The Ten "DOs" and "DON'Ts" of Selecting a Third Party Logistics Provider
Few decision processes are as seemingly simple yet fraught with as much risk as selecting a service provider who will now serve as your face to your customer. Over the past 20 years, stories are legend of careers made and careers broken by a poor selection process. Who would be better to suggest decision criteria and process than a 3PL who goes through this process every day? Here's how we would approach the selection of a third party provider.
1) DO: As the decision maker selecting a third party logistics provider (3PL), it's important to make sure that your customers' demands and priorities align well with the specific competencies of your 3PL candidates. This requires a real understanding of why your customers buy from you. Do you have a unique brand or product in high demand? Then maintaining quality around everything having to do with that brand or product is critical. Is your product one of several similar commodity type products? Then looking for nuanced ways to differentiate yourself and your product could create a competitive edge. Maybe you are the vendor whose on time delivery is 98% or whose "perfect order" ratio is 95%. Predictability and dependability will always be tie breakers.
2) DO: After determining what is most important to service your customers, relentlessly seek the provider best positioned to provide those services.
3) DO: Look for providers who can provide integrated solutions – warehousing, co-packaging, fulfillment, transportation, and distribution. Many 3PLs specialize in a few services. Others claim there is nothing they cannot do. We believe you are better off selecting providers who have proven track records in those services most critical to servicing your customer. The right partner should be able to develop any reasonable remaining services necessary to handle your needs, assuming they are within the physical distribution realm.
4) DO: Take the time to meet your potential 3PL partners. Nothing can replace spending time learning their history, their experience, what they do well, what they do not do well, and, most importantly, their culture. If you understand their culture and what drives it, you will have a good read on how they will respond to your needs when the time horizon is long-term or when is it "right now."
5) DO: Include in-house systems capability as a criterion, particularly if that potential partner outsources their IT work. 3PLs who outsource their IT development, EDI communications, or WMS configuration have limited flexibility to handle time sensitive needs or changes that require coding changes. The last words you want to hear are "we will put your request in the queue" or "we'll get a quote from our IT vendor and get back to you."
6) DON'T: Limit your potential candidates to national players. Size can provide many benefits but you can also become just another face in the crowd. For large national 3PLs, if you are not a significant potential revenue stream, your leverage to demand attention, resources, and support for new initiatives deteriorates quickly after startup. Many times a regional partner can make operational and systems changes much more quickly and cost effectively and has invested in relationships with consignees, carriers, and other service vendors to improve service performance and reduce your costs.
7) DON'T: Make a decision based just on price and not on value. Buying on price alone is easy to justify until your largest customer calls to fire you because of poor service. This does not mean the highest quality service cannot be the lowest price. It just rarely is unless there is a reasonable strategic reason the provider can explain. Buying on price puts you in the position to experience the second oldest game in the world, i.e. ...
8) DON'T: Leave yourself open to the "Bait and Switch": low price gets you in the door but can slam behind you. The trail of clues start with stories of "we didn't know you needed X or Y" or "we did not know the handling was this difficult" or "we did not know some of your customers had special requirements." Shortly thereafter expect to hear, "we need more money." By the time you have gone through the pain of startup, you are willing to pay more to avoid enduring another selection and launch process.
9) DO: Put quality #1. Compare providers through observation, by questioning the sales and operations teams, visiting the site, and talking to referrals. The benefits of selecting the high-quality provider will be evident at the outset and only grow over time. Why would you buy something that could put your customers at risk or require continuous hand-holding to make servicing them bearable? The time and resources put into replacements or repairs will far outreach the cost differential of partnering with the highest quality provider up front. But you already know this.
10) DO: Communicate the "whys" of your decision to the winner and losers. The winner needs to know why he was selected in order to reinforce your priorities for servicing your account. The losers need to know why they were not selected so that they understand where they need to improve in order to stay in the game. The 3PL world is very competitive. The more you can help improve the providers who missed the bid, the more you will force the better providers to improve in order to stay ahead. Who wins? You do.
About Atlanta Bonded
Atlanta Bonded Warehouse is a leading third-party logistics provider, specializing in temperature-controlled and dry distribution services. Based in Atlanta, Georgia, ABW operates over 2.2 million square feet of award-winning facilities, providing both public and contract warehousing, transportation, and co-packing solutions from 8 locations in the Southeast. Colonial Cartage Corporation, an asset-based in-house carrier, provides scheduled LTL service across the Southeast, Southwest, Midwest, and Great Plains; dedicated truck load service; and plant support transportation, delivering exceptional service with an excellent safety record. For more information about ABW and Colonial, visit www.atlantabonded.com.
Atlanta Bonded Warehouse Corporation
3000 Cobb International Blvd.
Kennesaw, GA 30152