Selecting 3PL Service Partner

When an Organization chooses to outsource its inventory management services, the project success hinges on choosing the right partner because the stakes in a warehouse management projects are very high. Besides the impact on the other functions like manufacturing or markets, the third party service provider is the custodian of your inventory which meaning your money is in someone else’s hands.

So the question one needs to ask for is - What are we looking for in a 3PL Partner ?

The answer to this question will take you through few of the important factors that are to be considered.

Choice between Multi National 3PL Service Provider or Local Service Provider

This is often a dilemma faced by SCM managers while choosing the partners. Dealing with Multi National Companies has its advantages. Normally the MNC service providers provide integrated logistics services that give you value addition besides seamless service coupled with lower costs. Strategically it makes sense to go with Multi National companies who can leverage on their competence available across the network and provide standardized processes across various locations.

However on the flip side, these companies may not have the same management focus and competence in all countries and all locations. Besides many companies have been traditionally transportation providers who have acquired warehousing competence and skill sets and are not warehouse centric or focused players.

Domestic Service providers, on the other hand, would know the laws of the land better and know how things work. They will have the local expertise and capability to manage operations and resources better. By virtue of them being local and small players, one can expect better focus and attention.

The choice is a difficult one to make. At the end it depends on the size of the project, the number of locations and the company’s policies besides any local specific situations to decide on the above.

Global companies prefer to tie up with Multi National Players to be able to leverage on their network as well as operate with a global agreement. With a lot of business in transportation and warehousing being given to an MNC, the buyer can have a better bargaining power with the 3PL provider. Contractual obligations, third party obligation, and local statutory compliances can be easily owned and managed by MNC 3PL providers.

Service Provider Capability Evaluation

Evaluation of a 3PL service provider involves understanding of their capabilities both regarding technical competence, operational capabilities and Management Culture.

The evaluation normally consists of Detailed Response document to RFQ from the 3PL service provider, followed by a presentation by the 3PL and subsequent site visits to the proposed location, site visits to other locations /operations of 3PL, coupled with customer references. Detailing these processes becomes important especially in the case of a bigger project depending upon the criticality of the project.

Management Focus / Involvement and commitment at corporate and local level

Often the face to the markets from the 3PL side is the marketing and BD teams. As contract logistics is capital intensive and operations intensive, it is important to understand the company management’s focus and commitment towards this part of the business, especially in cases where 3PL is an Integrated Service Provider with other logistics businesses. A management interested and focused on CL business is likely to invest in building a long term relationship and enhance its competence and deliver the better value proposition to the buyer. Company profile and meetings with management will enable one to assess this criterion.

The other important and relevant areas to be evaluated are the IT Backbone and capabilities of the 3PL and its experience and expertise in deploying and managing WMS systems.

Expertise in Operations and inventory management as core functions coupled with project management capability, local expertise availability and quality programs, etc. can be judged from the response document and subsequent personal discussions and site visits.


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