Third Party Logistics Companies: A Checklist When Evaluating Which 3PLs are Best for YOUR Needs
You might worry about outsourcing your company’s entire supply chain—not enough control, too many unknowns, not worth the risk, to select third party logistics companies. But you can focus 100 percent of your attention on your core business functions and still keep a close connection with your supply chain through partnering with one or several third party logistics companies, who can then collaborate and co-source with you, to create a custom-tailored system designed to provide the logistics and supply chain services your company needs. Successful supply chain and logistics management is a series of structured and established tactical maneuvers. A great deal of operational savvy is involved in forecasting inventory; managing the picking, packing, and shipping functions required to distribute a finished product; shipping a replacement part; or processing a return from a retail store or consumer.
Niche Third Party Logistics Companies to Manage the Entire Supply Chain
The decision to keep these functions in-house or contract with one or many third-party logistics companies is entirely strategic and can dramatically impact any organization’s bottom line. In fact, according to consulting firm Armstrong & Associates 86% of Domestic Fortune 500 companies use 3PLs for logistics and supply chain functions. Consumer packaged goods giant Procter & Gamble Co. doesn’t have to be sold on the benefits of using a third-party logistics companies; P&G uses 53 of them. Nestlé (42), Unilever (36) and PepsiCo (35) are also prolific buyers of services from third party logistics companies. The same can be said for automotive OEMS (GM uses 51 3PLs, Volkswagen 42, Ford 41), industrial conglomerates (Philips uses 32, Siemens 30, General Electric 29) and high-tech companies (Hewlett-Packard, to cite but one example, uses 39).
Types of Third Party Logistics Companies
- Asset Based
- Trucking companies that have expanded into warehousing
- Warehousing focused companies that also own their own private fleet
- Warehousing companies who have strong relationships with LTL and Full Truckload Carriers
- Trucking companies focused on intermodal logistics solutions and Ocean Freight
- Warehousing companies that specialize in partnering with Rail Freight Companies
- Non-Asset Based
- Freight Forwarders contract with carriers to move cargo ranging from raw agricultural products to manufactured goods usually involving import and export
- Freight Brokers usually are working on spot, volume, and spot quotes to broker Full Truckload
- A logistics software company who only offers software such as Warehouse Management Systems (WMS) or Transportation Management Systems; can work with companies directory, or work with other 3PLs to offer software which is white labeled
- A logistics company who offers transportation management software/systems while also providing integrated management services for administrative functions such as accounting, claims, and customer service
So, how do you know which third party logistics companies or company you should hire for your needs? Use the following checklist below to make the best decision. Once you see the areas where you need the most help, you can start your search for the best provider(s).
Third Party Logistics Companies Checklist for Choosing and Qualifying a 3PL
Location for Warehousing
- Size of building
- Number of bay doors (enough to ship and receive x amount of containers or trailers per day)
- Close to ports, airports, railways
- Close to major highways
- Available space
- Available space for busy / heavy shipping periods
- Available space for expansion
- Product mix: Complementary to yours? Same busy seasons, or alternating busy seasons?
- Pallet racks
- Flow rack (for pick and pack)
- Scanning stations
- Packing tables
- Types of Forklifts-Preventive Maintenance (PM) Program?
- Carton sealing machines
- Label printers
- UPS/FedEx shipping stations with scales
- Value-added department – specialized equipment for your product
- Assessorial activities: taping, banding, labeling, assembly work, etc.
- Testing of employees for reading, writing, comprehension, basic language and dyslexia
- Certification/Recertification for Six Sigma, Kaizen, Kanban
- Union or non-union staff
- Temp agency staff or company workers
- Turnover rate
- Education, language and skill level of administrative support staff
- Education and professional level of middle and senior management
- Training procedures for new employees
- Probation periods for new employees
- Background checks of new employees
- Disciplinary procedures for employees found making errors or stealing
- Motivation methods for employees (merit-based awards, raises and promotions or seniority based?)
I.T. Systems Issues
- Reporting capabilities: name of IT manager (to collaborate with your IT manager)
- Warehouse Management System (WMS): Integration/customization capabilities
- Transportation Management Systems (TMS): Optimization capabilities for your freight
- Yard Management Systems (YMS)
- Tracking freight systems
- Theft Management considerations
- File transfer capabilities
- Modification possibilities
- What are the shortcomings of their systems?
- What are the shortcomings of your systems?
- EDI, RFID or Voice Activation capabilities?
- Order Management
- Strong Inventory control capabilities
- Strong location management capabilities
- Systems available 24/7?
- Cost to use 3PL’s systems
- Do they provide the necessary range of services?
- Do they have partners or trusted suppliers for services they don’t supply but you will need?
- Shift times
- Overtime when necessary, and cost of overtime
- Weekend work
- Ability to add staff – labor pool
- Ability to handle rush or emergency orders – what is the lead time necessary?
- Who provides what information to whom – both ways?
- What is the time frame for the information provided?
- What is the method of transferring information? (Should always be in written/email form)
- In what format is the information being passed along?
- What information does the 3PL require from you?
- What information will they provide you?
- Review and define jargon and terms to be used.
- Conflict resolution: the chain of command to solve problems
- How long in business?
- Warehouse: Asset or non-asset based 3PL?
- Staff qualifications?
- Customer comments about the 3PL?
- Core business/commodity specialty
- Can they provide customer and other references?
- Do they have experience shipping the same product as your company ships?
- Do they have experience shipping to the same customers/consignees as your company?
- What size customers do they handle?
- What kind (corporate types) of customers do they handle?
Expectations of performance
- Customer service: Use of VOC=Voice of the Customer techniques to satisfy your customers: on tome delivery to your customers
- Transportation: asset/non-asset? How to handle the FSC (Fuel Surcharge?);increases
- Timetables and deadlines for receiving and providing information
- Timetables for receiving new merchandise
- Timetables for shipping orders
- Expected quantities of inbound and outbound merchandise.
- Expected number of orders and units picked or shipped daily/weekly/monthly.
- What is the division of duties? Review all aspects of information management and flow to determine who is responsible for what (for example: routing, backorders, invoicing, returns, POD tracking, QC inspections)
- What are the shipping priorities?
- Service Level Agreement (SLA) with Key Performance Indicator (KPIs) experience
- Types of contracts 3PL requires? Ability to negotiate with 3PL?
- Price list validity? Dynamics of pricing?
- Receiving, Inspection, Dock-to-Stock, Warehouse Management, Cycle Counting capabilities, inventory Management, warehouse-to-dock, turn around tomes?
- Safety Program/Safety Manager
- LEAN initiatives, meeting OSHA requirements, Six Sigma, Continuous Improvement/Kaizen, Kanban, Free/Foreign Trade Zone, cleanliness, 3PL teamwork
- Who is responsible for routing, packaging, and shipping guidelines?
- Who is responsible for charge-backs? Under what circumstances? What is the 3PL legal limit of liability? What does their insurance and your insurance cover and under what circumstances?
- Who handles RMA: Returned Merchandise Authorization
- Reverse Logistics Program
- Create quantifiable standards and measurements of performance.
- Does the 3PL subscribe to the VCF (Value Chain Federation) Clearinghouse (VCF is an organization that advocates trading partner alignment, retailer-supplier operating synchronization, and best practices by facilitating collaborative and educational opportunities and providing technology solutions to eliminate disruptions throughout the retail value chain. RVCF includes North America’s leading retailers, merchandise suppliers, and service providers)…. and do they use it?
- CSA (Compliance, Safety, Accountability: US Department of Transportation: Federal Motor Carriers Safety Administration) compliance?
- Price structure that is easy to understand and easy to check
- Invoices formatted to your specifications with proper backup documentation.
- Comprehensive price quote. Include all possible services you may require.
- Payment terms
Finding a true partner
- Do you feel they are honest, trustworthy and sincere?
- Do you feel they have a passion for the business and a commitment to customer service?
- Do they have the experience, education, and professionalism you require?
Bottom line: Do you feel you have found third party logistics companies that will truly partner with you? Do they have the right chemistry? Can you trust and collaborate with the chosen 3PL or 3PLs? Choosing the right outsourced third party logistics companies is a serious and large operational change. It is vital to take your time when vetting and choosing the right 3PL for your company’s needs. How many 3PLs does your company use?