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How to Choose a 3PL Provider

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Two logistic engineers discussing at a shipping yard - Choosing a 3PL Provider
Kevin Marshall
Kevin Marshall
January 22, 2021

Once you have decided to outsource all or part of your supply chain to a third-party logistics (3PL) company, the next step is to choose a 3PL partner. This article explores how to select a 3PL provider, including some base assumptions and things to look for along the way.

Create A Team‍

Decision-making should not occur in a vacuum. Create a team consisting of at least three individuals as a selection committee. The larger your company is, the more members your selection committee should have to provide a balanced view of the current and future operating conditions.

The selection committee is the decision-makers, not the worker bees. It is vital to make sure to use their tie widely, and slogging through research on dozens of potential partners is not a fair use of their time. However, it is important to include members on the front line who can accurately speak to how the work is currently done.

Evaluate Your Current Operations‍

Woman and man discussing inside a warehouse

Using tools that your staff is familiar with, map out the current supply chain processes. Determine who does what — do you own your trucks, run your warehouses, what are your technology tools to manage inventory, etc.? Develop a clear picture of the status quo.

Determine Your Needs‍

Now that you know exactly where you are, it is time to determine where you are going. The selection committee should be aware of the information used to decide why the company wishes to outsource to a 3PL partner. Leveraging that information, business requirements should be developed for the outsourced business solution.

Think of this portion of the process as a kind of "reverse RFP (request for proposal)." The problem with RFPs is that they yield solutions designed by someone who knows their own business, not yours. It would be best to focus on your companies' needs to find the right partner to fill them.

Woman inside a warehouse making phone calls

Do Initial Research‍

Taking the list of business requirements drafted by the selection committee, it is time to put your worker bees to work winnowing through potential 3PL partners. Their job is to match the capabilities of the 3PL companies to your business requirements. If a company cannot meet one of the requirements, they are off the table. Move on. Do not spend a great deal of time trying to fit square pegs into round holes. There are plenty of 3PL providers out there.

Shortlist Your Top Three Options‍

Once the initial research is complete, the selection committee should further narrow the field to three primary candidates. Even before meeting with any of these potential partners, the references should be evaluated. Call some of their customers, read any online reviews available, check for business news about the reputation, etc.

Standardize List Of Questions‍

The selection committee should then come up with a list of interview questions that address the specifics of your company's needs when it comes to logistics. This is where things like IT technologies, scalability, and a commitment to continuous improvement.

Here are a few suggestions:

  1. How many locations do you have, and where are they located? (You are searching for a partner that does business close to your facilities).
  2. How long have you been in business, and what is your longest-running partnership? (You are looking for a stable company with a long history of success).
  3. Ask to see the company's financials and payment history. The last thing you need is for your new partner to become insolvent suddenly.
  4. Ask to see the company's safety record. Remember that they will be working as part of your brand.
  5. How will customer service be handled? Is this one of their offerings, etc.

Interview Each Potential Partner‍

Man interviewing a woman while holding a clipboard

Using the questions developed above, meet with your top candidates. Hard questions like how to maintain inventory accuracy should also be addressed. Plan for an all-day meeting with each 3PL provider. Furnish each of them a list of questions in advance, and be sure to let them know you would like them to demonstrate how they work during the meeting.

It is highly recommended that you hold a few of your questions in reserve to see how the 3PL company responds to the fly. This will expose any "canned" responses elsewhere in their presentation. If they know their business well, these on the spot questions should not throw them off. If they do, then a major red flag will require either more investigation into the company or elimination from your shortlist.

Meet To Make A Decision‍

After interviewing and seeing the presentations from all three of your candidates, the selection committee should then meet with the CEO (if not already part of the selection committee) to present their findings and make a recommendation.

Make An Offer To Your Preferred Partner‍

Businessmen closing a deal with a handshake

At this point, the two companies will enter into contract negotiations. Do not become discouraged if you cannot agree with your top choice. This is no different from job offers to high profile candidates. Sometimes, it is not a match for reasons that are not apparent on paper. Move to your next choice and continue. You want your partnership to benefit both parties.

Sign A Contract And Formalize A Transition Timeline‍

Once you have selected a provider, it is time to draw up a mutually agreeable contract. Include in the agreement the go/no-go dates for each stage of the transition to your new partner. Remember that there will need to be time on the front end to integrate IT functions and brief periods of "duplication" that can serve as the new processes' tests. If each is spelled out in contractual terms, all are involved in the tests, and the transition should move smoothly.

This wraps up the process of how to choose a 3PL provider. Selecting a 3PL partner is a significant business decision and should not be rushed. Following the steps above will help you organize your selection and find the best provider. If your partner company does not already have a pallet provider that they work with, you can look for pallet builders near you.