Sales and Fulfillment

Essential approaches for assessing and selecting an effective 3PL service provider

Third-party logistics (3PL) is a critical player in enhancing business efficiency and cost control. However, the task of choosing the right 3PL partner can be daunting without a clear roadmap. It is crucial to consider factors such as industry expertise, technology utilisation, reliability, and handling time.

Some of the primary services of 3PL service providers include warehousing, order fulfilment, and transportation. The outcomes should be transparency, lower costs, on-time delivery, better customer service, and on-demand scalability.

This article discusses the benefits of a 3PL provider, the types of providers, and the criteria for selecting a third-party logistics partner.

Benefits of having a third-party logistics provider

The right 3PL service provider will bring domain expertise, suggest best practices and strategies to save cost, help the business scale, and improve the logistics experience. Here are the benefits in detail –

Scalability

Retail brands aspire to expand rapidly, but the prospect of investing heavily in labour and warehouse space can be daunting. A 3PL service provider offers a solution that enables businesses to scale up or down as per market conditions without incurring fixed capital costs. With warehouse services strategically located worldwide, often near significant ports or road transport terminals, operations are accelerated, and transportation costs from the port are reduced, providing substantial financial relief. This also relieves businesses from the operational burdens of managing warehouses and transportation.

Industry-specific expertise

3PL service providers specialise in logistics and are aware of the changing market demand, regulations, laws, trends, and market conditions. By using this knowledge, 3PL service providers can offer industry-specific solutions to streamline operations, reduce costs, and avoid common mistakes.

Continuous improvement

3PL services come with dedicated resources, expertise, and the latest technology within the logistics domain. All of this could be very expensive to implement and maintain in-house. Lower costs and a continuously improving supply chain directly boost the retail business’s bottom line.

Types of 3PL service providers

The business advantage of 3PL service providers goes way beyond managing logistics. It is about lower cost, greater accuracy and speed, and managing precise inventory at all times. One must select the 3PL service provider based on the benefits they bring to the table –

1. Standard 3PL service providers – They offer essential services such as warehousing, transportation, and distribution only. If you want to outsource only a specific part of the logistics, they may be a good match.
2. Service developers – In addition to the services mentioned above, service developers offer tracking and tracing, brand-specific packaging, cross-docking, and a robust security system. They integrate IT systems for a strategic approach.
3. Customer adapters – They offer turnkey solutions wherein they take complete control of the logistics. However, they remain a separate entity.
4. Customer developers – This is the last and most comprehensive service, in which the 3PL service provider integrates with the customer's business and becomes their extended logistics department.

Evaluating a 3PL partner – 3PL Selection criteria

A 3PL service provider that is unfit for your business results in a lot of time and money wastage. You stand to lose the monetary investment and the time spent on negotiation, onboarding, and, eventually, decoupling. Here is how to choose a 3PL provider

1. Industry experience – A 3PL service provider with expertise in your industry can easily integrate and provide specialised services.
2. Technology competence – A vendor with advanced analytics and tracking capabilities using new-age technologies will provide valuable insights and bring efficiency to the supply chain.
3. Capacity to handle volume – The vendor must be able to scale up or down quickly in peak or low seasons.
4. Flexibility – The 3PL supplier must be able to change its strategy according to changing market conditions and demand.
5. Competitive pricing – The vendor must offer competitive pricing and clearly demonstrate cost savings as a benefit of working with them. You should be able to see tangible savings in direct costs (warehousing and transportation) and indirect costs (labour and technology).
6. Watertight SLAs – SLAs are legally binding contracts that include terms of service delivery and costs. By reviewing the service provider’s existing SLAs, you can judge their performance with other clients.
7. On-time delivery rates – You must evaluate the 3PL’s existing on-time delivery rate and cross-check it with customer expectations. This is a critical metric for the retail industry, where timeliness is vital.
8. Low complaint resolution time – Evaluate the existing complaint resolution time. One of the best ways is to ask the vendor and cross-check with their existing clients directly. You should also have it in the contract for reference.

How can Infosys BPM help?

With a dedicated team and a high domain orientation in different industry verticals, we understand your priorities and objectives. Leverage our robust process management capabilities to deliver supply chain excellence in your business.

Read more about 3PL logistics outsourcing at Infosys BPM.