There are many reasons to outsource logistics and supply chain management instead of handling it in-house, no matter if you are a large manufacturer or a small e-commerce business.
However just as there are hundreds of 3PLs (third-party logistics providers) to choose from, finding the one that suits your requirements can seem daunting.
The following tips should help you find the right 3PL service provider for your business.
Figure out Why You Need 3PL
One of the first things you will need to do is define your objectives clearly. Why do you need a 3PL provider? Who on your team will be the point person to manage communicating with your 3PL? Do you want them to handle a particular product, region, or location?
Make a list of what needs to be shipped and to whom (manufacturer, warehouse, end-customer, etc), and be sure to include ideal timelines for each segment of your shipping needs. Don’t be afraid to get detailed in your outline. Include any specific requests you’ll have (think future products too!) such as re-palletizing, custom labeling, or a desire to share your storage space with other companies. Once you clarify all your needs, it will make choosing a third-party logistics company much easier.
Choose the Type of 3PL that Fits Your Business
Not all 3PL companies are made equal. Some develop specialties (like regional support, import/export, or support clients within a certain industry), while others provide general logistic services to a broad range of clients. Depending on your business goals, you will need to choose a suitable 3PL company that ideally serves other companies similar to yours. Most 3PL services can be classified by two broad categories: general purpose and niche specific carriers.
General Purpose Carrier
General purpose carriers can handle various tasks, ranging from warehousing to transportation. However, they mostly handle goods that do not require special logistics services like packaging, handling, storage, or in-transit care. As a result, their fulfillment services are also relatively less expensive. However, if you are going to transport perishable goods, dangerous goods (like lithium batteries found in most consumer electronics), restricted items, or medicines, you will have to look for a 3PL that is certified to handle those products.
Niche Specific Carrier
Niche-specific carriers cater to a specific industry or market. Here are a few examples that will help you understand better.
a) Perishable Goods
3PL companies with a robust network of cold storages often tend to cater to clients in the perishable goods sector. They also have a fleet of cold storage containers and refrigerated trucks at their disposal. They are experts at handling goods such as fish, poultry, meat, fruits, dairy, and vegetables.
b) Certified for Special Products
These are logistics companies with certifications to transport unique items such as organic foods or specialty drugs. They have the necessary infrastructure and well-trained staff to handle your special cargo.
Legal regulations may require you to use such a 3PL if you products are considered special cargo. For example, for transporting specialty pharmaceuticals, you may need to work with an FDA-certified carrier.
3PL companies specializing in e-commerce sector need to provide fast and on-time delivery with minimum cancellations. For example, Amazon allows only the vendors and 3PL companies satisfying their Seller Fulfilled Prime Standards to sell prime products.
Your 3PL should be able to provide insights for you and connect the many software systems needed to follow an order through the supply chain.
- How do you invest in technology? Have you developed a new application to improve your systems? Or do you only maintain legacy systems?
- Are you keeping up with the latest technological developments in the 3PL industry?
Make sure the technology is sophisticated enough to handle your product flow, and also user-friendly for you and your team to quickly adapt. Their technology solution should be able to scale as your business expands, when demand rises during the holiday season, or when new industry technology is introduced.
Your 3PL should be your partner in logistics operations, and be willing to share necessary data about the supply chain with you. This kind of transparency is the best way to establish trust. Data will be helpful for you to make decisions when issues arise, or when your business goes through inevitable changes (like sales growth!). For example, a 3PL will be privy to a shipper carrying fragile goods at a lower cost, as well as the percentage of damages along the freight route.
Your 3PL should inform you of difficulties such as carrier errors, transportation delays, faulty reporting, data irregularities, and product return claim abuse. This proactivity is more important than cheap 3PL costs. Make sure you ask hard questions about they type of data your potential 3PL collects and openly shares with their clients.
It is optimal for shipping cost reduction to choose a 3PL close to the location of your target consumers. Their fulfillment centers will shorten the length of the shipping route, providing transportation cost savings. They will also have a better understanding of local traffic fluctuations and seasonal changes in transportation availability, resulting in accurate and on-time delivery.
If you plan to need to visit your warehouse space often, however, choosing a 3PL with facilities closer to your office is likely going to be best. Any extra shipping cost accrued for shipping across the country will likely be worth the peace of mind you have by being close to your product.
The more strategically-placed warehouses and fulfillment centers that a 3PL has, the more cost-effective they will be on shipping. Strategic placement means being in major cities (for population density) or close to accessible transportation routes (ports, airports, major highways, etc) . However, you can’t compromise the location with the quality of service. The carrier still needs to provide you with on-time performance, lower product damage, billing accuracy, and fewer delivery irregularities.
Understanding Fees & Rates
Different 3PL companies have different cost structures, making it slightly difficult to compare the prices. However, you can still divide the costs into five parts and weigh each cost according to which is a higher priority for your business needs.
- Onboarding Costs—Many 3PL companies charge extra for initial set up. It can take anywhere from a few weeks to months to complete the entire set-up process, which will vary depending on time and scale of onboarding.
- Receiving—The cost of acceptance and storage of incoming inventory, including per unit, per pallet, flat rates, or per hour basis, may vary greatly.
- Storage—You will be charged separately for warehouse storage space. It will be per shelf or pallet basis, or per cubic or square footage. Temperature control (for perishable goods) will be charged extra.
- Order Fulfillment—This usually includes pick-up and packaging costs. You have to pay per item or per order fee when a customer places an order.
- Shipping—This includes a variety of factors such as freight charges, parcel Less Than Load (LTL) or Full Truckload (FTL) costs, delivery time and destination, shipping zones, and dimensional weight.
Reputation & Experience
You shouldn’t overlook the reputation and experience of a 3PL. Once a 3PL starts handling your logistics, your reputation goes into their hands. Plus, it’s a long-term commitment that requires considerable investment of both time and resources. It is better to know in advance of signing a contract what a 3PL’s reputations is.
How to research a 3PL’s reputation:
- Do they have positive reviews online?
- What kind of clients have they worked with before?
- Seek out other companies and brands who use that provider. Ask them how they are treated.
- If you are in conversation with a 3PL ask if you can speak to a few employees. Are they happy with their job? Are they treated well?
- Are there any reviews of crisis issues? How do they respond? Which regions do they cover? Do they own the land where their warehouses are?
- Do they have established long-standing relationships with carriers and freight forwarders?
- Are their rates competitive?
- How good are their safety ratings and insurance?
Get answers to all these questions before taking the next step. It is always preferable to work with a 3PL that has a stellar reputation in your niche. It should also have at least a couple of years experience. Thorough research is key here.
Importance of Communication
Communication is at the heart of any successful partnership and a 3PL needs to have a direct line of communication with their clients, as well as their carriers, suppliers, shipping companies, and vendors. A 3PL should provide you with access to their administrative support, complete visibility for each order, and real-time data and reporting.
They should tell you when an item will be picked, when it will reach its destination, who is carrying it, and if there are any problems in the delivery. This communication line needs to be impeccable and stay open 24/7.
A 3PL contract is usually a long-term investment, so you will need to weigh all the factors mentioned above before submitting an RFP (Request for Proposal) to the top few 3PLs from your research. Be sure to include the metrics that define your business goals into your RFP as well.
Outsourcing logistics services to a 3PL can lead to overall cost reductions as well as improve your customer service. However, you need to hire the right 3PL to accomplish those goals. The search for the right 3PL should start by clarifying your needs, and include thorough research.
If you’re looking for help with outsourcing your order fulfillment, send us a note to connect about how we can help your company grow. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics solutions.