5 Other Things to Consider when Selecting 3PL Service Providers

This week week we look at 5 other things you should be considering when selecting a 3PL service provider

We have previously discussed the The 4 Rs (and 1 G) of Selecting a 3rd Party Logistics (3PL) Service Provider and these will always be a major consideration throughout the 3PL service provider selection process.

There are also a number of other things that should be taken into account. These include the:

1. Operational capability
2. IT capability
3. Growth potential
4. Financial stability
5. Relationship equality

1. Operational capability

Whilst cost will always be weighted heavily as one of the key evaluation criterion, the operational capability of the potential 3PL service provider will also need to be seriously considered.

Ideally the candidates being considered will be doing business with organisations that have a similar profile to your own organisation.

Do they have experience handling products in the same or similar industry to yours?

Are they delivering to the same customers or to customers with similar requirements as yours?

Are they capable of  servicing a multi channel distribution strategy - a wholesale, retail and eCommerce customer base?

Whilst your industry knowledge may enable you to answer the above questions the best way to confirm operational capability is to ask the potential service providers to submit a number of referees and to make the effort to seek feedback directly from the referred customers.

2. IT capability

Whether you are a small eCommerce start up or a large multinational corporation you will invariably require some form of IT systems integration with your 3PL service provider in order for them to operate in an efficient and cost effective manner.

This will usually require an electronic interface between your operating systems in order to synchronize inventory , to send orders and to receive shipping information.

As part of the selection process you need understand  and evaluate the 3PL service providers capability to create and maintain this type of interface.

Ideally they have already integrated your operating system for one or more other customers and they can demonstrate a successful experience of having done so.

3. Growth potential

Obviously the main aim of any business is to grow.

The 3PL service provider that you select should also be capable of, or have the potential to grow with you.

This does not just mean they have the flexibility to provide a larger warehouse to hold more inventory and to support an expanding customer base or product offering.

It also means they have the capability or potential to offer other services that are not currently provided  in both the local market or globally if that is what is required to support your growth.

As further explained below, the relative size of the 3PL should also be taken into account when assessing growth potential.

4. Financial stability

The third party logistics (3PL) market is a relatively fragmented one.

Its participants range from global organizations to local operators all vying to provide international freight forwarding , customs clearance, warehousing and domestic transportation services to companies that have chosen to outsource these functions.

Given the multitude of options that will be available it is important to ensure that proper due diligence is undertaken to establish the financial stability of the organisation that will significantly influence the satisfaction of your customers and ultimately control the realization of your revenue.

Things to consider include an understanding of the ownership structure and funding, the recent financial performance , the currnet credit rating, the existing customer base for diversity and the level of insurance coverage.

5. Relationship equality

The relative size of any potential partner should also be considered.

If you are a small to medium organisation then it is probably better to seek out a small to medium 3PL service provider rather than selecting a larger organisation.

In this scenario both parties are as important and as reliant on the other to grow and succeed.

A large organisation will always be given priority over a small to medium organisation when the large 3PL service provider is faced with making a choice on which customer it will be better off serving.