Third Party Logistics Companies: A Checklist When Determining 3PLs

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?

Equipment

Pallet racks
Conveyors
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.

Staffing

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

Flexibility

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?

Communication

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

Qualifications

How long in business?
Warehouse: Asset or non-asset based 3PL?
Staff qualifications?
Accreditations?
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

Compliance

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?

Pricing

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?