3PL RFP and Vendor Selection: The Definitive Guide

So you’ve been tasked with putting together a complex request for proposal (RFP) for third party logistics (3PL) services and ultimate selecting a suitable partner? Not only is this a mouth full, but it’s also a very time consuming process in order to do correctly and include all information necessary to make the best choice. But worry no more – we’ve put together a checklist of some of the most important components to include in your RFP, as well as a detailed 3PL selection process to follow based upon the experience of one of the top supply chain experts in the US and owner of The Lean Supply Chain, Charles Intrieri.

Your Third Party Fulfillment Request for Proposal: Defining Your Goals

Putting together a 3PL bid is a process that needs careful consideration since you’ll likely be sending multiple bids out to your top warehouse choices. Otherwise known as a Request for Proposal, sending a bid to a 3PL happens after you’ve thoroughly vetted a number of companies. As you send out bids, you’ll want to provide various types of information, including questions to ask the 3PL.

Overall, you want to include things in your bid request that helps you establish a good working relationship with the fulfillment center. You already know they have the right technology available for your business structure. Plus, you may know they have a dedicated team and have financial security.

You still want to know what kind of relationship you’ll have with your 3PL company. This includes requests for more information so you have a complete picture of which company is the best choice.

Vetting is never easy, yet it sometimes requires being slightly forceful to get more info. Most of all, providing information about your own goals can help the 3PL better prove they’re right for you.

Take a look at what to include in your request for proposal, including a list of your data points so a 3PL can give you a better idea of their logistics process.

Defining Your Goals

Experts on 3PL bidding always emphasize that you need to define your business goals before you even write a proposal. Once you understand what your goals are, you can have a better idea of how to craft your proposal. A 3PL can also get back to you with more thorough information about what they provide so you make a better educated decision.

Here’s three questions to ask yourself before sending in bids:

1): What Do You Hope to Accomplish?

Answering this question can help you determine what your true aim is in distributing your products. Do you have a specific geographic area in mind? Do you want to provide unique shipping offers as part of your brand? You may also want a better line of communication with your 3PL so you’re aware of upcoming technology changes or improvements.

2) What Are Your Estimated Cost Saving Goals?

What your 3PL charges you for their services matters in your savings goals. Sending out multiple proposals helps you weigh the costs to determine which fulfillment center provides what you need for your budget guidelines.

3) What Kind of Operational Efficiency Do You Need?

You’re perhaps in a unique niche industry that requires certain types of shipping equipment and procedures. Some of the 3PL companies you vetted may not have enough commitment toward service improvements to help you expand in the near future. This can help you whittle down your bid choices fairly fast.

Outlining Your Requirements

Based on the answers of your goals above, you can incorporate that and more into your bid on what your business requirements are. Don’t be timid on including more data, because the more the 3PL knows, the more they can help nurture better teamwork with you.

Some other things to add include the minimum requirements you need for your business to keep up with demands, plus any perks that could benefit you along the way.

Listing Your Current Costs

By providing data on what you currently pay for freight and what your expenses are, the 3PL can give you a more accurate quote after looking at your bid. In a sense, you’re providing your own audit so the 3PL can see what you truly need in order to work well with them.

When the 3PL sees you’re considering several warehouse choices, one may counter with a savings offer to prevent you from going to one of their competitors.

Contact us here at 3PLCompanies.net so we can help you find the 3PL company right for you and provide tips on the bidding system.

3PL RFP: What to Include in Your Request

Business Issue and Services Required

The “meat and potatoes” of the RFP is a thorough description of the business issues and services required for your 3PL project. This will include all of the things that you’re looking for in an outsourced third party logistics partner. When creating this aspect of your RFP, don’t forget to include any assumptions that you use so that each potential service provider is aware of the confines of your needs.

Pricing Format Including any Special Pricing

One of the most difficult tasks involved with 3PL selection is comparing the various pricing structures of competing 3PL companies. Therefore, create some “rules of the game” so that you can easily compare apples to apples. Providing the expected structure of the pricing component puts you in the driver’s seat and will save you much needed time. Furthermore, many companies allow warehousing firms to also provide any specific pricing they would propose using in addition to the standard requested format. This allows providers to “pitch” other ways of streamlining pricing.

Term of Contract

Be sure to include the potential term of any fulfillment agreement. This sets the expectation for how long the relationship will last. Keep in mind that the longer the term, the better the rates that the providers will potentially propose, as longer term contracts hedges some of their risks. However, on the other hand, a shorter contract hedges your risk of performance should you want to switch providers in the future.

Due Date/Timeline

It’s important to set a timeline for the 3PL RFP to be completed by the various providers. Furthermore, you may wish to provide a timeline that spells out exactly how long they have to ask you questions, for you to respond to their questions, as well as any other timeframes needed during the process.

Location Requirements

If you have a preference as to where the 3PL is located, be sure to spell this out clearly early on in the request for proposal. This way, providers will know right away if they are eligible or ineligible to compete based upon the location of their facility.

Selection Criteria

Most people enjoy knowing the ways in which they’re going to be “graded”, as it sets the expectations appropriately. Similarly, 3PL companies need to know what factors you’re going to use when “grading” them against other providers. While you don’t have to put everything out on the table, highlighting the most important factors will help them showcase the appropriate information to make a sound decision.

Key Performance Criteria

The best RFP’s are forward thinking – meaning that they not only help you provide a basis to make a decision, but also serve as a foundation for assessing their performance. By including key performance indicators that you’ll be using if they’re chosen, you not only get to assess their success or failure with these criteria, but you’ll also be gain insights into whether or not they have the capacity to measure the desired results within the confines of their current systems.

Questions for 3PLs

One of the most important aspects of an RFP is the section related to your questions for the various providers. This is your opportunity to ask them specific questions to get at the heart of how well they’ll be able to address your needs. Be sure to put some extra time into thinking through the most valid questions possible. By making the competing companies respond to questions, you’ll be the insights you need to make the best choice of a partner.

How to Respond and Point of Contact

Lastly, you’ll want to provide an avenue to respond to your request. Let the 3PL firms know how you want them to respond and provide a specific point of contact. By funneling all of the information flow through one representative, communications will be streamlined.

Third Party Logistics (3PL Selection Process): A Step by Step Guide

Below is a comprehensive step-by-step guide exclusively developed by Chuck Intrieri of The Lean Supply Chain to help you keep track of all the nitty-gritty details as you screen and choose the right 3PL for your business. (There’s quite a bit to manage, so using a 3PL consultant might be wise.)

  1. First, a cross-functional team investigates internal, company current freight and logistics costs: Choose a 3PL implementation Project Leader or be guided by an external 3PL Consultant.
  2. This cross-functional, internal team will then create a Request for Quotation (RFQ)/Request for Proposal (RFP) with consultant’s recommendations. The more detailed the RFQ/RFP, the better the quotation/proposal. Put a due date (7 days out) on the RFQ/RFP to measure responsiveness of 3PLs. Send to at least three (3) different 3PLs.
  3. Know all of your customers and their zip codes for delivery examination. We want the 3PL in the right location for our customers.
  4. IT requirements: Your IT Manager should address IT needs: Warehouse Management System (WMS) integration, Transportation Management System (TMS) integration for tracking your freight, Yard Management System (YMS) and Electronic Data Interface (EDI). API, a replacement for EDI: API is an acronym for “application program interface” and allows different computer systems to communicate with each other. Compared with standard EDI, API provides flexibility and enables a faster, more efficient exchange of electronic documents such as load tenders, customer orders, shipment status, and invoices.
  5. You may receive a Request for Information (RFI) from the 3PL(s) asking for additional information needed to quote/create a proposal.
  6. A quote/proposal follows. Always be aware that these prices can change and are based on YOUR FORECASTED REQUIREMENTS; your ACTUAL Day-To-Day requirements will change pricing.
  7. Ask 3PL(s) for clarification of RFI, if required.
  8. Obtain pricing for services aside from quotation/proposal including gainsharing, cost-plus pricing, activity based pricing. and unit rate pricing.
  9. Find out if the 3PL is Asset (they own their own warehouses/transportation) or Non-Asset based (where they subcontract warehousing and transportation).
  10. Call at least three current customers of the chosen 3PL and make a list of the pros/cons of the chosen 3PL.
  11. Choose a 3PL after analyzing the total, bottom line value to your company that they will provide.
  12. Check the 3PL’s financial strength. You can analyze a Dunn and Bradstreet report on the 3PL.
  13. Always have “fail-safe” backup 3PLs, just in case the chosen 3PL does not work out.
  14. Visit the chosen 3PL with a 3PL Checklist (the consultant has a 3PL Checklist).
  15. During the first visit, pay attention to whether or notyou feel comfortable. Is the chosen 3PL collaborative, flexible, understanding—and do you have “good chemistry” with the 3PLs top management and your 3PL daily contact person?
  16. Negotiate prices with the chosen 3PL during your visit. Negotiating prices while at the chosen 3PL’s facility works very effectively. Clarify: your forecast based pricing versus ACTUAL pricing.
  17. Consider gainsharing, cost-plus pricing, activity based pricing (pricing per move), management fee pricing, hourly pricing. Which pricing is best for you? Examine them all.
  18. Negotiate the per month charge: i.e., $ 1000/month flat fee plus prices and other fees.
  19. Review accessorial prices (pallets, labeling, banding, shrink wrapping, palletizing, etc.).
  20. Make sure you understand How long the final, negotiated prices will remain in effect.
  21. Be aware of: 3PL “upfront charges” on a new, large account for administrative set up. These upfront charges are negotiable.
  22. If you agree to a three-year contract, read the contract thoroughly or let your 3PL consultant review the contract in detail. Ensure that there is a cancellation/modification clause in the contract so that you can cancel or modify the contract if the chosen 3PL is not meeting your expectations or if a change is needed. There may be a Warehouse Contract (Public Warehouse or Allocated, Private Warehouse Space) and a Transportation Contract.
  23. Will the chosen 3PL agree to a Transportation Quarterly Business Review (QBR) which includes Transportation Management System (TMS) Optimization of routes and lanes, after 60 days of experience (cost reduction % agreement) with your company’s freight, and fuel surcharge (FSC) management? Do you have a carrier preference? This means NO AUTOMATIC increase of FSC, but negotiating FSC increases that come along frequently, increasing transportation prices. All transportation freight bills/invoices should be audited; quote versus actual billing: are there any variations?
  24. Always have your own Terms and Conditions of doing business. If the 3PL has Terms and Conditions and you do not, the 3PL wins in a court of law if there is a dispute of any kind. Watch out for Terms and Conditions on quotations/pricing sheets.
  25. Do you have Liability Insurance? Cargo Insurance? Cargo theft insurance? (Have the type of cargo identified on the Transportation Bill of Lading.) Other insurance? Does the chosen 3PL have Liability and other Insurance?
  26. Find out what cargo security issues/policies are in place.
  27. Returned Material Authorization (RMA): Is there an RMA policy to inspect damaged “poor quality” goods upon receipt, and approve the return with an RMA number? What is their Reverse Logistics Process? Return to Vendor (RTV) Policy?
  28. Will the chosen 3PL agree to a “win-win,” collaborative Service Level Agreement (SLA) with Key Performance Indicators (KPIs) for Continuous Improvement, with a monthly review? Collaborate with the 3PL: if the 3PL misses metrics/KPIs and/or delivery due dates to our customers, agreed-upon penalties are in place to negatively reinforce the 3PLs missing metrics or KPIs. If there are too many detriments, the 3PL is put on probation for a period of time, and MAY be replaced with another 3PL. Credits can also be discussed for positive activities, like meeting all KPIs/metrics.
  29. Is the 3PL a Lean 3PL? 3PL Culture in place / who is accountable/responsible? Is Top Management focused on Lean? Do they come to the shop floor and work with their associates to solve problems and improve processes daily? Daily continuous improvement? Kanban pull systems? Lean Six Sigma quality? Visuals showing Lean focus and strategy and continuous improvement. Lean education frequently?
  30. Does the 3PL manage your International Trade? Import/Export? Customs Broker? Freight Forwarder? Warehousing? Is there a Foreign or Free Trade Zone (FTZ) within the 3PL facility?
  31. Does the 3PL have: Last Mile Delivery? Last Mile Deliveryis defined as the movement of goods from a transportation hub to the final delivery The final deliverydestination is typically a personal residence. The focus of last mile logistics is to deliver items to the end user as fast as possible.
  32. White Glove Delivery: White Glove Delivery. … The deliveryagents will unload and place your items in the room of your choice. White Glove servicegenerally includes unpacking, removal/disposal of packing materials, and transporting your order up or down a maximum of two flights of stairs.
  33. There may be other issues that come up as each 3PL tailor-makes how they do business with their customers. You also learn new things as you move forward with 3PL Management and Selection.
  34. Eventually someone like the 3PL Implementation Project Manager or 3PL Consultant has to manage day-to-day 3PL activities: i.e. monthly reviews of the SLA and quarterly reviews of the QBR to ensure all KPIs are met and you are BOTH continuously improving. Especially focus on cost reduction targets through collaboration with the 3PL. Managing a 3PL can be a full-time position. Daily communication and collaboration with the 3PL is vital.