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The eCommerce boom has brought third-party logistics providers, or 3PLs, into the spotlight in recent years, and for good reason. For many companies venturing into this arena for the first time, self-performing fulfillment can be intimidating, expensive, and time-consuming. In contrast, a professional 3PL fulfillment company can likely do the work faster, cheaper, safer, and overall, better.
Whether a company is considering outsourcing its operations for the first time, evaluating its current 3PL’s performance, or considering severing an existing outsourcing agreement, it faces many challenging decisions – decisions that can have a dramatic effect on the success of the business. Therefore, it is critical to examine each of the three phases of engaging with a 3PL separately and review the circumstances before recommending a best response.
Situation #1 –Considering 3PL Outsourcing for the First Time
Outsourcing fulfillment may pique a company’s interest for any number of reasons. For some, it may be as simple as outgrowing the ability to perform fulfillment on their own. They may be starting a new business or division, expanding to a new market, or introducing a new product line. Whatever be the reason, before making a final decision to outsource, the company must understand what is driving the desire for change.
"Taking the time to fully assess your company’s individual circumstances and using outside professional resources – where necessary – to provide objective, comparative insights will allow companies to arrive at conclusions that are profitable and tailored to meet their specific needs"
And this change can be difficult for a novice that is reluctant to give up control of some of their business. Many companies are pushed to outsourcing as a last resort because they believe they can perform fulfillment services better than a 3PL. However, these overachievers must remember that they can’t be experts on all matters of supply chain, distribution, and fulfillment,and those services might be better executed by an expert.
During an initial evaluation process, first-timers have several important questions to consider. For example, how many locations does their company have, and where are they located? Does the company lease or own its facilities? How would technology be developed and integrated into the process?
After contemplating these questions and several others, a company may conclude that it can handle distribution on its own but still needs assistance improving efficiency, cost, and/ or staffing challenges. In this case, services can be secured for an initial and nominally priced high-level assessment of the distribution operations. Alternatively, the discussion may conclude that the best course is to pursue outsourcing, which leads to situation #2.
Situation #2 –Committed to Outsourcing but Haven’t Selected a 3PL Firm
The decision to outsource distribution/fulfillment operations is one of those “career” decisions that executives do not make lightly. Luckily, outside advisory services can be useful in the decision-making process. Rather than judging any decision, an advisor can help companies understand the conclusion of that decision and evaluate the needed services.
For example, when preparing to outsource, an advisory service can assist in the assessment of a company’s distribution/fulfillment costs, efficiencies, and business profile. Essentially, the advisor can define what the business looks like “by the numbers.” This information can be critical to an incoming 3PL that will use the profile to engineer a solution that replicates and improves on the client’s operational design, performance, and costs.
Outside advisors can also help companies prepare RFIs and/or RFPs, make recommendations on 3PLs to include in the selection process, and provide administration and advisory services during the selection process. Ultimately, they can help ensure that a client selects a 3PL that is best suited to the company’s needs.
Companies committed to outsourcing will also want to secure a real estate advisor to discuss developing the best real estate solution to complement the outsourcing decision. They should consider if it’s optimal to retain control of the real estate and simply ask 3PLs to provide an estimate of the necessary square footage and facility features. Alternatively, they can request that the 3PL takes ownership of the real estate selection and leasing process.
Situation #3 – Already Outsourcing to a 3PL
Finally, there are certain considerations for those companies that have already entered into operating agreements with 3PLs. If a company is at the beginning of an agreement and is having has concerns about the 3PL’s performance or the outsourcing decision in general, then it is critical to take a moment to develop a better understanding of the primary concerns. Are they about costs, performance, controls, etc., or is it a combination of those concerns? Outsourcing relationships are like any other relationship – they do not function on autopilot. They require work and an investment in understanding what will nurture the best results.
Once a company has developed a better understanding of the circumstances of the discontent, it is in a position to address the issue. It may choose to partake in a high-level assessment of the 3PL’s operations against industry norms. Alternatively, it could arrange to have an engineering firm perform a high-level assessment that showcases opportunities for cost and performance improvements.
If the issues are more significant, the engineering firm may need to make a site visit to assess the situation and provide a detailed solution for re-engineering the 3PL’s current operations. And finally, if one of these processes does not result in the desired outcome, a company may elect to conduct a new 3PL selection process or return the distribution/fulfillment processes in-house.
As stated earlier, these are difficult, “career” decisions, but they can be critical to a firm’s success. Taking the time to fully assess your company’s individual circumstances and using outside professional resources – where necessary – to provide objective, comparative insights will allow companies to arrive at conclusions that are profitable and tailored to meet their specific needs.