business representative once you’re in contract.

Undoubtedly, all the companies claim excellent customer service but always demand references from them. Talk with industries that have similar needs as yours. Ask for their feedback about the 3PL provider. This way, you can assess their capability to deal with customers positively and professionally.

Customization

Every business has its pros and cons. Make sure your selected 3PL partner is competent enough to meet the desired requirements specific to your business. Whether it’s about multi-channel capacity or customer service, the 3PL partner should be an expert in his niche. Most 3PL providers have a specific area of expertise, although they claim they can do everything.

Customization using 3PL has many benefits like speed, cost-saving, and faster response rate to changing market climate. While you’re eager for solid and meaningful relationships, an excellent 3PL partner will help you achieve your goals by providing warehousing, transport, and distribution services in a customized fashion.

So, It is essential to select a competitive and proficient 3PL provider. He will help you achieve the modern demand for supply chain customization.

Cultural Fit

Company culture is often the main parameter to check the two companies’ compatibility. You’re handing over your business to an entity, so check whether they hold the same values as yours. What are their future goals? What are their issues? What drives them to work?

Knowing all the elements helps establish an element of trust between both of you. Also, your 3PL partner feels easy to align with your needs and serve you better.

Establish Relationships

During outsourcing establishing meaningful relations with a 3PL partner comes in handy, especially if you have a long-term collaboration. The strong relationship between individuals dramatically contributes to success. You can better understand the needs of each other and solve problems under pressure and over long distances. Talk with your potential 3PL partner and try to develop an understanding to run the company’s operations smoothly.

Pricing

Pricing is the most critical factor; our primary goal of outsourcing is cost savings. But don’t compromise on quality as it increases your brand reputation and the overall life of products. Paying for quality is not a wrong choice but be aware of hidden costs.
Some measures to keep check and balance are
● Transparency in dealings and services
● Sensible payment terms
● Easy-to-understand and simple formatting of financial documents
● Question about billings and payments

Technology and Innovation

Always choose a 3PL partner with enterprise-level technology, as almost every aspect involves using the latest technology. To comply with the modern demands of sustainable supply chains, it becomes more critical to have modern technology, including advanced 3PL warehouse management software. Sophisticated technology streamlines processes and ensures shipment safety by providing real-time monitoring using built-in sensors and devices.

Understand and monitor whether your 3PL provider is willing to incorporate new technologies or not. Technology is changing continuously, and your provider must adopt innovations to achieve cost-effectiveness and efficiency.

Third‐party logistics (3PL) provider selection has gained significant attention in logistics management literature. So, the most important criteria for 3PL provider selection are on-time delivery performance, technological capability, financial stability, human resource policies, service quality, and customer service.

Assessment of Smooth Integration

Objectively and rationally assess the potential capabilities of your 3PL partner. Analyze whether his Capabilities comply with the metrics that matter most for your business or not. Ask questions like, can they handle changes in stock rotation parameters? How will they respond to changes in product volume and stocking levels? How can they improve the ongoing process?

Also, make sure to check the integration compatibility; otherwise, you will suffer a lot. For example, you’re working with one 3PL partner and want to extend your existing network through this new 3PL and the existing one. Make sure you don’t face any issues like maybe your 3PL’s processes prohibit you from working with a previous partner. The unanticipated requirements of the new 3PL might frustrate you if you have to redesign your business processes completely.

That’s why always be cautious of not committing a fatal mistake due to a lack of proper research.

Disaster Management and Responsiveness

Supply chain disruption significantly affects the functionality of your business. Ask your potential 3PL whether he can handle such disorders or not. What is his internal planning for disaster management? Although there are high risks of supply chain disruptions, many companies are underfunding relevant departments.

Ask your partner about his planning to tackle labor shortages, technology outages, weather-related transportation disruptions, and other associated risks with the product line.
Things usually go well during normal operations. When an issue arises, it’s the right time for your 3PL partner to utilize his management skills.

Responsiveness is also measured during tough times when you have multiple things in mind. Your partner must be able to deal with emergencies and respond well during disastrous conditions. Ask them about their previous disaster management history. Have they ever gone through such requirements?

Conclusion

As an established platform for providing fulfillment solutions, 3PLNEXT delivers the best 3PL services. Our experts have years of hands-on experience to provide you with custom-made solutions. Our tech-savvy operational capabilities offer you an innovative and easy-to-access interface. Join us to get in touch with the latest news and updates on the industry.

Ahmed Sufi

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