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A PUBLICATION OF CERASIS
The Essential Guide to Third Party Logistics: What is a 3PL, Considerations for Hiring, & How to Select & Implement a 3PL
TABLE OF CONTENTS
1
2
3
4
5
Introduction
What is a 3PL & All this Logistics Stuff?
How To Go From Selection to Implementation
What are the Considerations of hiring a 3PL?
How to go about selecting a 3PL
All You Need To Know About Implementing A 3PL
Conclusion
Conclusion
INTRODUCTION
We introduce our latest educational e-book (we have several more here): The Essential
Guide to Third Party Logistics: What is a 3PL, Considerations for Hiring, & How to
Select & Implement a 3PL.
The following definition is one of the most simplistic of all we've found, from
TechTarget:
A 3PL (third-party logistics) is a provider of outsourced logistics services. Logistic
services encompass anything that involves management of the way resources are moved
to the areas where they are required. The term comes from the military.
But, if you are a shipper, or work in the industry, you understand there are, what we like
to call "50 Shades of Third Party Logistics Providers." What we mean by that is despite
the pretty simple and very accurate definition stated above, depending on what day it is,
what discipline you're looking to improve in logistics, or even when you started working
in logistics, everyone has a different definition of third party logistics or 3PL.
Further, with as many types of 3PL that are out there (and you'll see the various types
within the e-book you can download below), you not only have to understand the
definition and the various types of 3PL you also have to understand how to position
yourself as a shipper in order to consider working with a 3PL.
After you've made considerations, you then have to make a selection of working with
one or perhaps several 3PLs. It's not an easy task for any shipper. Our goal is to educate
shippers as much as possible when it comes to understanding, considering to hire, and
then both selecting and implementing a 3PL to your organization.
You can download this first of two new e-books we will release this month on the
essentials all shippers must know in order to understand the landscape, choose a 3PL,
manage a 3PL, reap the benefits of working with a 3PL, and then what is the outlook of
the 3PL industry.
INTRODUCTION
Chapter One
What is a 3PL?
History, Origins, and Various Definitions of 3PL
Today begins a 2 part series about 3PL (third party logistics). This is a simple series
about the history and origins of 3PL and then on Wednesday (after Steve concludes
his Skills Gap series covering the future of the manufacturing worker tomorrow), we
will cover what does the future of 3PL hold. As you know, we covered explaining the
various logistics layers in our popular "3PL vs 4PL: What are these PLs, Anyway?
Layers of Logistics Explained, offering an academic definition from the Council of
Supply Chain Management Professionals’ glossary of a 3PL as “A person who solely
receives, holds, or otherwise transports a consumer product in the ordinary course of
business but who does not take title to the product.” However, this definition in of
itself didn't start with the 2008 legal definition as set forth by the President, signed
into law with HR 4040 on August 14th, 2008. In fact, there is an interesting history
and origin of 3PL and third party logistics as covered below in this first part of the
two part series.
History & Origins of 3PL
At the passing of HR 4040, the keeper of the CSCMP glossary, Kate Visek asked why
it is important that we in the industry define all of the terms in logistics. She says
"Well – they are to the CSCMP and its members because the Glossary is the single
most popular item on their website – with close to 200,000 downloads a year. It’s also
listed on the FORBES website and has been adopted by the US Post Office as well as
many other organizations."
I would argue further it's important to define, and legally define some, to mitigate risk
and fraud in the industry. Fraud is such as an issue, that coming this October 1st, the
FMSCA and DOT are requiring futher regulation to fight fraud by increasing the
freight broker surety bond to $75,000 with the enforcement of Map-21.
So, before 3PL was legally defined by HR 4040 in 2008, where did the term come
from and how did it get to the definition we see today?
3pl accenture logoWhile it isn’t immediately clear exactly who coined the term 3pl, its
beginnings can be traced to the 70′s and 80′s as companies outsourced more and more
logistics services to 3rd parties. Over time these 3rd party logistics service providers
(3PLs) expanded their services to cover specific geographies, commodities, modes of
transport and integrated their existing warehousing and transportation services,
becoming what we now know today as a “3PL”.
Then, in 1996, the term "3PL" was registered by Accenture as a trademark and
defined as "A supply chain integrator that assembles and manages the resources,
capabilities, and technology of its own organization with those of complementary
service providers to deliver a comprehensive supply chain solution.”
The term is no longer registered. The official CSCMP Definition up until HR 4040
was: “A firm which provides multiple logistics services for use by customers.
Preferably, these services are integrated, or "bundled" together by the provider. These
firms facilitate the movement of parts and materials from suppliers to manufacturers,
and finished products from manufacturers to distributors and retailers. Among the
services which they provide are transportation, warehousing, cross-docking, inventory
management, packaging, and freight forwarding.”
Various Definitions of 3PLThere are countless sources defining 3PL and here are just a few we have come across throughout our research, but would welcome your definition in the comments below:• Third party supply of logistics related operations between traders by an
independent organization. - Eyefortransport• Third Party Logistics is the activity of outsourcing activities related to Logistics
and Distribution. The 3PL industry includes Logistics Solution Providers (LSPs) and the shippers whose business processes they support. - Logistics Focus
• A 3PL is an outsourced provider that manages all or a significant part of an organization’s logistics requirements and performs transportation, locating and sometimes product consolidation activities. - Bridgefield Group
• Third Party Logistics (3PL) is the function by which the owner of goods (The
Client Company) outsources various elements of the supply chain to one 3PL
company that can perform the management function of the clients inbound
freight, customs, warehousing, order fulfilment, distribution, and outbound
freight to the clients customers. - Maxwell
• Third party logistics describes businesses that provide one or many of a variety
of logistics-related services. Types of services would include public warehousing,
contract warehousing, transportation management, distribution management,
freight consolidation. - Accuracy Book
• A standard definition of just what a third-party logistics provider is can vary from
contract to contract. Is everyone who thinks they are engaged in a “third-party
contract” really involved in a “third-party contract?” If a distributor, for example,
has the UPS truck pull up to their door a few times a day or week, is UPS their
3PL? And are third-party agreements a threat—a possible replacement, in some
cases—for distributors?- Industrial Distribution
• A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm
that provides a one stop shop service to its customers of outsourced (or “third
party”) logistics services for part, or all of their supply chain management
functions. - Wikipedia
Third Party Logistics Services Explained, The Different Types of 3PLs, and The Various Levels of Outsourcing
As a third party logistics services company, Cerasis is always speaking to potential
shippers as customers who are well, just plain confused about what the heck is a 3PL
company is and then are confused on what sort of third party logistics company they
should here. As a 3PL, we are here to tell you, yes, the industry has created a LOT of
confusion!
In the following we hope to take off that shroud of confusion for our readers and if
you are a shipper, make it easier for you to not only pick the right third party logistics
services company for your needs, but more importantly, if you choose one (or several
as the rise of several niche logistics providers are on the rise) you can be successful at
3PL implementation.
First, What are Third Party Logistics Services and the Definition of 3PL?
To many, the definition of third party logistics services or the definition of 3PL, is
rather fuzzy and can be ambiguous as there are many definitions, depending on who
you ask. Some say “all or a significant part”, while others say “at least one part.“
However, in our opinion, the best explanation of third party logistics services is
probably a combination of those two notions, as third party logistics providers are
businesses that provide one or many of the following third party logistics services:
Transportation or Freight Management (including technology, freight accounting, and
services around claims) - Cerasis would fit in these types of services.
Public/Contract Warehousing
Distribution Management
Freight Consolidation
Further down in this post, we will then break out the various types of services in a
more categorical approach.
Now for a more academic definition. According to the CSCMP Glossary, they define
third party logistics services and 3PLs as:
Outsourcing all or much of a company’s logistics operations to a specialized company.
The term "3PL" was first used in the early 1970s to identify intermodal marketing
companies (IMCs) in transportation contracts. Up to that point, contracts for
transportation had featured only two parties, the shipper and the carrier. When IMCs
entered the picture—as intermediaries that accepted shipments from the shippers and
tendered them to the rail carriers—they became the third party to the contract, the
3PL. Definition has broadened to the point where these days, every company that
offers some kind of logistics service for hire calls itself a 3PL.
Preferably, these services are integrated, or “bundled,” together by the provider.
Services they provide are transportation, warehousing, cross-docking, inventory
management, packaging, and freight forwarding. In 2008 legislation passed declaring
that the legal definition of a 3PL is “A person who solely receives, holds, or otherwise
transports a consumer product in the ordinary course of business but who does not
take title to the product.”
Now That You Know the Definition, What are the Different Types of Third Party
Logistics Services
third party logistics services shippingAgain, depending on who you ask, you will get
several different answer on what types of third party logistics services that are out
there. To make it even more confusing, different 3PLs can be in only one of these
types, or bleed into others. As stated previously, the goal for you as a shipper is to
understand your needs and perhaps gather from this handy checklist what your
requirements are in order to best assess what type of third party logistics services
company you should start looking at hiring.
The following are the characteristics of the different types of third party logistics
services:
Transportation Based Third Party Logistics Services
• Services extend beyond transportation to offer a comprehensive set of logistics
offerings.
• Leveraged 3PLs use assets of other firms.
• Non-leveraged 3PLs use assets belonging solely to the parent firm.
• Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics
Warehouse/Distribution Based Third Party Logistics Services
• Many have former warehouse and/or distribution experience.
• Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics
Forwarder Based Third Party Logistics Services
• Very independent middlemen with forwarder roles.
• Non-asset owners that provide a wide range of logistics services.
• Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group
Shipper/Management Based Third Party Logistics Services
• Focused on the management of the shipping process from beginning to end.
• Provides technology, such as a transportation management system, and integrated
freight management services to eliminate heavy process and cumbersome features
such as claims and accounting (freight payment and accounting)
• Provides management of carrier relations for ongoing rate maintenance and
negotiation
• Gives information, such as freight data and matrix reports for better visibility and
control on future logistics outcomes
• Examples: Cerasis, AFS Logistics, GlobalTranz, Worldwide Express
Financial Based Third Party Logistics Services
• Provide freight payment and auditing, cost accounting and control, and tools for
monitoring, booking, tracking, tracing, and managing inventory.
• Examples: Cass Information Systems, CTC, GE Information Services,
FleetBoston
Information-based firms Third Party Logistics Services
• Significant growth and development in this category of Internet-based, business-
to-business, electronic markets for transportation and logistics services.
• Examples: Transplace, Nistevo, FreightQuote.com, uShip
Levels of Outsourcing in Third Party Logistics Services
Not all third party logistics services are created equal when it comes down to the
relationship in the way you as a shipper will outsource to them. So, after you
understand what a 3PL is and the types of third party logistics services, the following
are the different types of levels of outsourcing you can see:
• Transactional Outsourcing: Based on transactions, with no long term contracts
and no bonding between the 3PL and the outsourcing company.
• Tactical Outsourcing: Outsourcing on a long term basis with negotiated
contacts and integrated IT systems to facilitate free information flow and create
supply chain visibility.
• Strategic Outsourcing: Based on long-term relationships with successful
outcomes, 3PL companies become partners in supply chain management and
establish transactional transparency.
At Cerasis, when our clients outsource to us, we have both a tactical (process
elimination and automation) as well as a strategic relationship. This means, that some
third party logistics services can provide the former two levels of outsourcing stated
above. However, in the transactional side, this is usually focused on cost, and in our
opinion, for true long term savings, the former two are the focus, and not the first. If
you are an ebayer, or making a one time shipment, transacational third party logistics
services are for you. If you have a supply chain and make regular shipments, look at
the tactical and strategic outsourcing third party logistics services providers.
Non-Asset Based Logistics vs. Asset Based Logistics: What’s the Difference?
In this first part of non-asset based Logistics vs. asset based Logistics, we’ll cover the
difference between the two. We will briefly touch on some differences as far as
advantages and disadvantages, but in part two tomorrow, we will cover more in depth
specific advantages and disadvantages of both, offering tips on how to choose
between the two types of logistics providers.
Introduction to Non-Asset Based Logistics vs. Asset Based Logistics
Like most industries supported by service providers, the logistics and supply chain
fields are made up of a wide range of providers who execute logistics functions and
services in a variety of ways. Most logistics service provider generally can be divided
into two broad categories: asset and non-asset based logistics providers. In general,
both providers work to manage their clients' supply chains and logistics departments
in a manner that will:
• Increase overall efficiency
• Cut costs both hard costs (freight rates, claims, accounting) and soft costs (time,
resources, smarter business decisions through visibility)
• Decrease errors and mitigate risk
• And accomplish these on time
• The differences between asset and non-asset based logistics firms become
apparent when analyzing their methods of achieving these goals. The following
will provide a definition of each 3PL classification and how they utilize different
methods to develop supply chain solutions.
What is an Asset Based Logistics Service Provider
An asset-based logistics provider owns many or all of the assets necessary to run a
client's supply chain. These assets include trucks, warehouses and distribution centers,
among others. When considering an asset-based logistics provider, look for evidence
that they have demonstrated the effective use of their assets to cut cost in previous
client's logistics operations. A well-established asset based 3PL should be able to
provide documentation that knowledge of their assets' strengths and vulnerabilities
has allowed them to lower the expense of moving and storing goods for their clients.
Asset based logistics providers, however, can sometimes realize a conflict of interest
when developing supply chain and logistics solutions. Since this type of 3PL has made
significant investments in their physical assets, they are tethered to those assets when
devising ways to manage your logistics. Consequently, asset based providers may route
your supply chain through their own network in order to realize continued value from
their assets, even if this may not be the most cost-effective or efficient way to manage
your supply chain. Furthermore, when it comes time for a freight claim, there arises
further conflict of interest (but more on that tomorrow).
What is a Non-Asset Based Logistics Service Provider
A non-asset based logistics service provider does not own the assets necessary to
manage and implement a supply chain. Instead, a non-asset based provider offers its
expertise in negotiating contracts with carriers, maintaining carrier relationship
management programs, warehouses, and distribution centers in order to manage your
supply chain at the lowest possible cost to your business. A non-asset based logistics
provider realizes that every client has different priorities for their logistics operations,
and since they do not need to utilize an inventory of assets to remain profitable, non-
asset based third party logistics companies exhibit a flexibility in supply chain
solutions that asset based logistics providers do not.
When considering a non-asset based logistics company, remember that you will be
working closely with the 3PL to create a custom logistics plan that will work best for
your companies needs, but the execution will be up to the provider. Therefore, you
will have time to focus on your core goals and the values that your business was built
on, while they focus on running your supply chain. A transparent and efficient
logistics system will relieve you of burdensome supply chain obligations, allowing you
to do what you do best -- focus on your core competencies.
Furthermore, some non-asset based logistics provider will also provide a soft asset,
such as a transportation management system software to aid you in your ability to
procure transportation, which is agnostic to carriers or the mode of transportation
you choose.
Choosing the Right Type of Logistics Service Provider
It is important to remember that when considering a logistics service provider, you
are ultimately evaluating the quality of the relationship that you will be acquiring with
a true business partner. The efficiency of your supply chain has a direct effect on the
reputation and dependability of your business, and it should not be entrusted to just
any provider with a low-ball price.
Non Asset Based 3PL vs Asset Based 3PL: Advantages and Disadvantages
Simply put, the difference between the two is that asset based 3PL own parts of the
supply chain such as trucks, warehouses, and more. A non asset 3PL does not own
any of these, and is typically agnostic in the way of warehousing and transportation
providers. Today I will discuss the advantages and disadvantages of each. Typically,
the advantage of one is a disadvantage of the other's. The argument on which is
better is always debated, and you typically fall into one or the other camp depending
on where you work. However, if you are a company who is looking to outsource your
logistics to a provider, regardless of asset or non-asset, your best chance at providing
the most value for your company is to choose the one that meets your needs, offers
solutions, expert and reliable customer service, and ultimately choose the provider
that will serve you in the long-term with the ability to scale as you grow and expand
your business.
Advantages & Disadvantages of Asset Based 3PL vs Non asset Based 3PL
DISCLAIMER: Cerasis is a non asset based 3PL. However, our goal is to provide the
most objective information so you choose a logistics provider who best serves your
need. Use the following information to think about your needs and interview several
providers from both camps in order to make the best decision for your company.
Below you will find some of the advantages and disadvantages of both asset based
and non asset based 3PLs.
Hard Costs of Procurement
they own some or all of the physical assets necessary to handle supply chain
management, you can hire an asset based company to completely take care of your
supply chain. Because of this ownership, asset based logistics providers sometimes
offer a lower cost on warehousing and transportation as they set their own pricing and
are not paying a third party, such as a carrier or warehouse.
If the non asset based 3PL is not savvy, doesn’t have a large trusted network, or
simply doesn’t have the buying power, when it comes to procurement of parts of
logistics such as warehousing and transportation, they may not be able to provide cost
effective solutions.
Customization and Flexibility
When it comes to a custom solution for your supply chain needs, an asset based 3PL
will have difficulty if they own their own warehouses or trucks. There is potential that
an asset based logistics provider will simply create your logistics strategy to fit into
their complete system.
Hiring a non asset based 3PL provider ultimately means hiring expertise, not
hardware. By analyzing individual supply chain needs, a non-asset based 3PL can
evaluate how a company’s supply chain is working and how it can be improved. Non
asset based 3PLs can work with companies to identify the best approach to meet the
demands of their industry and customers. By designing a supply chain that fits a
company’s specific needs, non-asset based 3PLs can apply their flexibility that allows
them to respond to clients’ needs on a case-by-case basis.
Further, many companies have made heavy investments in their own supply chain
infrastructure. By using a non-asset based logistics provider, companies can continue
to realize value from these capital investments while providing the most efficient
means of delivering service.
Stability and Financial Solvency
Some view asset based third party logistics providers, in general, as more stable than
the non asset based logistics providers. Some say this, stating asset based 3PLs
represent stability because they have invested in the long-term operation of their
company. Furthermore, some say owning real estate, such as a warehouse, decreases
the fear of relying on other’s leases terminating thus leaving the customer out to dry.
This perception may be due to stories of some non-asset providers having the ability
to easily close up shop, leaving bills unpaid, and customers hanging, because the
barrier to entry in with no purchases of expensive assets needed more than a phone,
internet connection, and current bond investments of only $10,000. In response, the
Federal Motor Carrier Safety Administration, with the passing of Map-21, now
requires a bond of $75,000 freight broker surety bond, with the hopes of decreasing
fraud in the freight broker and non asset based 3PL worlds.
Conflicts of Interest
A non asset based 3PL is free from vested interests that can sometimes influence an
asset based 3PL. For example, when it comes to freight claims management, a non-
asset 3PL can also avoid any bias when acting to protect you in case of a claim for
damages as it is in the best interest of the non asset 3PL to get the highest payment
for your claim, offering clear and open communication.
Furthermore, when it comes to freight invoices, it’s to the advantage for a non asset
3PL as they are going to work on your behalf to uncover unexpected variances
between your quote and invoice.
Conversely, since non asset based logistics providers outsource responsibilities to
other companies, there are more hands involved in storing and moving goods. With
less control over the logistics by one company, there may be more opportunities for
errors.
Asset based 3PLs need to make it clear to new customers, especially those who’ve
never outsourced their supply chain, that they will be able (and willing) to allow the
customer to see into the 3PLs infrastructure at any time. This is important because
the company must trust its 3PL and because it is ultimately the company, not the 3PL,
that will lose customers if deliveries are not made correctly and on time.
As stated above, make sure you take serious consideration and vet out any logistics
provider you are looking to hire. Regardless of which camp you choose, asset based
3PL or non asset based 3PL, you will realize many benefits to outsourcing your
logistics and supply chain needs. Typically, when outsourcing logistics, it allows you to
stay focused on your core competency, realize both hard and soft cost savings, and
scale as you grow your business.
3PL vs 4PL: What are these PLs, Anyway? Layers of Logistics Explained
Learning the difference between a third party logistics (3PL) and fourth party logistics
(4PL) as well as 1PL and 2PL , and the rise of even Fifth Party Logistics (5PLs) is
both confusing and highly debated among those in the supply chain industry.
3PL vs 4PL: The Great (LinkedIn) Debate
This is evident in many LinkedIn Discussions where the debate of 3PL vs 4PL
garnishes hundreds comments!
In the 3PL vs 4PL debate, Adrian Chen, an Advisory Board Member (Asia Pacific) at
ISCEA -International Supply Chain Education Alliance had this great comment to
finish the debate:
"Great comments from many herein, although it would be fantastic to hear more
from other logistics professionals, but with gratitude, many of the comments hold
true to the fact that we have an over-lapping of the functionality from within the
3PLs in "walking that extra mile" to accommodate many of the responsibilities that
would assume a 4PL's role ultimately.
I see the generation of 4PLs evolving & advancing to an extent from the legacy 3PLs
work scope with specific themes created to address value-add requirements with their
clients' partnerships. The basic concepts of 3PLs are hereto stay (specifically the
assets-based providers) & the evolution to extend services as a 4PL will be the
deciding factor many shippers (small companies or large multinational corporations)
stand on in their selection of a provision partner. Naturally, we do see spin-offs again,
from a 4PL pint-of-view, whereby some retain specialty in specific knowledge & skill-
sets (ie. IT / MRP / direct & indirect sourcing etc.), but yet there are many of the
4PLs who would be entrenched in the general provisions as "3PL managers" to co-
ordinate the overall fulfillment processes B2B2C ultimately."
3PL vs 4PL: The Academic Definitions from CSCMP
The Council of Supply Chain Management Professionals’ glossary, defines both 3PL
and 4PL, and is one I have found to be generally true across the board.
The CSCMP defines 3PL as follows:
Outsourcing all or much of a company’s logistics operations to a specialized company.
The term "3PL" was first used in the early 1970s to identify intermodal marketing
companies (IMCs) in transportation contracts. Up to that point, contracts for
transportation had featured only two parties, the shipper and the carrier. When IMCs
entered the picture—as intermediaries that accepted shipments from the shippers and
tendered them to the rail carriers—they became the third party to the contract, the
3PL. Definition has broadened to the point where these days, every company that
offers some kind of logistics service for hire calls itself a 3PL. Preferably, these
services are integrated, or “bundled,” together by the provider. Services they provide
are transportation, warehousing, cross-docking, inventory management, packaging,
and freight forwarding. In 2008 legislation passed declaring that the legal definition of
a 3PL is “A person who solely receives, holds, or otherwise transports a consumer
product in the ordinary course of business but who does not take title to the
product.”
Third-party logistics providers are:
• Freight forwarders
• Courier companies
• Other companies integrating & offering subcontracted logistics and
transportation services
The CSCMP defines 4PL as follows:
Differs from third party logistics in the following ways; 1)4PL organization is often a
separate entity established as a joint venture or long-term contract between a primary
client and one or more partners; 2)4PL organization acts as a single interface between
the client and multiple logistics service providers; 3) All aspects (ideally) of the client’s
supply chain are managed by the 4PL organization; and, 4) It is possible for a major
third-party logistics provider to form a 4PL organization within its existing structure.
However, 4PL was oringally defined by Accenture as a trademark in 1996 and defined
as "A supply chain integrator that assembles and manages the resources, capabilities,
and technology of its own organization with those of complementary service
providers to deliver a comprehensive supply chain solution.", but is no longer
registered.
4PLs have also been referred to as "Lead Logistics Providers". Now a new crop of
companies have emerged who are actual transportation companies too. While a 4PL is
sometimes described as non-asset-owning service provider, their role is to provide
broader scope managing of the entire supply chain.
Ok, So we Got 3PL vs 4PL, But What About all These Other "PLs?"
In the "PL" terminology, it is important to differentiate the 3PL vs. 4PL from the
other logistics layers:
• First Party Logistics (1PL). Concerns beneficial cargo owners which can be the
shipper (such as a manufacturing firm delivering to customers) or the consignee
(such as a retailer picking up cargo from a supplier). They dictates the origin
(supply) and the destination (demand) of the cargo with distribution being an
entirely internal process assumed by the firm. With globalization and the related
outsourcing and offshoring of manufacturing, distribution services that used to
be assumed internally tend be contracted to external service providers.
• Second Party Logistics (2PL). Concerns the carriers that are providing a
transport service over a specific segment of a transport chain. It could involve a
maritime shipping company, a rail operator or a trucking company that are hired
to haul cargo from an origin (e.g. a distribution center) to a destination (e.g. a port
terminal).
Now, along comes the 5PL who sometimes define themselves as broadening the
scope further to e-business.
You might question anything more elaborate than a 3rd party providing logistics
consultation or management, no matter how advanced or far-reaching their service
might be. So are they still 3PLs who just invented a fancy title to set them apart from
the competition, or is there a real differentiation?
Chapter Two
What To Consider When Hiring a 3PL?
To Hire a Third Party Logistics Company Or To Not Hire a Third Party Logistics Company…THAT is the
Question
Third Party Logistics providers (3PLs) have grown tremendously in recent years as the
dynamic of getting goods to market has evolved. In days past, entering a market
meant making a significant investment in facilities and infrastructure to ensure the
effective delivery of your product. No more. Today, 3PLs can handle every step of
the process for you, liberating your time and resources to focus on selling your
product.
The 3PLs of today can provide a much broader range of services than they used to. It
used to be that their primary focus was on warehousing and shipping, so if you sent
them your product they would store it and ship it for you. Now, 3PLs can handle
almost your entire business. This includes not only the complete supply chain cycle,
but also such functions as customer service, order management, sales support, e-
commerce and IT integration. In fact, there are very few aspects of your business that
a 3PL can’t take care of for you and in many cases, they have technology and
resources that you may not, so you get the benefit of top-tier tech without the
investment (which is fully the case at Cerasis with our in-house technology team).
However, before we get into if you should hire a third party logistics company or not,
what do shippers want in a 3PL to begin with?
What do Shippers Want from a Third Party Logistics Company?
According to the Capgemini Annual 3PL Study for 2014, their 18th such study,
shippers value the ability to provide continuous improvements most (55%), followed
by experience in the shipper’s industry (49%) and established ongoing relationship
(42%). Further, Shippers appear to be seeking strategies to control costs while
striving for optimal 3PL relationships by seeking a balance between centralization and
decentralization of their sourcing decisions.
Collaboration also is something that shippers want more and more of, but are also
seeing that desire of collaboration to materialize. According to the study, the majority
of shippers and 3PLs say their relationships have grown more collaborative over the
past three years, with shippers even more likely than 3PLs to say they are much more
collaborative.
Collaboration opens the door for more strategic relationships among shippers and
3PLs. In order to attain more highly functioning and cost effective supply chains,
shippers need strong, lengthy and partner-focused relationships with their 3PLS and
4PLs.
Given the available capabilities of a third party logistics company, this begs the
question:
Should you be utilizing a Third Party Logistics Company or Not?
The answer of course, is that it all depends . It depends on a multitude of factors, not
the least of which include the stage your business is in (and we suggest you use this
handy 3PL checklist to understand your needs), the amount of existing infrastructure
you have and the functions that you require to service your customers. While it
doesn’t make sense in every situation, the benefits of using a third party logistics
company can be staggering.
Here are 5 quick benefits you can realize from using a third party logistics company (but
know there are MANY benefits on a micro level, these are just the top 5 on a macro
level):
• Expertise: A third party logistics company handles logistics for a living...as an entire
business model. That's all they do. Believe it or not, there are some traffic or
transportation managers who are not experts in logistics, so why not let the experts
handle all the details?
• Efficiency: Not only does a third party logistics company have the expertise, they
also have the infrastructure and technology to be really good at what they do. This
translates to higher service levels to your customers and very likely, a cost savings to
you. Higher quality. Lower cost. The Holy Grail of business.
• Technology: Since 3PLs usually have the latest technology, this gives you the benefits
without having to make the capital investment. Win, win. However, a caveat here, if
the third party logistics company is offering you a TMS software and other freight
technology, make sure the 3PL is not outsourcing this technology themselves to a
software provider. This can be problematic when you want updates to the technology
as a user. Dedicated technology teams and 3PLs that provide an in house technology
team who develops the TMS themselves will provide the biggest value.
• Core Competency: Utilizing the resources of an expert frees up your time and
financial resources to focus on what you do best. You can have confidence that your
logistics are being taken care of so you can focus on growing the enterprise.
• Scalability: 3PLs are almost infinitely scalable. If your business triples in 18 months
you don't have to rush to secure new facilities, buy new equipment or hire and train
staff. It simply takes one phone call to reach out to the third party logistics company
to secure new rates as you open up more shipping lanes or add another login to the
transportation management system as you bring on new locations. We have seen it
thousands of times in our long time customers over the last nearly two decades.
"But.....I can do it cheaper/better myself...I don't Need an Outside Third Party Logistics Company Telling Me what To Do.“
We get it. You've mastered your logistics processes. You are an expert at getting the best
rate from the one LTL shipping carrier you use. Once your company hires a third party
logistics company, they will no longer need you....right? No...that is usually not the case. In
fact, they can either have you stay more strategic, not bogged down in the weeds of detail
and tactics, and focus on growing the business.
While we all tend to think that we’re good at everything we do, that’s not always the case.
More to the point, doing it ourselves generally requires an investment in facilities,
equipment, people and time. In many cases, that investment is fixed. Your warehouse
doesn’t grow or shrink based on how much space you need at a given time. Your
warehouse rent doesn’t change based on how much product you ship, nor does the cost
of your forklifts, pallet racking or utilities. Your labor is variable, but only to a point. Most
businesses are still going to have a minimum amount of staff, regardless of revenues to
handle the tactics and details of freight, transportation procurement, carrier relations for
ongoing freight maintenance, and more.
When you use a third party logistics company, you only pay for what you use. When you
do move product in or out, you only pay for the freight costs. You’re getting full time
people at pro-rated wages. You will also likely benefit from your provider’s economy of
scale. Freight and shipping costs will almost certainly be better than what you can secure
on your own for the simple fact that your 3PL is moving a lot more product that you are
individually. Win, win, win.
Now, this doesn’t mean that a 3PL is right for your company. If you’re in an industry that
is very localized or distribution-focused, it may make a lot more sense to do it yourself.
Perhaps you are the expert in your field which negates the benefits of outsourcing. There
are no absolutes in anything, especially business. When it comes to decisions affecting the
future of your company there are usually not even any rules of thumb. Every
circumstance is as different as the enterprise that is exploring it. It all comes down to
what’s right for your business, your customers and your people. But, it never hurts to at
least have a conversation with an expert.
Outsourcing Logistics: Does It Make Sense for Everyone?
The benefits of outsourcing logistics processes to a third-party logistics provider
(3PL) are well documented. As the world’s economy has become increasingly
complex, it has become impossible for a single entity to control all of the
warehousing, transportation and administrative tasks that come with shipping and
managing inventory. For this reason, more companies are turning to 3PLs to help
with cost reductions and overall management of supply chain processes. However,
organizations must be careful to ensure they do not overstep their bounds before,
during and after selecting a 3PL.
For example, a complete legacy warehouse management system may need to be
significantly updated in terms of technology and physical space before integrating
with a newer, more comprehensive system. Ultimately, the decision to outsource
should not be taken lightly, and company executives need to understand a few facts
before outsourcing and a few considerations when selecting a provider. This is the
only way to make sure outsourcing benefits a company.
Basic Facts to Understand Before Outsourcing Logistics.
Know What Services You Need to Outsource.
Many 3PLs have extensive offerings, and you need to know what services will and will
not improve your existing operation. In other words, you must understand what needs
to be improved before considering outsourcing. Create a list of services you offer, and
define what services you would like to have. This may include the following:
• Better inventory management.
• Auditing services.
• Small package processing and shipping.
• Labeling.
• Tracking of packages via the Internet of Things (IoT).
• Advanced order and payment processing.
• Defined roles of Importer and Exporter of Record.
• Preventative maintenance initiatives.
• Holistic transportation management system (TMS).
Omni-Channel Globalization of the Supply Chain Requires More Contacts and
Options.
Small to medium businesses routinely operate in local or regional spaces, but as the world
grows more interconnected, you need to look beyond your optimal service area. This
helps you grow your business, and a 3PL can provide you access to resources that you
may have never even considered as needing improvement, explains industry expert, Frank
Castiglia. Essentially, a 3PL expands your access to other service providers, and the third-
party nature of operations helps all partnered businesses gain a competitive advantage
and other benefits.
Don’t Expect More Than Reasonable.
The third core concept involves how a 3PL can reasonably improve your operations. This
seems redundant, but many companies fail to realize the limitations of a 3PL. 3PLs have
limits, and while some may be able to provide access to fast-track programs for customs
processing, there will still be some delays. The key to truly taking advantage of a 3PL is
knowing what is and is not reasonable, and if you can make this distinction, you can be
ready to start the process of looking for and selecting a 3PL to outsource logistics.
Critical Things to Know When Considering Outsourcing Logistics.
Once you’ve made the decision to outsource, it can feel like a turn-key operation.
However, your input is still greatly needed and helpful, and you should look to a 3PL as a
new employee, not just a service provider. As a result, you need to consider four aspects
of 3PL practices before making a final selection.
3PLs Aren’t Designed for Short-Term Benefits.
The best 3PLs in the world cannot help a financially bankrupt or consumer-ousted
organization. As explained by Leslie Hansen Harps of Inbound Logistics, there is no
guarantee that outsourcing will be successful, but you will never know if you only stick to
outsourcing for short-term gains. Your company needs to understand the benefits of a
3PL are seen in long-term execution. You may not save money in the first few weeks, or
even months, but the savings will start to roll in when your inefficiencies have been
addressed and your opportunities have been widened.
3PLs Focus on Long-Term, Mutually Beneficial Business Strategy.
Although it may appear holistic and thorough, outsourcing is not a business strategy. It
only makes up a portion of your business strategy, and you need to define your own
business strategy to be successful. The key to making this work is aligning your business
strategy with the long-term strategy of your 3PL. Moreover, you should look for a 3PL
that has similar values and strengths that you listed as services you want to offer.
There Are Many Different Types of 3PL Services.
The hundreds, if not thousands, of logistics outsourcing providers. They come in all
shapes and sizes, and you must not be willing to ignore any of them. You need to give all
3PLs an equal opportunity to work with your company. This does not mean you have to
sign contracts with each, but you do need to pay attention to what services each provider
may offer. Look at the whole picture, and select a 3PL that goes just beyond what you
actually need. In addition, make sure your partnered 3PL offers one-stop solutions. In
other words, you should be able to complete all of your outsourcing requirements with
one company that can connect you to other partners if needed.
3PLs Are Ineffective Without Collaboration.
Outsourcing can take much of your burden of work off your shoulders. But, this is not
an excuse to stop working for your organization. The 3PL may be effective at managing
processes and identifying ways to save, but you have the most power to leverage. You can
define what is and is not working for your employees’ sense of direction and ability. For
example, a 3PL can provide you with plenty of metrics, but if your employees hate a
specific process, you need to let the provider know what is happening. Ultimately, you
become a more important part of the supply chain’s chain of command by acting as the
bridge between your company and the 3PL. As a result, you must collaborate on both
sides of the bridge to ensure all parties gain a positive return on investment for the
creation of the business relationship.
3PL Companies: 4 Factors To Consider in Your Evaluation of Hiring One
4 Factors to Consider in your Evaluation of 3PL Companies
In this article from Logistics Viewpoints, Adrian Gonzalez, a Logistics Thought
Leader, gives his 4 Important Factors for Evaluating 3PL Companies. Although
Cerasis is somewhat defined as a 3PL, we also refer to ourselves as a freight logistics
service provider who offers 3PL services, technology, and integrated freight
management services. Regardless, the following criteria are great factors to consider in
your evaluation of potential 3PL companies:
1. Alignment of Continuous Improvement Cultures. Three of our CORE
logistics philosophies line up well with this factor:
Transparent communication and collaboration from the beginning of the relationship
to set forth proper expectations of results, making sure to define Key Performance
Indicators and what defines success when working with the 3PL company.
Look for shared goal and initiative alignment in the way the 3PL companies pitch you.
Do they care about the RESULTS, do they want to improve PROCESS, and then
have a shared goal of driving down your freight and transportation costs over time?
Make sure that you hear from the pitch of these 3PL companies the willingness to put
together plans which state the what the 3PL will improve over time in order to
continue adding value.
2. Modern IT Platform with a Focus on Innovation:
Look at 3PL companies with a dedicated technology team who built the company's
technology offerings. This will allow you to receive updates in line with common
customer feedback and industry changes, such as commodities changes within a
Transportation management system.
3PL companies should also give you insight into their development road map, where they
have been, and also how they are going to address upcoming trends such as eCommerce
and the volatility of freight rates.
3. Invest in Talent Development and Retention
Ask the 3PL companies you are evaluating what is their employee turnover rate when
considering hiring one. Tenured employees will lead to legacy knowledge of your account,
meaning that over time, the relationship will continue to add value as there is no time
wasted continually on-boarding a new customer service rep to the intimate knowledge for
your logistics department.
Additionally, ask the 3PL companies if they have a development program to keep staff
educated on the latest industry news, such as the new Hours of Service update on
7/1/2013 put in place by the Department of Transportation, which directly effected
Truckload freight departments and carriers.
Finally, are these 3PL companies acquiring new talent to move their company forward?
You should see investments in building out integrated services departments and adding
new talent in the technology side to keep up with the latest changes in available
technology to decrease inefficiencies in process.
4. Provide Business Intelligence and Insights
How many times in the last 12 months have you heard the phrase "Big Data?" There is a
reason for this! With modern technology platforms and transportation management
systems, 3PL companies can no longer get away with not providing to the c-suite and
leadership business intelligence which allow you as the company to make smart business
decisions around process improvement, what carriers to choose, what inventory to stock,
and more. Ask 3PL companies to provide sample reports from their systems to show you
the good stuff!
Also, 3PL companies should also conduct pre-engagement analysis such as looking at
historical freight invoices and showing you where you can save money by creating custom
programs to drive bottom line savings.
7 Freight Costs Considerations That Will Have Shippers Rethinking In-House Transportation
Management
Freight costs are eminently controllable, however, efficiently managing this major
budget item requires expertise. In the complex world of modern transportation,
companies lacking the experience to professionally handle the intricacies of
transportation management are sure to find controlling shipping costs an extreme
challenge. For the company determined to try, it is critical to maintaining constant
guard on cost controls at every turn in every transaction, a daunting proposition for
most companies whose competencies are not developed with optimal freight costs
control as a core area of focus. Here are just some of the typical issues that
businesses encounter in undertaking self-management of freight transportation
management.
Skill Set Development
Commonly, companies struggling to independently manage transportation and
logistics quickly discover that it's a full time job. Most businesses ultimately determine
that this area of responsibility cannot realistically be merely subsumed under
packaging, warehousing, or other operational functions. This is especially true if the
objective is to optimize freight costs controls in order to realize significant savings
that can be passed on to customers and company stakeholders. To reasonably expect
success in this business function, it is necessary to identify an experienced, talented,
and extensively connected transportation manager with a strong track record of
success in the role or easily find that resource from a third party logistics company
focused on transportation mangement.
Dedicated Position
Companies are usually fully-focused on production and customer services and have not
dedicated a management role to building the skills required to make freight costs control
appreciably impactful to their profit margins. Predictably, individuals who take on the job
of managing freight costs find themselves overwhelmed by the effort, often due to
attempting to juggle their regular responsibilities with a new range of complex challenges
that account for a second full-time workload.
Not surprisingly, when the employee taking on these responsibilities becomes over-
burdened, he or she is most likely to become less efficient in regular work assignments—
and, unfortunately, very often without succeeding in yielding the desired freight costs
management results after all. Underestimating the scope and complexity of the
considerations and the scale of the freight cost management function is the primary
pitfall in factoring the financial and operational advantages and disadvantages that
comprise the calculus for determining feasibility of in-house transportation management.
Bottom Line Strategizing
Shipping costs impact all departments' budgets. It is insufficient to approach freight costs
management by simply reducing departmental budgets without rationales that are based
on actuals along with calculations of myriad logistical factors included in freight costs.
Optimizing transportation management systems requires development of a
comprehensive strategy that treats the business in its entirety. Further, to operate
effectively, transportation management must be equipped with software services designed
for tracking expenditures across all departments throughout the business, and for rate-
tracking, and for acquisition and integration of much other necessary logistical
information.
Restrictive Modalities
In many cases, operating within an organizational hierarchy encumbers the in-house
transportation manager with special impediments to the kind of seamless acting on
incoming data that is necessary for freight costs management to be effective in such a
dynamic field wherein one must respond with continuous adaptations and proactive
moves to counter the constant undulations across shipping markets from intra-regional to
international networks. This is a fundamental error in structuring the unique role of a
transportation manager. While keeping authority to make financially impactful decisions
on behalf of the company makes perfect sense in many other departmental management
roles, it is essential that the freight transportation management function is vested with
necessary authority to strategize, compromise, negotiate, order changes, design and
implement new routines and methods, and execute transformative decisions in real time.
Without such room to resourcefully manage costs by creatively manipulating elements
and entities across the board, the transportation management function is hamstrung and
cannot follow through with the level of precision and rapidity of adjustments that are
crucial for consistently capitalizing on all available opportunities for increasing expediency
and reducing waste of resources. Fully realizing the potential financial benefits of
optimized freight management requires broad reach of the mandate to shift along with
contingencies as necessary. The freight manager attempting to operate without this
authority cannot be ideally effective.
Contact Network Development
The shipping industry has been built on relationships between the most well-established
U.S. domestic carriers and their long-time priority customers. In short, relationships are
the crux of the freight and transportation management world. Obtaining good rates much
depends upon freight transportation management's long-term relations with carriers. The
greater the number of strong relations with individual contacts at particular carriers a
shipper has established, the more efficiently the shipper can be expected to perform in
obtaining competitive pricing, scheduling ideally, and controlling freight costs.
Transportation managers with the highest levels of experience and reputation, and the
broadest range of network contacts, are those with the necessary pricing leverage to most
effectively manage freight costs.
Job Territories
Due to the magnitude of the undertaking of optimizing delivery service and control of
freight costs, it is very common these days for companies to utilize outside services for
their transportation management. When transitioning from in-house personnel to a
professional transportation service, there is occasionally an issue of concern by one or
more employees who had, up to that point, been either officially or unofficially
responsible for managing some or all of the transportation management functions, and
may feel displaced or disenfranchised by the change.
This problem, of course, is natural during any changes that shift work away from a
company's in-house team members in order to reduce costs. Staff may sense that they're
at risk of replacement by way of sourcing the business function to a new external team
who become, in effect, an appendage of the business. So, of course, moving
transportation management as a means of cutting budget is a transition that may require
sensitivity and special care in addressing it with personnel who may feel in any way
affected by the change.
Third-Party Logistics (3PL)
To accomplish meaningful freight costs savings, a transportation manager must serve as
much more than a metrics monitor (a.k.a. "bean counter"). Without a pervasive network
of strong industry contacts, and especially without the experience of a seasoned industry
professional, it is understandably not uncommon for the job to prove simply too difficult
for an in-house logistics and transportation management representative new to the vast
complex system to compete with the degree of efficiency that is possible with a
professional transportation management firm.
Businesses sometimes are under the misimpression that 3PL services are only feasible for
big companies (this report reinforces shippers of all size are now targeting to hire 3PLs
for transportation management in 2015 and beyond). However, on the contrary, modern
3PLs provide a wide range of service options, even for small businesses, and can quite
quickly take over a business's transportation operations. In fact, a 3PL can normally
provide all software and other administrative tools, and the needed expertise for less than
the cost of an in-house employee dedicated to transportation management. Altogether,
many small companies have found that the 3PL option affords them a powerful resource
for significantly increasing delivery service quality—which translates to financial benefits
from increased customer satisfaction—and simultaneously reducing freight costs.
What Do Shippers Want from Logistics Service Providers or 3PLs? A Personal Story & 4 Answers Give
Insight
Our goal is to create content that both educates and at the same time shows our
expertise so much so that it generates demand for our services. It's a fine line between
sales and marketing, of course.
As the Marketing Manager, it is my job to make sure that the content shows that
expertise, but that also we aren't explicitly selling to our readers (people love to learn,
but the bait and switch of "Buy this! Contact us!" is not a good experience). You may
have seen that we provide content about manufacturing. We are not a manufacturer,
but our customers are manufacturers. The more we know about the things that affect
them, such as reshoring, operations improvement through process improvement, the
economy, the skills gap, investment in technology, and more, the better we can serve
them. Further, as the marketing manager, I ask myself often, "What do the readers
want to read? What is of value to them?" I have to tell you, it's not always easy
coming up with that.
But, in order to reach our goals of education, of showing our thought leadership, and
generating demand for our services, we must continue to put out great content.
So what does that have to do with this entry in the e-book? Well, I know it was time
to talk more specifically about transportation and logistics, and so instead of asking
"What do the readers want to read?" I thought there was an important question that
not only manufacturers and distributors must ask themselves, but that we at Cerasis
and other 3PLs must ask ourselves: "What do shippers want from their 3PLs or
Logistics Service Providers?" Here, we will talk a little bit about that subject.
What do Shippers Want from 3PLs and Logistics Service Providers?
We recently wrote a series about the outlook of third party logistics for 2015 and beyond.
In that series, in one of the posts we mentioned that there is an opportunity for shippers
and logistics service providers or 3PLs to work together as partners. We went further and
stated that many shippers have traded old-style transactional relationships with 3PLs for
collaborative partnerships that stand the test of time. But, why have shippers understood
that transactionalism of logistics service providers does not get the intended
consequences?
Hired Guns With Expertise So Shippers Can Focus on Their Core
When I think about this, good logistics service providers are a lot like a good yard
management guy or company. As I get my front yard replaced with all new St. Augustine
this weekend, I found I've turned to an outside yard management person because, frankly,
I don't have the time to give my yard the attention it needs to maintain the value of my
home. I have a busy life with a lot of goals, and stopping long enough to become an
expert in yard management is not something I can afford nor want to do. It would take
more effort, more time, and more money through mistakes than just hiring an expert lawn
guy.
Remember, I am spending most of my time playing Minecraft and making videos with my
kids to get them interested in manufacturing through STEM education.
Like me, you might find an expert who helps you choose plants tough enough to thrive in
your difficult climate and turf that takes abuse from kids and dogs. He recommends
flowers that the deer won't eat, and teaches you to attract the kinds of birds that eat the
bugs that kill tomatoes.
He does such a good job, eventually it takes him fewer hours to handle everyday
maintenance. And that might hurt him in the wallet, except that the two of you keep
thinking up new projects to work on together.
What's true for your yard might also be true for your transportation management needs,
which is usually the largest cost center within a shippers supply chain. Like the
homeowner and traditional lawn and garden service, many shippers and their logistics
service providers initially engage in purely transactional relationships: the shipper buys a
service, the 3PL provides it, and money changes hands.
Shippers Want Longterm Success with their "Partner" Logistics Service Providers
But a growing number of shippers and
providers are forming more collaborative
partnerships, focused not just on delivering
service for a fee, but on shaping a shipper's
long-term success.
At some point, you say to your service
provider, 'Here are my needs. What is the
best way to meet them?' instead of, 'Give
me a price for this service.
This was very true for me, in the beginning
stages, of my "partnership" with my yard guy,
Marco. At first, I just thought I needed my yard mowed. It was $25 every 2 weeks. I sold
my lawnmower because I needed space. I was in for the 2 week lawn mowing for life! I
got some needed time back to focus on spending time with my kiddos and wife, but was I
getting all I could from Marco? Thankfully, I found the right partner who didn't wait on
me to tell him my needs.
What I didn't expect was that after a while, Marco proactively got to know me. He knew
my daughter's name and my daughter knew his. He then educated me and gained my
trust. He started giving me little tips about my sprinkler system heads needing replaced,
told me he could trim my tree in the backyard so the shade didn't kill my grass, advised
that I needed to make sure the dirt around the foundation didn't get too dry and cause my
foundation to crack. He even went above and beyond and explained that the original
homeowners tried a less heartier grass in the front yard, but due to the shade of my trees
and the landscaping set up, that the original Bermuda wouldn't work. Marco suggested St.
Augustine as it would give me less work, it would sustain, and to boot, would match the
St. Augustine I already had in the back yard. I truly now see him much more as a
"Partner" for an aspect of my life that must get done, but that I myself cannot focus on.
Now, if I had only told him my needs upfront!
4 Key Things Shippers Want From Logistics Services Providers In General
My above personal story plays well with what the experts are seeing in various studies.
Late last year, DC Velocity reported on a study conducted by Logistics Marketing
Advisors where they asked 200 buyers of third party logistics (3PL) services:
"How could logistics service providers more effectively engage with you when trying to
build a relationship and gain new business?" As you might expect, the responses reflected
a desire to hear about cost, capabilities, and measurable results. But they also emphasized
the importance of the personal aspects of business relationships.
As you might expect, the responses reflected a desire to hear about cost, capabilities, and
measurable results. But they also emphasized the importance of the personal aspects of
business relationships.
The most interesting part of the survey asked respondents to offer advice for 3PLs that
"would like to build a relationship with you in the hope of gaining future business." The
research identified four prominent themes among the hundreds of comments:
• Know my business. "Bring an understanding of our products and how similar
companies benefited from the engagement with your firm." This is why it's vital to
collaborate and for the logistics service providers to educate and know their
customers' business as well as they do.
• Give me a better price. "The providers I work with are very similar. Show me a cost
differentiator." In my opinion, I want to know that my total costs are reduced. This is
beyond the freight rate and speaking more to the value add.
• Be honest. "Don't tell me what you think I want to hear. ... Don't oversell with 'pie-
in-the-sky' solutions." We take pride in this point here at Cerasis. In fact, our
transportation management system, the Cerasis Rater, is built and developed with
transparency and visibility to the entire process in mind. From freight invoice
auditing, carrier relationship management, to a dedicated customer service
representative for each account that is our shipper client, we believe stating the truth,
no matter what is always the best policy.
• Bring innovative solutions. "We've pretty much heard all the ideas out there. Show
me how you can solve a problem in a unique way." As one of the first web-based
TMS on the market all the way back in 1998, at Cerasis we believe in continual
improvement. In fact, it's one of our 4 core values and a huge part of our logistics
philosophy. Innovation comes in many forms, process, people, and technology. From
our industry first end-to-end e-commerce LTL shipping solution to our FISH!
Philosophy program and leadership development programs, innovation is at the heart
of everything we do.
Logistics Marketing Advisors President Jim Bierfeldt summed up how potential
customers want to be treated by logistics service providers: Respect me, respect my time,
respect your competition, and don't just tell me what you can do; show me ideas in action
and the results others like me have achieved. And that's exactly the reason Marco and I
will be "yard partners" for several more years.
13 Key Considerations when Selecting a 3PL
When it comes to efficient and cost-effective over the road transportation
management, it is absolutely crucial that you be working with a trustworthy 3PL.
Understanding the potential value of a 3PL early in the process is crucial to saving
money and providing great service.
What Is A 3PL?
A 3PL, also sometimes known as a TPL, is a third-party logistics provider. A 3PL
helps your organization by providing expertise and best practices that can effectively
integrate into your existing supply chain. 3PLs can specialize in various logistical areas
and geographic regions.
How Does A 3PL Benefit My Enterprise?
A 3PL brings with it an existing network of valuable carrier relationships as well as a
clear understanding of how to optimize performance on given routes. That being the
case, a 3PL’s assistance is ideal for cost control, improving customer experience or
expanding routes.
How Should I Go About Choosing A 3PL?
Choosing a 3PL can be challenging, because there are so many factors involved in
making sure you have selected the right one before you even begin to work together.
Hard data should be the deciding factor in any new 3PL relationship. Any company
that plans to provide freight services to you should be able to indicate the specific
ways in which you stand to save money.
Logistics Marketing Advisors President Jim Bierfeldt summed up how potential
customers waBefore you start, make sure you understand your own needs before you start
the search for a new 3PL by using our handy checklist found here. In order to utilize that
checklist fully, first gather the following information from these 3 key areas:
Current freight logistics, supply chain, and costs, and an estimate of costs per mile and
hundred weight.
Current freight accounting and audit performance.
A discussion of existing carrier relationships and improvements or extensions that could
be made.
However, this is really only scratching the surface of starting with what you must do as a
shipper to get prepared. Another key point before you start is to understand what to
expect in a logistics service level agreement contract. We highly encourage you to
download our white paper regarding Logistics Service Level Agreement & KPIs to get a
clear understanding of what you should expect to see from the 3PL you ultimately choose
as your logistics partner.
13 Considerations & Areas of Focus in your Search for a 3PL Perfect for Your
Company
The following 13 considerations are the next step for you as a shipper after you have your
own data and are prepared to know what to look for in a contract. 13 may seem like a lot,
but handing over the management of a division in your business, transportation, that can
be 60% of your supply chain costs, and anywhere from 4 to 9% of your revenue, is
something you should not take lightly.
1. Consider getting outside help: You understand your logistics operations better than
anyone else, but you may not understand completely what a 3PL relationship can
represent to your operation, and to its profitability. Getting outside help when choosing a
3PL might simplify the process, and reduce staff and time commitment. Seek someone
knowledgeable in third-party logistics who can demonstrate experience with a broad
scope of outsource operations and providers. A great 3PL consultant and Cerasis blogger
we recommend is Chuck Intrieri.
2. Define a clear process for interfacing with potential 3PLs: One of the greatest
frustrations reported by individuals who attempt to evaluate third-party logistics providers
is that too often no defined process exists. Nobody is clear as to what results are expected
and in what order. However, if you understand your own needs using that handy
checklist, gather your data, and know what to look for in a contract, you are off to a good
start.
3. Consider a maximum of three 3PLs: With or without external assistance, conduct
advanced research on potential 3PLs that fit your requirements and do a detailed
evaluation of only those entities. If you are dissatisfied with the end result, you can
modify the process and investigate others, but trying to evaluate more than three 3PLs
thoroughly will prove extremely demanding.
4. Don't use an RFP: An RFP limits you to functional costs. A good 3PL relationship
should result in a quantifiable value significantly more dramatic than any RFP can identify.
It is imperative that you choose the 3PL that offers the clearest quantitative value to your
company.
5. Institute an internal 3PL evaluation team: This team must include representation
from the supply chain/logistics, information technology, sales/marketing, purchasing, and
finance departments. Doing this ensures corporate-wide buy-in for your ultimate decision.
It also demonstrates the impact logistics has on the broader business and provides insight
that will enhance the dollar value represented in the ultimate agreement.
6. Create an enforceable, mutual non-disclosure agreement: Do this before starting
formal meetings with your third-party logistics provider candidates; ask your legal
department to help. Execute this agreement before you initiate the development of a
value proposition.
7. Payment history & financial stability: Having your 3PL suddenly fall apart could be
one of the most devastating challenges your company faces. Finding a partner that has
proven their financial stability will at least keep your operations from being brought to a
screeching halt as you attempt to recover from someone else’s mismanagement.
While evaluating your top logistics candidates, ask for a list of partners and enquire about
their history with the provider. Have they consistently made payments? Has their ever
been disagreement or lack of follow through from the company?
How a logistics provider handles their partners will be a good indication of how they will
handle your business and talking to their partners might give you a clearer picture than
talking to their hand-picked list of references.
8. Proven track record: Going beyond the finances of a potential logistics provider,
what is their overall track record like? Are they known for being a state of the art
company? Do they have multiple long-term clients?
As a service oriented business, the reputation of a logistics provider will speak volumes as
to the efficiency and reliability that you can expect.
9. Excellent industry references: The references you have for a logistics provider
should not be good or passable; they should be adulatory. For a logistics provider to be
worth your time, their clients should hesitate to speak volumes on their security, reliability,
and flexibility. Clients should rave about the results they have delivered.
Furthermore, references should be able to speak to the character and culture of the
provider. Whether good or service oriented, companies should be delivering a higher
value proposition than simple efficiency.
10. Show the impact on sales throughout the process: Nearly all logistics projects are
actually marketing projects. When evaluating the true quantitative value proposition of
partnering with a 3PL, make sure you note the impact on sales. Often, attaining the lowest
costs determined from a traditional RFP can lead to customer service problems, resulting
in a negative impact on sales.
11. Insist on regular meetings with senior executives: Any agreement must require
that senior executives from the 3PL participate in a quarterly, at minimum, meeting with a
multi-department team. Treating the 3PL as an integral part of management, rather than
as a vendor, evokes a degree of interest and responsibility in achieving overall corporate
goals.
12. Scalability: First and foremost, can the 3PL efficiently scale their operations to fit
your changing needs?
Bi-directional scalability directly influences how efficient your supply chain will be. You’re
doubtlessly striving to grow your company, but the fact remains that there will be ups and
downs to business. Demand might contract for any number of reasons. You need a 3PL
that can rapidly scale down the processes within your supply chain.
Conversely, you also need a logistics provider that can handle sudden spikes in demand
without skipping a beat. Growing pains happen for everyone, but if you find a 3PL that
has already experienced them with another company, you’ll spare yourself the brunt of
the problems.
Find a 3PL that already has clients both larger and smaller than your organization. A 3PL
that can scale will constantly be making small adjustments, e.g. aggregating or multiplying
shipments, as your requirements move in one direction.
13. Clearly define a timetable for handing off responsibilities to the 3PL, and
document the responsibilities you will retain in-house: The relationship should not
be initiated until this process is put in place.
As the new 3PL relationship is ramped up, communication is crucial. Failure to
communication at a given time may lead to ongoing issues with the 3PL relationship, at
least until the enterprise has completely gotten used to the new 3PL.
How have you evaluated 3PLs as you were looking towards forging a new relationship?
Let us know in the comments section below!
BONUS INFOGRAPHIC: 3PL vs. 4PL
Since the post we did about 3PL vs. 4PL is the most shared post we've ever done, we
decided to make an infographic about them! If you would like to use the infographic in a
blog of your own, just let us know by emailing [email protected].
Learning the difference between a third party logistics (3PL) and fourth party logistics
(4PL) as well as 1PL and 2PL , and the rise of even Fifth Party Logistics (5PLs) is both
confusing and highly debated among those in the supply chain industry. It's also VITAL
to know the players as you are selecting your 3PL.
You can view the infographic on the next page.
3PL Providers: 7 Core Reasons to Outsource Non-Core Functions, Like Transportation Management to One
In today’s up and down economy every shipper is looking to find strategic advantages
over their competition. The biggest hurdle for logistics and transportation managers
continues to be, how I get my product to my customer in the most cost effective,
reliable, and quickest way. It’s a constant battle to find the balance of the cheapest
transportation provider with the one that has the best service. A lot of companies are
outsourcing entire or part of their transportation department to 3PL providers, and
according to the recent Inbound Logistics report, 3PL use is only on the rise.
Inbound Logistics' annual 3PL Perspectives market research report documents these
changing dynamics. While cost reduction remains the dangling carrot leading shippers
to the 3PL well, that impetus has expanded considerably during the past several years.
And the economy is a big factor.
"Inflation is expected to rise as the Fed changes its easy-cash policies; economic
growth is projected to shrink; higher payroll taxes and rising fuel prices all impact the
consumer's appetite to spend," explains one 3PL respondent to IL's research survey.
When you consider that freight volume
directly correlates with consumer
confidence and is a leading indicator of the
economy progress, the impact on the
supply chain is great. Beyond that, a
continuing capacity shortage, rising freight
rates, and stricter government regulations
only exacerbate the challenges shippers
face.
Shippers want cushion—not just in terms of inventory, but in supply chain management
execution flexibility as well. Many are hesitant to dump capital into fixed costs, whether
it's infrastructure or technology. Leveraging 3PL providers to assume that risk, and
provide scalable solutions that ebb and flow with changing market conditions, can be a
smart option.
But the greater transformation in today's 3PL landscape is the changing perception of
logistics service providers. When commoditized warehousing and transportation
functions dictated contractual arrangements, the idea of partnership was buried in the
fine print. Relationships were transactional, pragmatic, and physical. 3PLs were "third
parties," or replaceable outsiders.
That sentiment is changing, big time. As shippers rely on 3PL providers partner to
provide more strategic oversight, and help catalyze business process change within the
organization, the relationship is growing more fluid, and less analytical. Service providers
are becoming an extension of the enterprise.
That's the direction in which 3PL providers outsourcing is moving. As shippers lean on
logistics service providers to deliver more than just meat-and-potatoes capabilities fixed
on tactical cost reduction, outsourcing partnerships are evolving at pace. 3PL partnerships
are turning into an enduring strategy, rather than a short-term fix.
So, with that said, it brings us to the 7 core reasons to outsource logistics functions and
transportation management that are not the core focus of many shippers like
manufacturing and distribution companies.
7 Core Reasons to Outsource Non-Core Transportation Management Functions
to 3PL providers
1. Save Time & Money – 3PL’s have thousands of qualified carriers under contract with
the ability to handle your freight. 3PL providers are able to reduce the amount of
infrastructure investments in equipment, software, facilities and personnel. A single phone
call to a logistics coordinator enables them to select the best value carrier for every
shipment. Would it make sense to put that load into another shipping strategy, such as
pool point distribution? Should we consolidate those LTL’s into a truckload? These 3PL’s
are like a having non-paid employees on your staff and allow shippers to focus resources
on areas where they are the expert (i.e. manufacturing, product sales).
2. No reason to buy an expensive TMS (transportation management system) –
Reputable 3PL providers have invested in a TMS system or developed their own. These
systems can be utilized for free when dealing with a third-party logistics provider and you
will also get access to robust managed transportation services. Many companies can even
run reports on your freight, analyze shipping patterns and keep scorecards on service
quality. All of these factors help reduce overhead for shippers.
3. Liability- Third-party logistics providers manage carrier contracts, DOT safety ratings
and insurance certificates better than most shippers. 3PL’s have a back office staff that
have SOP’s in place to help the carrier vetting process, work with carriers on invoice
variances through auditing services, and manage the entire freight claims process.
4. Economies of scale - 3PL providers provide large shipping discounts through
economies of scale. 3PL’s are able to achieve much lower operating costs per load due to
their ability to leverage their entire business for substantial discounts with trucking
companies. These economies of scale can also be seen in the carrier qualification process,
technology systems and consistent year-round freight prices.
5. Visibility of loads – Most third-party logistics companies have on-line tracking to give
shippers visibility of their loads. Many 3PL’s are able to integrate tracking into shipper IT
systems, provide integration into ERP and WMS, automated notices, or even real-time
delivery notifications by e-mail.
6. Reduce back office duties- 3PL providers have the systems, manpower, and the
know-how to process thousands of bills a day at a fraction of the cost compared to
shippers. They can also audit all of the bills to make sure the carriers are charging the
agreed upon rates. This process can be a real headache with large amount of LTL bills.
Third-party logistics providers dramatically reduce the need for freight audit and payment
personnel.
7. Utilize more carriers - Third-party logistics companies have contracts with thousands
of carriers and know the lanes where these partner carriers need freight. If a shipper has
consistent freight to multiple locations and regular lanes, an RFP (request for pricing) is
initiated after analysis of freight shipment activity and analysis to further drive down
costs. In combination with carrier compliance and vendor compliance accomplished
through the TMS, the bottom line will look great and the c-suite will be happy with the
transportation department.
3PLs and Shippers, Is it a Match Made in Heaven?
"More than one type of 3PL AND different layers of logistics," you say? Yes, there
are many types of 3PLs as well...no wonder everyone, especially shippers are
confused!
Let us cover the rising increase of the use of 3PLs and the relationship as it relates to
the effective use of 3PLs by shippers to better manage their supply chain, logistics,
and precious freight.
3PLs and Shippers, A Match Made in Heaven?
In the supply chain, some things just go together,
beginning with the most obvious, supply and demand.
Demand directs supply in an endless cascade of order
and shipment transactions, manufacturing,
transportation, and warehousing/distribution processes,
and countless functional synapses firing every which way
in between. Everything occurs in harmony with demand.
For many companies, it's all a purposeful blur as in
today's economic and competitive environment, as a
shipper, there is a lot to keep up with to remain
effective.
But connectivity is paramount in today's supply chain. Nowhere is this more important or
apparent than in the synergy that exists between companies and their 3PLs. Pairing third-
party with logistics creates somewhat of a paradigm shift to have a level of objectivity in
the middle of the buyer and seller relationship (see benefits of Vested Outsourcing in
logistics). Tactically, 3PLs can fill a very basic need. Strategically, 3PLs have the ability to
offer an outside (read, "not in the weeds of tactics") perspective offering the clarity,
oversight, and vision necessary to plan and execute several transportation and logistics
processes along the supply chain.
3PLs and their partnerships with shippers have always shared these features to a certain
degree. But the springing up and sophistication of value-added and niche logistics
capabilities beyond transactional services, the emergence of vested outsourcing or
gainsharing, and economic crisis have collectively upped the ante for outsourcing logistics.
This reality has become abundantly clear over the past few years.
The 3PL Study from 2013 Points to a Positive Relationship Between Shippers and
their 3PLs
The success of the third-party logistics industry is evident in the generally high marks
given to 3PLs by respondents to a survey as part of the 2013 17th Annual Third Party
Logistics Study, which identifies trends and explores how both 3PLs and shippers are
using these relationships to improve and enhance their businesses and supply chains.
According to the study:
Despite challenging business conditions, aggregate global revenues for the 3PL
sector continue to rise, and far more shippers (65%) are increasing their use of
3PL services than returning to insourcing (22%) some 3PL services. Nearly three
in five (58%) shippers are reducing or consolidating the number of 3PLs they use.
Shippers report spending an average 12% of revenues on logistics, and an average
39% of that figure is spent on outsourced logistics services. Outsourcing accounts
for 54% of shippers’ transportation spend and 39% of warehouse 0perations
spend.
Both shippers (86%) and 3PLs (94%) largely view their relationships as successful,
with shippers posting some impressive results from outsourcing:Just over half
(56%) say their use of 3PLs has led to year-over-year incremental benefits. They
also report significant savings from logistics cost reductions (15%) inventory cost
reductions (8%) and logistics fixed asset reductions (26%). Shippers are more
satisfied than 3PLs (71% to 63%) with the openness, transparency and good
communication in their relationship, and 67% of shipper respondents judge their
3PLs as sufficiently agile and flexible.
3PLs Allow the Shipper to Focus Back on their CORE Business as The Economic
Landscape Remains Volatile
Demand for transportation and logistics outsourcing remains on a solid increase as
shippers look to divest non-core functions and focus on their own unique value
propositions and growth efforts. Businesses understand the growing importance of
properly managing supply chain functions, and have targeted 3PLs to fill this corporate
need.
While transportation and warehousing is still core, 3PLs continue to adapt as shipper
demands evolve. Today's service provider is capable of piecing together and integrating
multiple transportation and logistics disciplines, from playing freight broker and providing
managed TMS services, to operating co-shared distribution facilities and pooling freight.
Increasingly, investments in proprietary technologies offer additional incentives for
shippers to partner with 3PLs. This allows outsourcers to tap best-of-breed solutions
without the cost and liability of constantly updating and upgrading systems.
At the same time, 3PLs remain committed to filling core needs, especially equipment,
freight capacity, and warehouse space.
Chapter Three
How To Select A 3PL?
Selecting 3rd Party Logistics Partners: Using the 5Cs Principle as Your Guide
Now & then, all of us require a “higher approach” to effectively source vendors or
suppliers, pre-qualify & moving forward to test-trial samples and/or services,
negotiate T&Cs; and then the grand finale - implement, execute, manage, and monitor
the laid-down processes, KPIs & KRAs. That’s a lot of “considerations and
confusions” in-between until the vendor’s finally on-boarded in the system. Typically
more so when we need to source & select external 3rd party logistics vendors, & then
dissect the levels of service or capability presented.
I do hit a brick wall with a resounding “smack!” very often…not because I don’t
know what to do, but because “I don’t know if I’d started off on a journey to arrive
at the intended destination”. Until this very day, when such circumstance occurs, I go
back to the “starting line or the basics” & lean heavily on the 5Cs principle as my
presiding guide to ensure I have mapped my internal commitments thoroughly
beforehand. Now, before I dive straight into the “deep-end” of the pool and
submerge myself in the technicalities & heightened negotiations to engage any 3rd
party logistics vendors, I ask myself the simplest of all questions => is what I’m
about to procure for the organization fall within the accepted guidelines of the 5Cs?
• Charter - The corporate mission & the
• authoritative requirement for the need to
• contract external 3rd party logistics services,
• with support & drive from the highest
• management echelon to all operations
• globally.
• Collaboration - Engaged co-operation
• across multiple functional divisions and/or
• business units in managing a seamless end-to-end supply chain up until fulfillment
& delivery to the customer.
• Communication - Essential cross-management of info-data across multiple
functional divisions and/or business units to inculcate maximized costs efficiency
in the supply chain & associated OPEX (operating expense) involved in efficient
fulfillment.
• Commitment - To be precise, with consistent quality results from the supply
chain processes and methods - achieving fulfillment & delivery par excellence,
cross-borders and globally.
• Customer - Solid & ethical commercial partnerships with the channels and/or
distributors, and/or the global end-consumers alike.
The 5Cs Principle provides that confidence when I’m comfortably fitting the puzzle
in the massive & intricate labyrinth of how, who, when, where, and why I should
source & to engage an exponentially capable 3rd party logistics vendors for my
organization’s supply chain. I know the exceptional benefits that such external
services provision would effectively contribute, heighten & highlight the value-
streams I’d mapped internally.
Nothing means more than driving a smooth through-put, beginning from the front-
end up until the back-end of the supply chain itself. But when added components
from external 3rd party logistics vendors are in consideration, I need to ask myself
again & again (a few more times, perhaps) as to the sub-areas within the back-end of
the chain that would be broken out and required to be managed externally. I want to
retain that “invisible driver’s seat control” effect. I can’t imagine having my perfectly
manufactured SKU getting lost somewhere in-transit, and/or having to stay till the
wee hours of the morning to lead & conduct warehouse-to-warehouse, gateway-to-
gateway, and/or DC-to-DC searches.
We do need adequate controls, almost flawless services provision, undeniable quality-
driven processes & systems; & with no argument from the floor - concrete assurances
in meeting 100% performance expectations, as per the agreed SoWs in the contracted
SLAs.
But…before I make THAT final step, I fall back on the 5Cs as my “decision-making
security blanket” not only when sourcing 3rd party logistics vendors, but in several
decision making scenarios. Hopefully, the fog would clear & the mist blows over, for
me to see thru the external services provided by the valued 3rd party logistics
"partners" (not vendors any longer) bring value-add in my “almost” seamless and
“almost” perfect supply chain ultimately.
In House Logistics vs. Outsourced Logistics: Big & Small Brands Alike are
Targeting 3PL Services
Outsourcing in the supply chain of logistics teams may sound farfetched. After all,
outsourcing typically refers to sending jobs overseas. Yet in outsourced logistics
simply refers to hiring a third-party logistics service, 3PL, to handle the logistics
services. From securing inventory to transporting goods from Point A to Point B, 3PL
are taking over as in-house logistics teams fall flat. Two of the most prominent
businesses in the USA are following this movement—Target and Justin Brand.
Target Corp. Rechannels Logistics
It has been a frightening few years for Target
investors. First the massive data breach in which
thousands of American shoppers’ financial
information was jeopardized. Then the
Canadian expansion has been deemed a total
failure, resulting in a loss of $5.4 billion.
However, the company’s latest move might be
the saving grace this globally recognized brand
needs to survive.
According to Supply Chain 24/7, Target is taking a cost cutting plan to the extreme,
setting the company to save $2 billion while increasing their supply chain capabilities.
While Target has been utilizing outsourced logistics for some functions of the supply
chain since 1997 via GENCO, as noted by Supply Chain Brain, corporate is now
focused on streamlining the supply chain to provide more:
• Technology especially in the area of mobile and online sales channels
• User-centric capabilities that includes the localization of product lines based on
demographics, location and climate
• Focus on the four most prominent categories—wellness, kids, baby and style—to
take advantage of the areas that attract the most purchase potential based on
shoppers’ demands
• Overall Target is set to invest $1 million, and by some estimates even more, in
supply chain and technology to boost the department store’s target reach and
sales capabilities.
Justin Brands Boots Their In-House Logistics Department to Outsourced
Logistics
Another leading brand taking the outsourced logistics lead is Justin Brands, a
prominent Western style boot supplier with the brands of:
• Justin Boots
• Tony Lama
• Nocona Boots
• Chippewa Boots
As the distributor for these popular cowboy boot brands, Justin Brands is looking to
outsource logistics functions to 3PL services in order to streamline their logistics
system. According to CEO of Justin Brands, Randy Watson, “[Justin Brands Inc.]
examined all possible solutions and determined getting out of the distribution
business and engaging a third party company to manage the distribution center would
be the best option. The new distribution center will enable JBI to better manage our
current volume and position us for future growth.” The new focus for Justin Brands
will be in providing the best product for their target customers. Meanwhile the experts
of a 3PL will handle the distribution.
3PL Experts Expand Horizons for Companies
The main reason that using a 3PL service for a brand, big or small, is that outsourced
logistics frees up a business to focus on what they know best. After all, unless a
business is in the business of logistics, then it is not a forte that comes naturally. As
organizations grow and expand the reality is that they are unable to keep up with the
constant changes and evolutions of the logistics world. The same goes for the
marketing sector and IT departments. While in-house departments were once
sufficient to handle the tech, marketing and distribution needs of a company, the
expansion created by globalization and the Internet has changed all of that.
Benefits of a 3PL
According to Supply Chain 24/7 the four main reasons why businesses are turning to
3PL are:
• Overall cost for supply chain
• Flexibility and adaptability
• Capital investment and ongoing expansion needs
• Improvement of service levels due to a dedicated logistics provider
For businesses, such as Target and Justin Brands, that have a global reach there is the
vital necessity to make the supply chain a success. As noted in the recent supply chain
catastrophe of the Canadian Target stores, a supply chain with a kink will break a
business in a very short period of time. By outsourcing the logistics of a supply chain
a company can turn to the professionals for tackling the ins and outs of inventory,
warehousing, transportation and distribution. Having an expert team of logistics
providers working for a business can be the boost it needs to advance to the next
level.
Supply Chain Satisfaction
As noted by Inbound Logistics more and more businesses are moving toward
outsourced logistics and the use of third-party logistics companies to handle their
supply chain needs. In a IL survey the results showed that 93 percent of businesses
utilized inbound logistics services. Warehousing was another popular category of 3PL
usage with 86 percent noting they also used this service. The trucking industry is
another faction that responds well to 3PL, given the increase of freight opportunities
from LTL to long haul due to 3PL. Having a 3PL provider handling logistics and
transportation functions streamlines the efficiency for both shippers who move
thousands of pounds of freight every day. Overall, the benefits of going 3PL are
exponentially increasing thanks to the growth of globalization and the increased
supply and demand of consumer goods in the US.
Third Party Logistics Companies: A Checklist When Evaluating Which 3PLs
are Best for YOUR Needs
Outsourcing to Third Party Logistics Companies & Increase Your Ability To
Focus
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
outsourcing logistics to 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, from third party logistics
consultant, Chuck Intrieri, to make the best decision. In fact, if you would like to
consult with him to help you choose the best one, feel free to email him by clicking
on this hyperlink. 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 Materials 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?
6 Questions To Ask 3rd Party Logistics Companies for 2015 and Beyond
With an ever-increasing pool of third-party logistics (3PL) providers to outsource
shipping needs to, understanding how to select the best 3PL is the difference between
reaching your existing customers and gaining a new market share. Many different
factors have been previously discussed on specific details of selecting a 3PL, but have
you truly learned how to identify the top-notch 3rd Party Logistics Companies from
the fly-by-night, intermediary 3rd Party Logistics Companies? It’s true: some 3rd Party
Logistics Companies exist solely as a conglomeration of intermediaries with
connections to the Big 3 Carriers. However, more 3rd Party Logistics Companies are
expanding into the realm of putting an emphasis on the supply chain and engagement
in the intermediary processes. Fortunately, selecting a 3PL for 2015 and beyond can
be broken down into six specific questions.
What Is the Company’s History?
Less than two decades ago, the concept of 3rd Party Logistics Companies were
relatively unknown. Trucking companies expanded into providing wholesome
solutions for small to mid-sized businesses (SMBs), and shipping intermediaries were
trying to make shippers collaborate to move existing shipments towards capacity per
haul. Understanding the history behind today’s available 3rd Party Logistics
Companies will help you understand how the respective entity became involved in the
process. Companies based on assets have had years of experience in purchasing
trucks and managing warehouse inventories. Alternatively, intermediary-based, or
non-asset 3rd Party Logistics Companies have waged a “near-war” with various
carriers to negotiate cheaper rates and more rapid delivery times.
A company’s history also dictates how well the company engages in global trade. This
is not meant to sound prejudice, but companies in highly-scrutinized parts of the
world understand the role of visibility in modern trade practices. Therefore, they have
taken extensive steps to monitor existing shipping practices and maximize their
profits. Ultimately, these 3rd Party Logistics Companies may have additional resources
in countries around the globe with difficult import and export regulations. However,
3rd Party Logistics Companies with existing multilateral agreements with companies
around the globe may also have similar qualifications.
What Data Analytics and Business Process Strategy Services Are Offered?
Shippers report capacity as their top concern for selecting a 3PL service provider,
specifically 65 percent of surveyed shippers. Secondly, technology investment comes
in as a concern 58 percent of modern shippers. Technology investment does not
strictly apply to managed IT services, which are discussed later; it applies to the use of
technology to formulate new, more-efficient process strategies. For example, a shipper
may want to take advantage of transportation management systems (TMS), which
enhance visibility and improve transportation management.
With the rise of the Internet, automation has become something of an expectation
for 3rd Party Logistics Companies. Automated processes allow workers, which include
managers, loaders, forklift operators, billing professionals, and others, to focus on the
goal of the company. Therefore, business processes are streamlined and data analytics
creates key performance indicator results, which further promote the respective 3PL
and their client-base. This leads one eventual question: what managed IT services are
offered by the 3PL?
What Managed IT Services Are Available?
Managed IT services are one of the most commonly misconstrued aspects of a 3PL
service provider. Managed IT services refer to the services offered that do not
necessarily exist in the physical location of the business. For example, the use of
cloud technology to enhance communication with clients and promote up-time for e-
commerce traffic fall into the realm of managed IT services. Furthermore, managed
IT services may include helpdesk support, technical support, off-site 3-D printing
services, and data storage. To help you select a 3PL based on their managed IT
services, look for the following:
• Agreements with data centers for data storage and web hosting
capabilities. This helps minimize the middle-man, which translates into savings
for the individual 3rd Party Logistics Companies and their clientele, which you
will be part of.
• Live tech support. Nothing gets consumers angrier than an automated, “select-
from-the-following-menu” style of customer service. Managed IT services should
include optional, live customer support. This is essential to growing your
customer base to include those with visual and hearing impairments.
• Automated processing of claims. Considering return merchandise
authorizations and other customer needs, a 3PL should offer an array of reverse
logistics and other logistics processes as part of their managed IT services. This is
crucial consideration for companies in high tech industries or time-sensitive after
sales, such as core returns or remanufacturing.
What Predictive Analytics Are Available?
While on the topic of IT services and analytics, you must consider what predictive
analytics are offered and managed by a possible 3PL. The ever-changing demands of
the market and consumers result in a forecast for determining inventory needs. This
also involves the concept of vendor management. For example, predictive analytics
can identify periods of high-volume, and therefore, use this information to improve
delivery schedules and enhance routes and order fulfillment processes to make sure
the item arrives to consumers on-time. Ultimately, the more predictive analytics a 3PL
offers, your responsiveness to consumer demand will be greater and more efficient.
How Does the 3PL Meet E-Commerce Needs?
Where shipping once was considered a hassle for customers ordering products in
stores, now stands an entire, ethereal realm of Internet traffic. Purchases made
through e-commerce stores do not necessarily need to enter the brick-and-mortar
distribution model, and therefore, your consumers should have the option of shipping
directly to physical location from you, the original manufacturer. Retail giants, like
Walmart, already offers this option, as does some of the other retail giants. However,
Walmart has had over 50 years to perfect this process, and a viable 3PL service
provider needs to have similar options. More and more, e-commerce is coming to the
industrial industries, and shipping involves now the complexity that mode LTL (Less-
Than-Truckload) and e-commerce combined. These types of shippers, like tile
companies and furniture manufacturers, need good automated tools that integrate
into platforms such as TMS in order to get LTL e-commerce shipping as effective as
those previously mentioned retailers.
How Extensive Is Their Network?
The rise of reshoring and the desire for customer closeness has helped transformed
shipping ideals and processes due to multiple locations throughout the United States,
and often the globe. 3rd Party Logistics Companies have managed to avoid the
inherent pitfalls of sending products around the country to multiple locations, with
multiple stops and modes, by expanding their existing locations, distribution centers,
and shipping networks. Basically, you need to ask how extensive a 3PL provider
network is currently. You must think in bigger terms if you plan on opening a store
online or perhaps a few new locations. It would counterproductive to select a 3PL
that would end up charging more to ship an item as a means of outsourcing to
another 3PL. Ask for a map of available shipping locations and how these various
destinations could affect the terms of your contract.
By asking these six questions, you can find out the heart of prospective 3rd Party
Logistics Companies. You need to where they have been, where and what they do
now, and to what limit will they go in the future. Think about their history, their
management of business strategy, what IT services are offered, how predictive
analytics can help, and where the 3PL can legally operate. This is your personal guide
for 2015, but it easily applies to all of the forthcoming negotiations between
businesses and 3rd Party Logistics Companies in the future.
Chapter Four
How To Go From Selection to Implementation
Why use a Third Party Logistics Provider and How to Implement a Successful 3PL
Project
It has been proven time and time again why manufacturers, distribution companies,
and those with supply chains need to outsource to third party logistics providers.
Simply GOOGLE it and you will come across many articles which point out the
benefits. A prominent reports also support the rising using of 3PLs as a way for
shippers to take a competitive advantage. Inform yourself on these trends by
downloading the Capgemini/Penn State/Panalpnia 2013 18th Annual 3PL Study. The
below will give you the reasons why you should create a partnership with a third party
logistics provider, and quick simple steps to implement a successful 3PL partner.
Why Use a Third Party Logistics Provider?
• To Save Time: Outsourcing the Logistics function to a third party logistics
provider will free up resources to focus on core competencies.
• Because Someone Else Can do it Better: Even if you have resources available,
another organization within the supply chain may be able to do it better, simply
because its relative position in the supply chain, supply chain expertise and
economies of scale.
• To Share Responsibility: 3PL companies can share responsibility for managing
global supply chains, keeping customers and stores properly stocked, and
delivering the perfect order every time.
• To Re-Engineer Distribution Networks: Logistics outsourcing to a third party
logistics provider can be a quick way to re-engineer distribution networks to meet
global market demands and gain a competitive edge.
Implementing a Successful Third Party Logistics Provider Project
• Outsourcing Strategy: Without a strategy upon implementation of a third party
logistics provider (which you can find a more detailed guide here), there will be no
clarity about outsourcing and outcomes to the organizations. It should be well
thought-out and measured against the in-house solution and capabilities.
• Document the Processes: To eliminate gaps in understanding and expectations
of the third party logistics provider, organizations should develop Standard
Operating Procedures for all the processes to be outsourced.
• Analyze SWOT: This SWOT analysis helps to understand the strengths,
weaknesses, opportunities and the threats of outsourcing logistics versus in-house
solutions. Conducting a Comprehensive Study: The advantages, challenges and
cost benefits of outsourcing to the third party logistics provider should be
documented.
• Create a Robust Selection Process: Adopt a scientific selection process. Invite
eligible third party logistics providers for formal presentations on without giving
any requirements. The organization can also hire a third party to help create a
short list of service providers.
• Document the Expectations: Set down expectations in clear terms and include
current costs. This will help avoid confusion later.
• Use a Request for Quotation (RFQ) or Request for Information (RFI): This
tool will help gather information and measure strengths and weaknesses. Be as
specific as possible, especially with forecasted quantities. The actual quantities
cannot differ from forecasted or your prices may go up. Beware of third party
logistics provider over-commitment.
• Do Your Homework: Making a site visit. Interviewing the third party logistics
provider’s existing customers. Evaluating responsiveness, ability to meet and
exceed the expectations, management team quality, experience, flexibility and
other factors important to company.
• Create Good Legal Documentation: Document what is agreed and what is
disagreed clearly. Address possible friction points and specify remedies.
• Define Targets: Create specific performance targets not only to measure
performance but also to initiate corrective action if needed. Explore the
possibility of gain share arrangement for positive performance.
• Measure and Review Performance: Use a Logistics Service Level Agreement
(SLA) that is negotiated between the customer shipper and third party logistics
provider so it is a win-win document. The key performance indicator (KPI)
measurement system must be efficient and accurate. Create qualitative measures
which focus on effectiveness and quantitative measures which focus resource
efficient utilization. Some Fortune 500 companies measure performance daily,
weekly and monthly and discuss it on a quarterly basis. Changes to measurements
should be ongoing.
• Develop an Efficient Costing System: This will help in understanding the costs
involved in outsourcing and help the organization measure cost efficiency and
answer the question, “Are we making any money doing this?” Gather detailed
data about the true costs of receiving, storage, pick-n-pack, value-added
processing, special packaging, staging and loading. Avoid “pallet in” and “pallet
out” costing and consider adopting Activity Based Costing to understand variance
between projected costs and actual costs.
• Create a Project Implementation Strategy: Create a project plan or road map.
Be clear with the service provider about who does what. Create a project
management team should consisting of stakeholders from both organizations.
Review progress vs. planned milestones periodically to make sure everything is on
track.
• Nurture the Relationship: Both the parties must nurture the relationship to
make outsourcing successful, creating mutual trust, respect and a sense of
integrity. Have you ever used or currently use the services of a third party
logistics provider? What was your secret to success or what were your pain
points/failures?
Getting the Full Value Add from 3PL Services by Avoiding Commoditization
or Transactionalism
If you are a logistics manager seeking options for a partnership with a 3PL services
provider or looking to optimize the 3PL solution, then understanding the expansion
of the holistic approach that some 3PLs offer will help you select an option that best
suits your company. You will want to gain insight into what differentiates one 3PL
from another, what core capabilities they offer and what skills do they have in
developing strategies and thought leadership. In short, will they propel your business
forward by providing advanced capabilities beyond a piecemeal approach to logistics
services?
Since its inception, the 3PL industry has offered its services as single commodities or
transactions rather than developing a holistic methodology that optimizes its services
through aggregated capabilities such as freight rate negotiation and economies of
scale. However, supply chains are increasingly complex, and each organization has
varying needs. Thus, selecting a 3PL that has an innovative, holistic approach to
supply chain management will enhance your strategic goals and promote the core
value of your company through continuous improvements, deep understanding of
your business and the ability to add value to the 3PL services.
A 3PL Services Partnership Drives Value
This can be especially critical for shipping LTL, which requires capabilities to
optimize the shipping process for multiple clients along the same chain. Cerasis
provides the skills necessary to evaluate the present transportation supply chain,
identify any inefficiencies, and suggest a program that will reduce costs and mitigate
potential disruptions. Moreover, Cerasis works in partnership with its clients and
makes logistics management a continuing process of improvement. Within this
partnership, Cerasis provides a holistic view of the transportation supply chain,
thereby initiating a gating process for creating a higher level of value.
Detailed preparation and planning are critical to the gating process, and a capable 3PL
services partner will use a structured, change management method that recognizes
and eliminates activities that obstruct the optimization of the supply chain in order to
improve product flow and velocity. This requires multiple elements; however, the
most crucial element is a well-established communication structure to make sure that
projects are initiated, staffed, implemented and reviewed appropriately. The holistic
3PL proactively advises its clients on process improvements, both for short- and long-
term focus areas. From this vantage, a strategic 3PL partnership will form a
collaboration with your company to fine tune a strategy to meet your needs.
Optimizing the 3PL Services Partnership Continuum
In many ways, innovation within the logistics service provider industry can be viewed
along a continuum, moving from the commoditized pallet-in/pallet-out transaction to
the holistic partnership that helps a client design a lean supply chain. This progressive
continuum evolves from tactical to strategic with a macro overview of the entire
enterprise, and such an overview propels organizations from looking at logistics
partnerships as based only on revenue instead of providing opportunities to exploit as
well.
Thus, when seeking out 3PL services,
pertinent questions will surface. What is the
primary goal? What data does your firm
possess that can be utilized towards designing
a solution? What value is the organization
seeking? How will that value be measured?
What are the best transportation buying
solutions? Our 3PL checklist to determine
your needs beforehand will help. A holistic
transportation management 3PL such as
Cerasis will take the lead in identifying and
uncovering the answers and then provide a
comprehensive analysis. Conventional logistics service providers stuck in the
commoditized, transactional approach will simply let you select piecemeal services
without regard to the impact on your company’s bottom line.
This holistic logistics approach will seek to identify what resources will be needed to
implement projects and work to determine the allocation of those resources. For
instance, will the client and the 3PL share resource allocation or will one partner
assume more responsibility than the other? These critical questions need resolution
prior to implementation of a project, and Cerasis makes forward planning an integral
element in its 3PL services. This results in a proactive strategy rather than a reactive
response to disruptions and risks, thereby adding value by enabling companies to gain
tighter controls over their daily activities. In addition, it ensures positive, forward
momentum and quicker time-to-value reached through the partnership.
Sustainable 3PL Services Starts with the "Metrics that Matter"
Another crucial element of the holistic 3PL partnership is the establishment of value
and success measurements with concrete documentation of the “metrics that matter.”
This ensures that both partners comprehend the value proposition and have efficient
ways to measure performance and monitor success. These controls keep both sides
aligned, allowing them to build on successes and reduce the time-to-value delivered.
Cerasis provides your company with the skills to establish this element of change
management and makes it possible to replicate those successes.
Chapter Five
All You Need To Know About Implementing A 3PL
3PL Implementation Steps Part 1: Where to Begin
The Importance of Thinking About 3PL Implementation BEFORE You Hire
a 3PL
NOTE: The following 3PL implementation steps include information about
warehousing. Cerasis is a non-asset freight logistics company or lead logistics service
provider specializing in streamlining freight logistics processes and saving you money
on LTL, TL, and small package freight shipments through freight management
services and freight management software. However, this blog post's goal is to
educate and offer value on the selection of a logistics provider which at times requires
thoughts for warehousing. If you are need of warehousing, please feel free to contact
us as well and we can direct you to trusted consultants who can find this on your
behalf.
Determine Customer Service Requirements
Conduct upfront research to identify a
select list of preliminary 3PL candidates.
All eligible 3PL companies should be
surveyed to determine facility locations,
ports, if imports are involved, technology:
WMS/TMS systems integration,
warehousing and distribution (LTL/TL)
strengths and weaknesses as well as their
service areas in relation to your customer
locations. Where are the majority of your customers in relation to the 3PL location?
This will help in eliminating companies that cannot adequately address your
functional specifications. Developing a detailed method for critically evaluating the
capabilities of 3PL candidates can make or break an outsourcing selection process:
Do they warehouse our type of product? Do they know how to handle/manage our
type of product/SKU? What is most important to us in using a 3PL?
Create a 3PL Cross-Functional, Internal Company Team to Meet Occasionally
Assignments are given to members with dates/names or requests by them to the
committee. There should be an internal 3PL Project Leader (Logistics Manager is
best, or Supply Chain, etc.) aside from the 3PL/Logistics Consultant. Key members:
I.T.is very critical (integration to 3PL’s WMS/TMS, what reports will we need, other
I.T. issues, SLA/KPI-IT input), Marketing/Sales (Customers: V.O.C.: Voice of the
Customer), Customer Service, Returns Management (RMA), Cost Accountant
(Internal costs versus quotes received), Warehousing (pallet sizes, freight
receipts/shipments, LTL, TL, Warehouse inputs, our Warehouse set-up and current
work instructions), Supply Chain, Purchasing, Administration (procedures, work
instructions), General Manager, owner and other critical areas within our company.
Have you done the math and know what all of our internal costs are so we can
properly judge the 3PLs pricing?
Do your realize that there will be transition costs, as we prepare to move freight to a
3PL facility?
Solicit Requests for Quotation (Or Use 3PL RFQ format):
The request for information (RFI) or quotation (RFQ) is a tool to gather information
and measure the strengths with respect to capabilities and initial, non-negotiated cost
effectiveness of outsourcing. Do we have detailed costs for our current warehousing
activities to use to judge the 3PL’s initial pricing based on the detailed data give them?
What does it cost to ship an average order to our customers? When selecting a 3PL,
the RFQ document should be as detailed as possible and it should be accompanied by
all relevant documents about the project and expectations: estimated quarterly/ yearly
volumes, initial, estimated square foot usage in the 3PL, seasonal demand, all pallet
sizes and cubage, container loads/amount of SKUs in a container (unloading
costs/LTL costs). The RFQ should include a detailed description of the areas to be
outsourced including: the scope of the contract, locations, facilities, departments;
information on volumes involved, number of deliveries, warehouse sizes, number of
items, etc.; the logistics tasks to be performed; the level of performance required.
Furthermore, the RFQ should indicate a format for price quotation and a time-frame
for responses.
There will be times when a 3PL candidate will want to visit the Customer’s facility.
They will visit to see how you handle your product, review work instructions, review
your cycle counting and other procedures, do you slot your goods, etc. the type of
Warehouse you have, and if your company is a fit to be a partner to them. It will help
them in their initial pricing to you.
Visit the Potential Provider's Facilities (Locally first, then the final city at a later
date)
Facilitating tours of a potential 3PL provider’s facilities and interviews with their
existing clients is an important next step. Send an agenda in advance to outline what
information you need during this initial visit. Experiencing the company’s facilities
gives you a chance to determine how flexible their operation is and their willingness to
work to meet your needs as they change. Do you feel a good chemistry with all of their
people and especially the point person you will be working with at this 3PL? Would this
make a good partnership? Do they have what you require? Do they meet OSHA/CA
requirements, Cleanliness, 5S and LEAN initiatives, Six Sigma qualified people,
Kanban, Kaizen, et al? Do they have inter-company competition on meeting their
successful 3PL standards? Are they unionized? Are they a private or public company?
Are they transportation 3PL or Warehousing/Distribution 3PL or both? Do they have
state-of-the-art WMS/TMS/YMS systems in place to meet your needs?
Call on customers of the 3PL to get feedback on their service and pricing negotiations.
Get a long list of customers and choose a few so the 3PL does not know who you are
calling.
Develop a Project Implementation Plan
There should be a detailed logistics outsourcing project implementation plan as well as
periodic reviews in place to make sure everything is on track and there are no drastic
deviations in the scope of the project. The project implementation is the process of
translating thoughts into actions and it requires active co-operation and co-ordination
on both sides of the relationship. Project implementation includes IT integration,
operating procedures customization, understanding the service measures, defining the
escalation process etc. All these activities require precise handling and a dedicated
team. The 3PL companies usually have their own project implementation methodology.
What is critical here is customization, to suit the specific requirements and deliver
agreed service levels.
Design Efficient Performance Measurement Systems:
Establish key performance indicators (KPIs) to manage the 3PL performance along
with a service level agreement (SLA) (or Contract as it is sometimes called by the 3PL).
The SLA/KPI is a key document to manage the Service Level of the 3PL. During the
startup phase of the outsourcing relationship the customer must take the initiative to
develop performance measurements (KPIs) and reporting methods that support the
company’s business goals for the outsourcing strategy. The 3PL’s performance should
be measured on qualitative and quantitative performance measures regularly (KPI
review monthly during honeymoon period and quarterly thereafter). Sometimes called
a Quarterly Business Review (QBR). Ideally, financial, productivity, utilization, quality
and cycle time measures should be considered. List Cycle Counting for Inventory
Records Accuracy 98-100%, RMA details, Service to Customer details (VOC), Cost
Reduction must be clarified using Continuous Improvement or LEAN concepts, 5S,
LTL needs defined, savings from the 3PLs TMS systems based on your freight
optimization, rate negotiations, etc.; it is VERY SPECIFIC. One of the objectives of
performance measurement is not just to measure the performance but also initiate
necessary corrective actions with regard to negative performance and explore the
possibility of gain sharing in the case of positive performance so as to encourage
continuous improvements. Regular performance measurement presents the perfect
opportunity for both the customer and the 3PL to communicate effectively to make
the outsourcing relationship a great success.
3PL Pricing Structure: Part 2 In Third Party
Logistics Implementation
In part one of 3PL Implementation steps, we spoke about how you begin the process
of implementing a third party logistics company. He covered important factors
shippers, manufacturers, and distributors need to consider when looking to hire a 3PL
provider, such as: Customer Service requirements, putting together a task force, and
of course creating a plan internally to set up your criteria.
Now that you know how to set up the initial process and start looking at 3PLs, the
next question is always, "How much will this cost me?" So today, we want to talk
about setting up and understanding 3PL pricing structures.
There are many different ways to structure price, but the key ingredient is to make
sure your 3PL will maximize both hard and cost savings for your company in order to
glean the most value out of the relationship.
NOTE: This section is more holistic in the explanation of all 3PL pricing structures.
Cerasis, a transportation management solutions service provider of both freight
technology and freight management services, charges you the cost of freight that you
ship and our pricing monthly is customized based on your companies' unique needs
and service program. Often Cerasis saves you money in our expert negotiations with
carriers as we negotiate based on your specific needs via our carrier relationship
management services and team.
3PL Pricing Structures Explained
UPFRONT COSTS
3PLs often charge upfront costs based on the
complexity of the service. This cost is for planning
and development of material handling, operational
and information systems required for the distribution
operation and implementation of the proposed system.
Some bill for time needed to calculate your charges.
PRICING
The first prices you receive are important. But, you
must realize that initial pricing is based on
ESTIMATED VOLUMES. There are “hidden costs” in these first prices, and more
profitability for the 3PL. Constant price negotiation is imperative. It is best to start
with “unit rate pricing” or “hourly” pricing in a public, shared warehouse. Variable fees
are charged per hour, per item or per order for each distribution function such as
receiving, put-away, pick-pack-ship, customization, inspection, returns processing, etc.
Fixed fees are charged monthly or quarterly, irrespective of the number of orders
shipped. Lift trucks, equipment and people are shared in a public warehouse to keep
prices down. (There will also be “accessorial pricing” for pallets, hourly fees and
miscellaneous pricing. At times you may be asked to pay for some of your KPIs…just
keep negotiating!!).
Being in a shared, public warehouse, you can get a feel for how the 3PL operates while
ACTUAL SHIPMENTS are being received by the 3PL. If your actual shipments
exceed your estimates, it is time to negotiate again, using the change process clause in
the contract for initial monthly reviews during the “honeymoon” period. Once you get
by initial negotiations, the goal is to obtain “cost-plus” or “management fee” pricing.
This is contract pricing and usually means a two (2) or three (3) year contract obligation
with the 3PL partner.
NOTE: Cerasis is non-asset, and we do not offer warehouse, but again, wanted to be
as educational and holistic as possible.
Less-Than-Truckload (LTL) and Truckload (TL)
Pricing for LTL and TL (in an asset based 3PL environment) is negotiated as a separate
contract negotiation. With Cerasis, we focus on LTL, Truckload Freight Brokering, and
Small Package. We put in place a contract with several carriers negotiated to your
specific lanes. We specialize in this area, with an emphasis on technology and freight
management services. We serve multiple locations and those vendors who inbound to
you via our freight routing department.
Have a QBR (Quarterly Business Review) as part of the LTL contract so you can
review pricing as the 3PL uses their Transportation Management System (TMS) to
optimize your freight. Why shouldn't you realize some cost reduction on your LTL
prices if they optimize your freight and find cost savings?
It is a great idea if you can afford to send your Project Leader to the 3PL for focus on
your initial shipments. Face-to-face negotiations are the “only way to go.”
Always Have a Back-Up or Fail-Safe Plan
Your team should choose a number two (2) and number three (3) 3PL candidates (s) in
case the chosen 3PL fails in some way in meeting your needs. This failure could happen
anytime. It is important to have cancellation/modification; change processes in the
contract should you need to cancel, modify or change any processes or the 3PL
relationship itself.
Contract/Service Level Agreement
Any contract or terms and conditions must be reviewed by the Consultant, and your
team, and then turned over (with your suggestions) to a contract lawyer. Look out for
terms and conditions on the reverse or front side of ANY document received by the
3PL to insure that YOU AGREE to ALL terms and conditions in your 3PL
relationship.
Do you want to use your own LIABILITY INSURANCE or the 3PLs liability
insurance? Or-get a 3PL quote on insuring your goods to see if their insurance is better
for you?
Continuous Improvement (It Should be FREE)
The success of an outsourcing relationship between a company and the 3PL provider
requires a combination of trust and collaboration. Trust determines the level of flexibility a
company can allow the 3PL in managing the operations to the best of their capability. The
outsourcing arrangement can be truly successful only when there is a high level of trust
between both parties in the business relationship. Unless there is this sense of trust and
collaboration in the client-3PL relationship, it most certainly will fail.
CONCLUSION
Gaining more from a 3PL Relationship
Thank you for reading this comprehensive part 1 of the Essential Guide to Third
Party Logistics. We hope you learned more about the 3PL industry than you knew
before reading.
When it comes to procuring any outsourced partner for any part of your business, the
more you know about what you are buying the better decision you ultimately make for
what service, tool, or partner you choose. When it comes to your freight and your
logistics processes, with logistics taking up a large portion of your operating costs and
Cost of Good Sold, it’s vital you make the right decision on a 3PL partner.
Join us for the second installment on the Essential guide to Third Party Logistics as
we will then delve into the benefits and advantages of working with a 3PL, how you
can better manage a 3PL relationships, and what are the future trends for the 3PL
market.
Cerasis provides a comprehensive suite of transportation management services to
give your company the competitive advantage by getting your products to their final
destination in the most reliable and cost effective way. Increasingly, the holistic 3PLs
that offer services such as freight rate negotiation, freight auditing, information
technology and economies of scale, as provided by the Cerasis transportation
management system, the Cerasis Rater, are becoming the strategic partners for success
along the supply chain.
Cerasis, a transportation management company founded in 1997, has always believed in the use
of technology to improve process to not only reduce cost but to stay strategic, competitive, and
have the ability to use data from technology to continually improve. In fact, one of our core
values is just that: continuous improvement of our people process and technology.
We built our Cerasis Rater TMS in 1998, launching it as web-based before Google was even a
business. Our (now Army, as our Development Manager, Jerel Byrd calls them) development
team are always continually improving the Cerasis TMS, as we know it is vital to have a system
that is not only innovative, but sound, secure, and enables those in transportation to do their job
all while doing it cost effectively.
Are you using a TMS to help manage your transportation department as a shipper? What are
you seeing in the space?
In addition to our transportation management system (TMS), the Cerasis Rater, when you are a
Cerasis shipper, you gain access to the following managed services:
• Transportation Accounting to include: Invoice auditing, one weekly invoice no matter how
many shipments, and freight payment services
• Comprehensive end to end freight claims management: if your freight is damaged or lost,
we will handle the freight claim on your behalf
• Carrier Relations: We will negotiate rates on your behalf and you get better rates thanks to
our buying power
• Inbound Freight Management
• Reverse Logistics
• Robust Analytics and Reports
• Small Package/Parcel Auditing
• Small Package/Parcel Contract Negotiation
• Warehousing
• International
• & More!
Want to learn more? Visit http://cerasis.com
Learn More
Get a Demo of our TMS or Inquire
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