The 4 Rs (and 1 G) of Selecting and Managing 3rd Party Logistics (3PL) Service Providers

Selecting and managing 3rd party logistics (3PL) service providers is one of the most important roles of any Logistics Manager – particularly those managing outsourced logistics activities such as international freight forwarding, warehousing and domestic transportation. The number of potential service providers is endless and the cost of these services represents a significant portion of the operating cost for any business involved in the distribution of physical products.

As a result, all Logistics Managers should have a defendable selection process that is also supported by a robust ongoing review process that can be used to evaluate, select and manage 3rd party logistics (3PL) service providers.

Whilst there may be additional evaluation criteria required for specific industries the following can be used as the main evaluation criteria for selecting and managing most 3rd Party Logistics (3PL) service providers.

  1. Rates
  2. Reliability
  3. Responsiveness
  4. Relationship Management
  5. Gut Feel

In order to evaluate the service provider against each of the above criteria an evaluation matrix can be developed.

The evaluation matrix is typically a series of questions relative to each of the evaluation criteria that lets the evaluator score each potential service provider, or an existing service provider, against each of the questions.

Each evaluation criteria and each question can be weighted based on its overall importance to the decision to select a service provider or to assess the performance of an existing service provider.

The intention is to come up with a score that can be used to compare a number of service providers or to consistently compare the relative performance of a single service provider.

Each of the above evaluation criteria are described in more detail below.

Rates

Let’s cut to the chase, the key criteria for selecting any service provider will be based on cost. The lowest cost supplier will not always be chosen but one thing for sure it will never be the most expensive. This is true regardless of how reliable or responsive the supplier has been or how strong any existing relationship is.

Reliability

Reliability is about the service provider being able to consistently meet the service level expectations of the customer. These may have been set by the customer or may simply be what the service provider commits to as part of their normal service offering. Either way the expectation is that they will keep their promise.

Responsiveness

It’s inevitable that your logistics service provider will not always meet your expectations, the key is what they do when the proverbial hits the fan. What do they do to get things back on track? When and how do they communicate the issue and the plan to fix the problem? A responsive service provider is one that can also quickly and proactively react to the needs of the business as and when requested, even if the need is outside of the normal scope of services for which they have been engaged to perform.

Relationship Management

Assuming the rates are competitive, the service provider is reliable and responsive then the development of a strong working relationship with the service provider will be paramount. The rapport that is developed with key stakeholders within the business and the process of management that is implemented will be key success factor of the partnership.

Gut Feel

Sometimes, and particularly when going through a tender / supplier selection process that involves presentations / site visits with new suppliers, you will get a sense, good or bad, of whether a successful relationship can be developed with the potential service provider. Although it is hard to justify and shouldn’t be weighted too highly as an evaluation criteria, your “gut feel” should never be under estimated in the decision making process.

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