Deciding to outsource logistics to a 3PL provider can have big implications to logistics management in your company. Whether you’re outsourcing logistics for the first time, or making a switch from one 3PL provider to another, we recommend using these 4 simple, smart questions as you assess top logistics companies: These 4 questions can help you think more strategically about the companies you may be considering, and guide you to ensure great performance from the 3PL you select.
Question 1: Can the 3PL provider maintain the seamless movement of product to meet or exceed delivery times?
This question really focuses on execution in the logistics network. Ensuring that the provider you select can meet and exceed the delivery requirements you have for your goods is absolutely critical. The last thing you want to find out is that you decided to outsource logistics, and then the performance levels of the 3PL are worse than what you were already doing! Ensure the top logistics companies you are vetting have proven evidence of execution — from existing clients or past experiences you have had directly with them.
Question 2: Is the 3PL prepared to mitigate and prevent product damages, and inventory costs at large?
This question has everything to do with the indirect benefits of outsourcing to a 3PL, beyond just the direct benefits. Undoubtedly, you’re already taking a close look at the direct inputs and benefits – which include things like labor, processes, and technologies. But it is also critical to look at the indirect areas as well. Indirect areas include things like optimizing inventory levels over time (ie. reducing overall storage space and inventory buffer levels), ensuring retail compliance to avoid costly shelving penalties, and of course, the mitigation of potential product damage costs due to storage and in-transit handling issues. Also, it’s important to think through your returns management and reverse logistics processes. Can the 3PL provider take an integrated approach to both your forward and reverse logistics to garner even more synergies and cost savings in the long run?
At LeSaint, we see a lot of our clients encounter pitfalls when they outsource pockets of their supply chain to different 3PL providers. For example, outsourcing transportation only in certain lanes, or outsourcing 1 or 2 warehouses in the network to different providers can lead to disconnects and ‘blame games’ over time. While almost all of our clients use multiple 3PL’s, it is critical that by doing so, you are also capitalizing on the direct and indirect benefits of optimizing your total network over time, not just siloed cost savings or operational upticks in a few areas.
Consider this scenario that you would absolutely want to avoid: You decide to outsource one of your warehouses to a 3PL, who does an outstanding job optimizing your inventory practices. You end up saving $10,000 per month as a result. You also decide to outsource your transportation to different 3PL provider, whose driver does a poor job of loading and securing your product shipments. As a result, you’re now experiencing $10,000 per month in product damage costs incurred during transit. You thought you were doing the right thing; but in the end, you didn’t really net a better outcome.
Question 3: Does the 3PL have enough capacity and flexibility to help you through peaks and valleys in demand?
Today’s business environment is highly dynamic and constantly changing. One of the biggest concerns you’ve likely had as you’re considering outsourcing logistics, is this: Will your 3PL provider give you the flexibility you need to adjust your relationships together as you go, or will you be ‘locked in’ to a certain minimum volume commitments no matter what happens with the demand in your business? It is critical that you address this with the top logistics companies you’re considering.
We will give you big hint on this: Looking for a 3PL (or multiple 3PL’s) to act as transactional vendors that you measure exclusively on price, cost and service is very different than thinking of a 3PL as a long-term strategic partner to help impact and evolve your logistics network over time. How much flexibility you build with the 3PL will largely depend on the approach you’re taking in the first place.
Question 4: How costly would it be to implement the systems and processes to manage logistics in house?
During most evaluation processes for 3PL providers, there is a very thorough ‘apples to apples’ comparison done, and it can become a bit of an obsessive process to split hairs over fairly small differences between 3PL provider’s quotes. What is most often overlooked, however, is the comparison of managing logistics with an internal department “in house” vs. “outsourced to a 3PL”. Companies often never fully understand their internal costs associated with purchasing new logistics systems and technologies (ie. such as WMS or TMS systems), implementing and managing those systems, upgrading the systems over time, and ensuring a leverageable path to expanding those systems and their adoption across the enterprise. The same goes for best practices and processes associated with making continuous improvements, hiring and training employees, and similar aspects across the logistics network. Keep in mind that it is only once you can understand your total logistics network costs and opportunity costs that you can feel confident outsourcing logistics will yield better savings and value.
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This post is authored by Dino Moler, Executive Vice President of Client Solutions at LeSaint Logistics, where he is responsible for developing creative, customized logistics solutions that reduce total logistics costs, free up working capital and improve customer service. Dino serves as Chairman of the Board of Directors for the Transportation Marketing & Sales Association, and actively participates in logistics industry associations and events.