Globally outsourcing 3PL Market is growing fast. In the US, the industry is expected to reach over $150 billion as compared to a global estimate standing at $450 billion as per industry experts estimates.

Companies aiming for aggressive growth in global scenario recognize the need to partner with 3PL logistics providers to be able to establish supply chain networks across countries. Outsourcing is the only vehicle with which they can operate and cannot afford to manage functions in-house.

Warehousing activities whether in Finished Goods logistics or Plant logistics, are very critical to the entire supply chain. Take the example of an automobile manufacturer who depends upon a 3PL to manage complete inbound activities including vehicle unloading, inventory management, and JIT supplies to the plant. The manufacturing facility completely is dependent upon the 3PL service provider. Both the buyer and 3PL co-exist together at the same location, over a period the systems and operations get enmeshed and integrated into the process of localization and finding practical solutions. In such cases, any non-performance on the part of 3PL due to any reason will affect the plant output. It is not possible to make a sudden switch to another 3PL overnight. Hence, the marriage has to be lived through and managed.

Therefore choosing a 3PL partner for your warehouse operations needs thoughtful considerations and evaluation. Of course, any project of this nature is dependent upon the relationship between the buyer and 3PL. Collaborative and partnership approaches have yielded very good results than a buyer and seller relationship. Where ever buyers have invested time and interest in engaging directly with 3PL operations, with helping in training and periodic assessments coupled with motivational exercises, have helped 3PL operations remain focused on the deliverables and maintain efficiencies.

Before you start looking for a 3PL partner, internal alignment with management, clarity of the project and criteria for selecting 3PL Partner is to be worked out in detail.

Following factors are to be considered internally to plan the exercise:

1. Internal Decisions

   1. Outsourcing project should be clearly defined as to Scope of Activity, Business Risks Identified. Decision to outsource with definite timelines in-line with business function should be approved by Management.

   2. Budgetary approvals should be in place for the project implementation as well as the monthly logistical service outflow from concerned business functions and Management.

      Without clarity, many times RFP & RFQs are floated and discarded resulting in wastage of time and effort of all parties concerned.

2. Defining Project Scope and Responsibilities

   Plant Supply Warehouses, Regional Distribution Centers, VMI, etc. projects are often very huge in size of operations as compared to a flow through finished goods warehouse in a supply chain network.

   Such big projects are characterized by huge capital outlay, multiple process designs, and infrastructure-intensive and involve complex IT system design and interfaces.

   RFP/RFQ would need to define each element very clearly and describe the scope of activity and responsibility on the part of the buyer as well as the 3PL.

   The document should define clearly the capabilities and competencies required for the project, the timelines, and deliverables.

   Detailed understanding of the project scope will ensure that only the 3PL who has the required capability and strength will bid for the project.

3. An outsourcing project should have clear internal guidelines about the ownership of the project, individual program owners, business unit who will own the project after implementation coupled with operation management and escalation process.

   This information can be shared with the 3PL in the RFQ, and one should expect similar structure from the 3PL in its response document.

4. Defining Length of the Contract with possible scope for extension and period of extension is essential to help 3PL work out financials. It helps to define the methodology of costing template along with the RFQ to ensure common platform.

5. Finally determining process for evaluation of vendor is very essential. What are the capabilities that you look for in a 3PL, what is the selection criteria, who are the internal team members to be involved in selection process and decision making should be clearly enumerated.

A well thought out internal proposal and RFQ document will help you find the best fit and smooth project implementation.

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