“Time-sensitive deliveries, lean inventories and shorter product lifecycles are placing greater demands on the supply chain. Shippers have greater expectations of what they want their logistics providers to accomplish, and the proper alignment of those expectations is the key to guaranteeing success between both parties” – Third-Party Logistics Study released on September 25, 2017.
How do you feel about your third-party logistics provider (3PL)? We are now in September, the month many consider the most challenging from a shipping perspective and, all set for peak season to kick-off. Are you confident your 3PL can handle your peak volume? Do you believe it will be a challenge but doable? Are you concerned that some orders will miss ship dates especially if those orders don’t get to the 3PL before the 29th (the last Friday of Sept)? Or do you stay up at night because you know that your 3PL will struggle and miss shipments that have financial repercussions for you and your company?
If you are answered anything other than “I am confident my 3PL can handle the volume” you need to consider whether it is time to change 3PLs.
History of 3PLs
3PLs gained popularity in ‘80s with the Motor Carrier Act which deregulated the U.S. trucking industry and helped the number of carriers expand from less than 20,000 to greater than 1.2m. 3PL growth continued into the ‘90s with the rise of globalization. It became more common to not just ship internationally, but to manufacturer internationally resulting in the need to provide integrated supply chain solutions. In the ’00s, the rise of the internet led to the need to integrate complex supply chains seamlessly across businesses in order to gain efficiencies. Simultaneously, as internet use became more prevalent and speeds increased, online retail became feasible. 3PLs were able to continue their growth by working with product focused companies that either lacked the skills or the desire to fully handle the needs of changing supply chains in-house.
As with any industry that experiences rapid growth there will be companies that exist and grow by chance, rather than by executing appropriate strategies and investing properly. This can lead to relationships with a mismatch of expectations and the need to evaluate alternative options.
The consequences of working with a 3PL that isn’t aligned to your strategic goals and requirements can be dire. Missing shipments to large retailers can lead to heavy fines and lost sales; delays in fulfilling ecommerce orders can lead to brand distrust and loss of customers; friction between both parties can emerge quickly and cause growing concerns within your own company, including disgruntled stakeholders.
If you have determined that you need to at least consider changing 3PLs either because of your fear of peak performance, misaligned strategic goals, culture fit or some other factor, where should you start? While there are a multitude of dimensions on which to evaluate 3PLs against, there are a few key evaluation criteria you can use to quickly reduce the number of potential 3PL partners to a workable short-list.
First, look at 3PL capacity. Although this may seem obvious, you must have a firm grasp of your current order volume by channel, by month, and expected growth. A firm with vast swings in month-to-month combined with a high growth rate will need a different 3PL than one with stable month-to-month and year-over-year sales.
Second, determine what type of provider you need. Are you looking for a strategic partner, a service provider or a tactical operator?
Third, settle on the suite of services you want your FUTURE 3PL to have, don’t focus on what your current partner provides but think about strategic goals of your company and where you may be 3-5 years down the line. 3PLs continue to expand offerings over the years and you want to ensure you are working with a partner who fits your current and future needs.
Is it time to switch 3PL Providers? Are you ready with your list of evaluation criteria? Do you know what you are searching for from a provider? or Do you need help?
Jon Wood is a Senior Consultant in the Supply Chain Management group of Infosys consulting. He has three years of consulting experience during which time he has worked and led supply chain projects spanning across industries including: Aerospace & Defense, Retail, Telecom, and Healthcare. Prior to consulting, Jon worked in financial services in sales, sales leadership, operations planning, and valuations. Jon has an MBA from the Georgia Institute of Technology and a BS from the University of Notre Dame.
What is more problematic is when your business is not able to manage their own order processes, inventory demand, sales funnel and customers. That is more critical than what 3PL you use even if the 3PL can handle your chaos.