The Biggest Mistake When Selecting a 3PL

One of our most popular Talking Logistics episodes of all time is Important Factors to Consider When Evaluating and Selecting a Third-Party Logistics (3PL) Partner (6,220 views to date), which we summarized in a follow-up post and also included in our first Talking Logistics YOUniversity course, Fundamentals of Selecting and Working with 3PL Partners.

SelectingManaging3PL_UTwhitepaperSimply put, this topic is near and dear to my research heart, so when I received a copy of Selecting and Managing a Third Party Logistics Provider Best Practices — a new white paper by J. Paul Dittman, PhD and Kate Vitasek from the University of Tennessee’s Haslam College of Business — I couldn’t wait to read it.

Here’s my one-sentence review: If you’re getting ready to select a 3PL partner for the first time, or want to improve the way you currently select and manage your 3PLs, this paper is a must read and helpful resource.

I encourage you to download and read the paper, which was sponsored by Kenco Logistics, for all the insights and recommendations, but here are a couple of nuggets that caught my attention.

First, what is the biggest mistake companies make during the 3PL selection process?

Executives we interviewed said that the biggest mistake they made was not doing a thorough needs assessment before hiring a 3PL, which led in many cases to significant costs and missed opportunities later.

This echoes what I hear repeatedly from 3PL executives. They often receive request for proposals (RFPs) or participate in meetings with prospective clients where it’s clear — by the vagueness of the RFP or by the questions they ask (or don’t ask) — that the client doesn’t fully understand what they need or what they want to achieve. Like the great Yogi Berra said, “If you don’t know where you’re going, you might not get there” — which is why many 3PLs, when they see this red flag, walk away from these opportunities.

Dittman and Vitasek provide this advice:

A good way to start this [needs assessment] process is to go back to the 3PL activities that we listed [earlier in the paper], and ask yourself which of these services you need now or will need in the future. For example, do you need special DC services like kitting? Will you need IT services? Will you need last-mile capability?

Next document the as-is situation and your vision of the to-be process. Do your homework, and evaluate the forces affecting the market, like capacity (e.g. capacity limitations in over-the-road domestic but continued overcapacity in ocean freight) and new disruptive technologies, which we’ll discuss later.

Finally document your goals in areas such as cost, service, and new business expansion, and use those factors in considering your 3PL partner.

Simply put, if you jump straight to the RFP without doing a thorough needs assessment, you’re setting yourself up for failure.

And depending on your specific needs, submitting a Request for Proposal might not be the best course of action, which brings me to the second nugget from the paper: a Request for Proposal is only one of four types of proposals companies can submit to 3PLs depending on their specific needs. The other three are Request for Quote (RFQ), Request for Proposed Solution (RFPS), and my personal favorite, Request for Partner (RFP), which Kate Vitasek wrote about in a Talking Logistics guest commentary back in August 2014.

The bottom line is that there are no guarantees that a 3PL-customer relationship will be successful, but you can maximize the odds for success by not repeating the same mistakes others have made. There are plenty of resources available documenting leading practices in selecting and managing 3PLs, including our online course and this white paper by Dittman and Vitasek. Make the time to read, watch, and discuss the content of these educational resources before beginning your 3PL selection journey. Not doing your homework upfront might actually be the first big mistake you make when selecting a 3PL.

Comments

  1. Great post, Mr. Gonzalez:

    I agree with a strong needs assessment, due diligence and like: “Request for Quote (RFQ), Request for Proposed Solution (RFPS), and my personal favorite, Request for Partner (RFP).” Typically the 3PL will send a Request for Information (RFI). This RFI contains questions/data required for the 3PL to assess the new partner.

    The RFI should be reviewed carefully and your request for partnership has to be clear in the RFI as well. Collaboration and partnership cannot be overstressed. This cannot be lip service, however, it must be demonstrated in all future activities. Communication is critical.

    The RFPS should include your needs in detail. No contracts should be signed unless those needs are being included and met. These needs must be part of the Service Level Agreement (SLA), which is a living document to be reviewed frequently with your 3PL partner to ensure your needs are met monthly. Visits (face-to-face) should be made to the 3PL with your needs checklist before you become partners and after, frequently.

    Thank you.

  2. Great Post as well,

    I listened with interest your comments on 3PLs and you are right on in regards to the lack of being proactive or looking for ways to be a lean supplier. Maybe because I come from a packaging background and know that if you are not taking care of your customer someone else will. We have approached 3PLs for our product (www.layersaver.com) and have been totally shut down. We reduce the number of trucks needed to ship their products by maximizing the cube in any container, ship damage free, reduce material handling, and reduce the carbon footprint as a result. But once they see it reduces the number of trucks needed we are dead in the water. They are not thinking about their customer’s best interests nor are they thinking in terms of having a competitive edge which will allow them to expand their business with limited investment. We would go along way to helping with the driver shortage. Given the opportunity we could help them be a consultant by providing insights in regards to fuel, capacity, driver shortage, and sustainability.

    We are not for everyone but we have had many instances were we have had customers want to use our product and when they get their 3PLs involved discussions stop. I sure would be interested in meeting those 3PLs who are lean and into continuous improvement as I believe we can bring value to them which in turn they can share with their customers.

    Keep up the good work
    Michelle Kingsbury

  3. Thanks Adrian – more good advice and the white paper from Haslam is definitely worth reading for both new and seasoned 3PL management professionals alike.

    Whilst I agree and support the points made by J Paul Dittmann and Kate Vitasek in relation to selection and management I think there is one key part of the process that has been overlooked.

    I believe some of the biggest mistakes that impact on the success of many relationships with 3PL service providers can occur during the transition from an in-house function to a 3PL or when changing from one service provider to another.

    Quite often insufficient time and effort is invested in the planning and project management of the transition and secondly, there is usually a lack of adequate training undertaken prior to and during the transition.

    There is more detail about the above pitfalls and about 3PL service provider management in general on my blog http://www.3plmanager.com

    Thanks again for your ongoing contribution to educating those in the logistics industry

    Regards

    Scott Leydin

  4. A very good article! 3PL companies can be extremely beneficial for companies, especially with large savings in shipping cost, flexibility, and more importantly, they get the freedom to concentrate on the main business. Here is a good article about those benefits: http://www.3pllinks.com/benefits-third-party-logistics-companies/ . Just like utilizing a 3PL company in the business, it is also important to avoid the mistakes that can affect the business badly. I have to say this article covers brilliantly on the topic how to asses a 3PL company before choosing it.

  5. Selecting a 3PL is definitely something that should not be taken lightly. Depending upon a shipper’s needs, there are certain things that the 3PL partner should provide in the deal to make the additional cost of doing business worthwhile.

    For instance, if your business is in need of TMS software, will the logistics company provide limited support for that software or will you need the 3PL to provide full service and actually have a rep on-site?

    Here is an article that goes into why a 3PL can be beneficial and what they can offer a business that wants to use a logistics company: http://www.trinitylogistics.com/blog/3pls-what-to-expect-and-the-benefits-of-working-with-one

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