Moving goods from the point of origination to the end-consumer has become increasingly expensive in today’s marketplace. Rising fuel costs, increasing environmental regulations, and higher labor costs have squeezed out the margins. Further, intense competition, particularly in the e-retail sector, is forcing businesses to look for cheaper and more reliable logistics alternatives.
Whether you are a manufacturer or an e-commerce business, outsourcing your logistics seems like a good idea. In fact, more than 95% of the Fortune 100 companies and more than 80% of the Fortune 500 companies use dedicated contract carriage, warehousing and distribution, domestic and international transportation management, and software services, which form the crux of the 3PL market service landscape.
However, you have to make sure to outsource it to the right 3PL company. As hundreds of 3PL companies operate on local to global scales, finding the one that suits your requirements can be daunting.
The following twelve tips should help you find the perfect 3PL fit for your shipping requirements.
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 to hire a 3PL company? Which part of your day-to-day operations are you going to hand over to them? Will you be adding more services to your contract in the future? Do you want them to handle a particular product, region or location?
A 3PL contract is going to be a long-term investment. So, you will need to think about all these factors before drawing up your 3PL Request for Proposal (RFP). Don’t forget to include the metrics that define your business goals into your RFP as well.
Make a list of what needs to be shipped and to whom. You will also need to convey when it needs to be delivered to the end user. Depending on your products and target customers, you may have to use different 3PL companies. You may also need to include a few value added services such as re-palletizing or custom labeling or sharing your storage space with other companies in your contract. Put down all these specifics on paper before looking for a 3PL company.
Choose the Type of 3PL That Fits Your Business
Not all 3PL companies are made equal. Some companies develop specialties of their own, while others provide general logistic solutions. Depending on your business goals, you will need to choose a suitable 3PL company. You can classify 3PL companies into two broad categories: general purpose and niche specific carriers.
General Purpose Carrier
General purpose carriers can handle various tasks, ranging from storage to transportation. However, they mostly handle goods that do not require special packaging, storage or in-transit care. As a result, their services are also relatively less expensive. However, if you are going to transport perishable goods, restricted items, or medicines, you will have to look for a specialist.
Niche Specific Carrier
Niche-specific carriers cater to only a specific industry or market. Here are a few examples that will help you understand better.
a) Perishable Goods Carrier
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 all types of perishable goods including fish, poultry, meat, fruits, dairy, and vegetables.
b) Certified 3PLs 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.
The law may require you to use such a 3PL company if you are transporting 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. You are better off hiring an Amazon Prime-certified fulfillment company for your own e-commerce store.
Evaluate the Services They Provide
Each logistic company provides different types of services. While most 3PL companies provide general logistic services, a few will offer support in product tracking, IT infrastructure, and security as well.
Some of them, called customer adapter 3PLs, also take over your in-house logistics operations to make it more efficient. They won’t use their own technology and infrastructure though. Customer developer 3PL companies, on the other hand, will take over your existing logistics division and improve it using technology and infrastructure of their own.
Shippers are the type of 3PL companies that provide the resources to manage the logistics operation from start to end. They will also develop relationships with carriers and transporters while creating detailed logistics reports. Some of them, however, specialize only in warehousing and distribution management. You should choose the one that suits your requirement.
Transparency is the key when working with a 3PL company. They should be willing to share all the necessary data with you. This is the best way to establish trust. For example, sharing information about a shipper carrying fragile goods at lower costs and also the resulting higher percentage of damages will build trust.
The 3PL should inform you of difficulties such as carrier errors, transportation delays, faulty reporting, data irregularities, and product return claim abuse. This proactive attitude is more important than cheaper 3PL costs. Make sure how much data the potential 3PL is willing to share before closing the deal.
Understanding Fees & Rates
Different 3PL companies charge differently, making it slightly difficult to compare the prices. However, you can still divide the costs into five parts.
- Onboarding Costs –Many 3PL companies charge extra for initial set up. It can take anywhere from a few weeks to months to finish the set up. The charges will vary depending on time and scale of onboarding.
- Receiving Costs –3PLs charge differently for acceptance and storage of incoming inventory including per unit, per pallet, flat rates, or per hour basis.
- Storage Costs –You will be charged separately for storage space as well. 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 Costs –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 Costs –Shipping costs include 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.
You can choose a 3PL company based on the location of your target consumers. Their strategically-placed distribution centers will shorten the length of the haul, reducing transportation costs. They will also have a better understanding of local traffic fluctuations and seasonal changes in transportation availability, resulting in on-time delivery.
The more the number of strategically-placed warehouses and distribution centers, the higher the cost savings will be. 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.
Reputation and Experience
You shouldn’t overlook the reputation and experience of a 3PL company. Once a 3PL starts handling your logistics, your reputation goes into their hands. Plus, it’s a long-term commitment that requires considerable investment. So, it is better to know how good a 3PL company is beforehand.
Find out –
- How the company treats its employees and clients.
- Do they have positive reviews online?
- What kind of clients have they worked with before?
- How do they respond during crisis?
- Are they performing consistently?
- Which locations do they cover?
- Are their rates competent?
- 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 company that has a stellar reputation in your niche. It should also have at least a couple of years experience. Thorough research is key here.
Logistics is a complicated business that profoundly relies on sophisticated technologies such as Warehouse Management Systems (WMS) and Transportation Management Systems (TMS). These technologies offer real-time visibility and analytics. Your 3PL company should also show technological finesse.
They should have the necessary technology to automate and integrate into your order routing and storefront inventory management tools. Try to find out –
- How much the 3PL invests in technology?
- Have they developed a new application to improve their system or do they maintain only legacy systems?
- Are they keeping up with the latest technological developments in the 3PL industry?
Make sure their technology is sophisticated enough to handle your present as well as future inventory requirements. It should be able to scale as your business expands or when the demand rises during the holiday season.
Ability to Handle Future Growth
You need to work with a company that can handle your future growth requirements or season fluctuations in demand. If your business grows by 20%, for example, your 3PL should be able to scale up accordingly as soon as possible.
Ideally, there should be no delay in the scale up. The company is expected to provide finance for the expansion from its pocket, which involves setting up new storage and distribution facilities as well as using new technology.
However, you will need to share your business forecast with the 3PL company regularly. It will allow them to make labor and storage space arrangements in advance. Just make sure you discuss these terms with the company before signing the contract.
Logistics is a capital-intensive business. 3PL companies often have to bear the burden of operating costs, scaling up, lease commitments, and also capital investments. The company will need to make these investments for clients and also to develop its own infrastructure.
Plus, 3PL companies always have to pay the carriers in advance. In other words, the company should be financially stable and have a steady cash flow. Ask the 3PL company to share the profit and loss (P&L) data to ensure they are in sound financial health. You should also find out about their line credit, insurance, and banking relations.
Along with financial health, the 3PL company will also need to be prepared to face unexpected disasters. There may be a labor shortage, an accident or break down or even a weather-related emergency. Is the 3PL company capable of handling these situations?
Hiring an asset-based 3PL company can prove helpful in this regard as they have more control over their asset recovery. Check the company’s financials or talk to their ex-clients to find out how they have dealt with such situations in the past. You can also ask them to provide a contingency plan to mitigate such disasters.
Importance of Communication
Communication is at the heart of a successful partnership with a 3PL company. 3PLs need to have a direct line of communication with their clients as well as their carriers, suppliers, shipping companies, and vendors. The 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 any problems in the delivery. This communication line needs to be impeccable and stay open 24X7.
That’s it! Outsourcing your logistics to a 3PL company can lead to overall cost reductions as well as improve your customer service. However, you need to hire the right 3PL company to accomplish those goals. Keep in mind these twelve tips before setting out your hunt for the perfect 3PL company. Hopefully, you will find the one that fits your requirement soon. Good luck!