Questions To Ask When Deciding Whether To Use A 3pl Vendor
Several years ago Ernst & Young did a study in which it found that nearly 75% of
companies that manufacture or supply either finished products or materials that go into the making of consumer products had considered, or already were using, 3pl companies to take over their supply chain operations. Third party logistics, as its also known, is used in a wide range of major industries, including medical product and pharmaceutical manufacturing, retail, chemicals and computers. It has become increasingly common to outsource this critical function, which encompasses the packaging, shipping, warehousing and delivery of a companys raw materials and finished products, ensuring that theyre delivered correctly to the end users and consumers.
There are several reasons they do this: logistics management is expensive. Its complicated. Its time consuming. Its frustrating. Many companies have concluded that with the rise of so many 3pl experts and companies specializing in logistics, its a sound business decision to outsource it, so they can focus on their core competencies. Imagine a computer manufacturer, for example. It already pours plenty of dollars into research and development, marketing, sales and other critical functions to gets its computers in the hands of paying consumers. Removing the logistics function and entrusting it to a 3pl specialist can mean considerable cost savings.
The process for selecting a logistics provider actually begins with a serious self-examination of your supply chain operation and is accompanied by some tough questions. Early on in the process a company needs to determine where its weaknesses lie - where does it need help and improvement in its own processes? Examples: are your shipments of perishable food products consistently arriving later than acceptable at the grocery stores around the country that sell your merchandise, thereby leaving some of it spoiled and unsellable? Do significant amounts of inventory inexplicably go missing in your warehouses? Is the manufacturing process for assembling circuit boards always behind schedule because of communications snafus with raw materials suppliers overseas?
The logistics management marketplace has grown tremendously since its beginnings in the 1980s, and sorting out the best companies in the market for your particular needs can be a challenge. The best way to get serious answers about who will best be able to manage your supply chain issues will be to devise your own Request For Proposal (RFP). You should make it very detailed, and as you send the RFP to multiple prospective vendors, include in it very specific questions about your own operations. Ask bidders how they intend to tackle very specific issues youre encountering.
Among the things youll need to find out from bidders, nothing may be more urgent to ask about than their technology. Logistics nowadays lives and dies by its ability to leverage the right technology to ensure seamless, efficient management of your entire supply chain operation, from delivering raw materials to getting the finished product to store shelves in front of consumers. Youll need to know what kind of software platform its using. Can it be integrated with and communicate with your own IT department and your internal IT infrastructure at all of your sites? How does it report and share information with you? Does it perform all the critical functions such as printing necessary shipping labels and documentation, and tracking inventory?
Does the vendor have the physical resources and staff to effectively handle your issues? Youll want to hear specific answers about things like its trucking fleet, and whether it has enough warehouse space. Where is it all located? If you source and ship materials globally, can the vendor handle global logistical issues? For example, if you ship raw materials from China, does it have a presence in that country to navigate all the potential challenges and problems on a local level?
Is the provider compatible with your corporate culture and philosophy? Does it understand your business and what you do? Does it have the same sense of urgency and mission as you do? Does it share the same sense of business ethics and respect your values as individuals and as a company? Do you get the sense that this company can do the job for you, and get things done efficiently, responsibly and on time? Does it agree with you on what needs to get doneor do you get the sense that its approach doesnt seem to align with your goals and expectations?
A final item on your checklist for the best 3pl provider is a thorough reference check. You dont want to learn that despite its claims this company is still fairly green and may be using you as one of its first major clients as it still continues to work out the kinks in its operations. Find out who else is on its client list, and how long theyve been working for those clients. Does it also have other companies similar to yours for which it has been successfully been doing business? Make sure it has a solid track record of providing logistics management services for others before entrusting your supply chain to them..
by: Stephen Rose
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