How to choose a third-party logistics (3PL) provider

Managing logistics in-house can be both complex and time-consuming. Perhaps you're looking for a company that can handle some aspects of operations for you? Things like inventory management, transportation, or maybe reverse logistics. That’s where third-party logistics (3PL) providers come in.

Here’s a short guide on selecting the perfect 3PL partner for your business.

Four steps to choosing the right third-party logistics (3PL) provider

Entrusting your operations to a third-party logistics (3PL) company is a significant business decision. And choosing the perfect one involves more than just a leap of faith. Here’s a breakdown of aspects you must consider:

Step 1. Define your needs as a customer

Business goals: What are you hoping to achieve by outsourcing logistics (e.g., cost reduction, faster deliveries)?

Order volume and product type: This will influence the type of warehousing and fulfilment services you need.

Target market: Consider if your 3PL needs international shipping capabilities.

Key questions to ask

• What specific logistics or supply chain services do i require? (warehousing, transportation, distribution, etc.)?
• Are my products subject to any specific storage or transportation requirements (e.g., temperature control)?
• What is the geographic scope of my distribution network?
• What is my average order volume, and how much variability does it have?

Step 2. Research potential 3PL service providers

Industry experience: Look for a 3PL with expertise in your specific industry, with similar products, or on similar shipping routes.

Service offerings: Ensure their services align with your needs (warehousing, fulfilment, transportation, etc.).

Technology: Does their technology infrastructure integrate seamlessly with your existing systems?

Reputation and customer reviews: Research online reviews and ask for references to gauge a company's reliability and customer service.

Key questions to ask

• Does the 3PL have experience in my industry or with similar products?
• Do they have a proven track record of success on shipping routes relevant to my target market?
• Can they handle all the required logistics services (warehousing, fulfilment, transportation, etc.)? Do they offer any value-added services?
• What technology do they use for order tracking and visibility? Is their technology compatible with my existing systems (inventory management, order processing)?
• What do online reviews say about their customer service and performance? Can they provide references?
• How does the 3PL handle customer service inquiries and resolve issues?

Step 3. Evaluate and compare

Request quotes: Get proposals from shortlisted providers outlining their service offerings, pricing structures, contracts, and terms and conditions.

Ask questions: Don’t hesitate to ask detailed questions about their capabilities, scalability, and contingency plans for disruptions.

Facility tours: Schedule tours of their warehouses and fulfilment centres to assess their infrastructure and operations.

Key questions to ask

• How is pricing structured (flat fee, per order, per item, etc.)? What services are included in the quote, and are there any hidden fees?
• What are the service level agreements (SLAs) for key metrics (fulfilment times, inventory accuracy)?
• How does the 3PL handle inventory management and ensure stock accuracy?
• Does the 3PL have the capacity to handle my current and future growth projections? How do they ensure scalability to meet fluctuating order volume?
• What contingency plans do they have for disruptions like natural disasters or transportation delays? Do they offer insurance coverage?
• What are the security measures, warehouse layout, and fulfilment processes of 3PL?

Step 4. Finalise and make your decision

Cost is important, but not everything: While pricing matters, prioritise factors like reliability, scalability, expertise, and their ability to adapt to your future needs.

Clearly define Service Level Agreements (SLAs): Outline performance expectations for metrics like order fulfilment times and inventory accuracy.

Long-term partnership: Choose a 3PL you see as a long-haul partner, not just a one-time service provider.

Communication is key: Maintain open communication with your 3PL to ensure smooth collaboration and address any issues promptly.

Key questions to ask yourself

• What value proposition does the 3PL offer regarding reliability, scalability, and adaptability to my business growth?
• What are the performance expectations from this partnership? Have they outlined metrics in their SLA, like fulfilment times, inventory accuracy, on-time delivery rates?
• What is their process for handling inquiries and resolving issues?
• Does the 3PL demonstrate a willingness to collaborate with me? Can this 3PL be a long-term partner that aligns with my business goals?

READ MORE: What is lead logistics?

Ready to start exploring 3PL providers?

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