Outsourcing functions of your supply chain to a third-party logistics (3PL) provider is a significant business pivot. Don’t settle for generic services or broad deliverables packaged as your perfect solution. Target the best provider, at the best price, for your exact supply chain pain points, then sit back with confidence your reputation is in the right hands.
Knowing how to choose an effective third-party logistics provider doesn’t have to be complicated. Understand the top criteria involved in selecting a transportation, warehousing and similar logistics service provider with these tips and strategies.
What to Consider When Choosing a 3PL Partner
The ultimate benefit of using one or more 3PL partners is for organizations to trim their operational fat, focusing on perfecting core competencies and letting a trusted expert take care of the rest.
How can you be sure you’re vetting only trusted experts, you ask? Consider the following criteria for selecting a transportation service provider.
1. Provider Type, Specialty and Size
The majority of 3PL providers specialize in one of three domains.
- Commodity: Sourcing, shipping, storing, transporting, customs managing and order fulfilling for specific product types, such as coffee beans, consumer electronics, etc.
- Industry: Providing specific or multi-function supply chain management and oversight for a particular category of business, like apparel e-commerce, pharmaceuticals, etc.
- Logistics services: Specializing in a distinct piece of the supply chain, such as international ocean freighting, domestic trucking, domestic warehousing, etc.
3PLs outline responsibilities via service-level agreements, or SLAs. During early vetting periods, proposed 3PLs assure a clear understanding between partners’ service obligations, as well as business functions that will stay in-house. Service agreements can also designate critical information and workflow communications, such as proper points of contact for invoicing, proof of delivery, quality control inspections and more.
2. Warehousing and Storage Network
It’s essential to understand a warehousing 3PL’s asset ecosystem. Does the provider have a proprietary storage facility, or rent from others? Similarly, your products may require multiple storage stops throughout domestic or international distribution. Does your 3PL provider own and manage every warehouse along the transportation route?
Also inquire about more granular warehousing details, such as:
- Facility sizes, capacities and scalability, plus any upcoming expansions
- Proximity to relevant ports, railways, airports and highways
- Bay door traffic flows, specifically the number of containers and trailers they currently ship and receive a day
- Service alterations during heavy shipping periods or seasons
3. Technological Affordances and Capabilities
A 3PL’s IT infrastructure is a significant piece of their competitive differentiation pie. Does a 3PL partner own and operate the contemporary technology necessary to uphold their end of the SLA? Consider factors such as:
- Yard and warehouse management systems
- Transportation management and fleet tracking systems
- Voice-controlled, RFID or EDI wares tracking
- Inventory analytics and controls
- Order fulfillment systems
- Freight theft of damage management
- Overall access, integration and customization capabilities between your software and theirs, plus associated fees
4. Performance Tracking
Performance-tracking capabilities are another of the essential factors to consider when choosing a 3PL partner. They give you the assurance your 3PL strategy is successful — and your chosen 3PL provider is supporting their end of the bargain.
Focus on measuring the effectiveness, accuracy and cost savings of the outsourced logistics outlined in your SLA. Positive improvements across these activities signal, with objective figures, you made the right choice. For example, consider monitoring and analyzing any of the following:
- Proof-of-delivery tracking
- On-time, in-full delivery rates
- Voice-of-customer feedback studies
- Inventory records accuracy rates
- Order picking/fulfillment accuracy
- Shipment or product return rates
- And many more
5. Service Amenities
Service add-ons are in both parties’ best interests. For the 3PL, value-added amenities — such as IT asset integration — provide competitive differentiation. For clients like you, service amenities mean you get bonus perks, quality controls, access to cutting-edge logistics technology and more.
Common service add-ons and amenities you can broker with prospective 3PLs include:
- Returned material authorization agreements
- Quality assurance upon receipt documentation and file sharing
- Rush order or emergency order handling
- Overnight or rush shipping
- Product/order kitting
- Postponement packaging
- Reverse logistics programs
- And more
You don’t need reminders on how essential pricing is to your third-party logistics contract. While part of the goal is cost savings — outsourcing aspects of the supply chain so you can streamline and strengthen internal resources — be cautious of too-good-to-be-true contract terms. With functions like order fulfillment, packaging, kitting and more, paying for quality is especially critical, ensuring the reputation of your business and the longevity of your brand.
Bear in mind other pricing parameters and “hidden” costs to take note of before signing a 3PL contract:
- Transparent service quotes
- Sensible payment terms
- Charge-back responsibilities
- Correctly formatted, easy-to-understand invoices and other billing documents
- Overall, pricing structures and terms are clear, consistent and sensible for your industry
- Contact for billing and payment questions
International and even domestic supply chains require in-depth expertise into customs, trade requirements, permits, itemizations and more. In freight forwarding operations alone, a 3PL must be able to efficiently — and legally — administer the following:
- Certificate of origin statements
- Proper shipping licenses and insurance
- Declarations forms
- Import and export lists
- Bills of lading
- Customs clearance papers
- Full commercial invoice documentation
Vetting a potential 3PL for its compliance credentials doesn’t stop there.
- Industry-compliant packaging, routing and shipping adherence according to your industry’s regulations
- Memberships with 3PL and supply chain administrative or professional bodies, such as the Value Chain Federations Compliance Clearinghouse or the U.S. Department of Transportation’s Compliance, Safety and Accountability Administration
8. Non-Disclosure Agreements
Non-disclosure agreements (NDAs) in the 3PL partnership assure the protection of both parties’ intellectual property. More specifically, these documents outline everyone’s respective responsibilities and capabilities, plus assures these responsibilities get carried out in private, to the benefit of all in the agreement.
Organizations typically draft NDAs for all prospective 3PL candidates, at the onset of any contract negotiations and often well before the formal SLA. Your organization’s attorney or legal counsel will be instrumental in creating NDAs with the appropriate language and boundaries for this stage of the vetting process, including beginning to understand a 3PL’s legal liabilities and insurance coverage needs in any future partnerships.
9. Overall Brand Reputation
Last but not least, only consider 3PLs with a proven, positive name in the industry. The supply-chain management industry has undergone a radical revolution over the past decade. Many new companies emerged as a response to today’s still-growing e-commerce boom and globally connected marketplace. But are these companies ready and worthy of your business? Conversely, is experience always synonymous with expertise?
Start your search process on the right foot by only considering companies with gold stars across the following criteria:
- Financial history and stability
- Experience working with companies of your size or in your industry
- Experience shipping and handling to the same geographic regions or customer bases you sell to
- Owned versus rented asset ecosystem — especially warehouses and transportation fleets
- Customer reviews and references
- Proven ability to scale — both up or down depending on seasonal cycles, demand fluctuation, etc.
- Complete adherence to compliance norms and regulations
- Executive management experience and reputation
Find a New York City-Based 3PL for Your Needs
Now that you know these 3PL tips, you can work with the best 3PL for e-commerce and other industries. Mitchell’sNY Logistics has called New York City home for 70+ years. We work with dozens of brands across transportation, freight forwarding, delivery, facility management and warehousing supply chain operations, taking care of your goods like we own them.