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Eight tips for evaluating 3PL service providers

Successful business partnerships require mutual trust, commitment, and flexibility. But more importantly, they necessitate a clear delineation of defined roles and responsibilities to prevent confusion, resentment, and future conflicts. This applies whether you are selecting a Warehouse Management Solution (WMS), or when choosing to work with Third-Party Logistics (3PL) service providers. If you’re considering working with a 3PL, it’s important to evaluate all their offerings to ensure the company is the right fit. 

Remember, it’s not all about price, but instead, about the 3PL’s capabilities as an organization. In our 20+ years of navigating the supply chain space, we’ve landed on eight tips to serve as a trusted evaluation guide. Let’s dig in.

  1. Identify how KPIs will be measured and shared to ensure accurate data
    1. Verify that the 3PL can align with your strategic objectives concerning KPIs. Whether you’re looking to measure dock-to-stock, lines processed, or order accuracy, you’ll want to ensure your 3PL partner can track the KPIs that matter to your business. It’s also valuable to find out what measurement methodology they employ to ensure they can deliver the data you need to evaluate performance. Since KPI tracking is dependent on data gathering, look into what the 3PL’s data governance policies are to guarantee integrity, consistency, and reliability.
  2. Align on Information Technology (IT) strategies and how integrations will work
    1. Communication is going to be a big factor in any 3PL relationship, and that extends to how both your technologies can interact with each other, too. Assess the current IT landscape of the 3PL and how it aligns with yours. You’ll also want to pay close attention to what integration capabilities the 3PL has and whether or not it will be a seamless fit with your existing framework. Understanding which off-the-shelf WMS solution exists or custom WMS application may help provide context to their environment.  Leave some questions open-ended so the 3PL can provide context, including how their environment would integrate with your ERP/order management solution. Dig into the details and get specific about how the integrations will unfold so there are no nasty surprises down the line. Finally, are they employing technology that scales with your growth potential? If so, that’s a good sign.
  3. Understand material handling efficiencies that may be available
    1. Start by looking at the basics and determining how the 3PL handles all aspects of material handling, including receiving, storage, picking, packing, and shipping. This is an opportunity to identify if there are any bottlenecks or areas of concern and to inspect the kind of technology they employ. If you want your operation to run smoothly, then the 3PL should reflect the efficiency you plan to embody. 
  4. Confirm unique differences in your operation and how 3PL service providers can support those
    1. Every operation will have a different set of needs. Evaluating how the 3PL can deliver on your specific requirements will go a long way in helping you distinguish between a good fit and a waste of time. Get details on how the 3PL handles serialization, multi-line orders, special packaging, value-added services (VAS), temperature-controlled storage, etc. Not all 3PLs are created equally, and you want to find the one that best suits your needs, not the most popular or well-priced one. 
  5. Learn how inventory cycle counting and discrepancies will be addressed every month
    1. You want to gain a clear understanding of the processes and procedures in place that ensure inventory accuracy and learn how discrepancies that may arise during cycle counting activities are addressed. This means keenly auditing cycle counting accuracy, and even verifying the accuracy of inventory levels during a site visit. You may even want to ask for a demonstration of the 3PLs counting methodology. The method in which discrepancies are addressed is just as critical, be sure to understand how the 3PL documents, investigates, and resolves discrepancies as they arise. 
  6. Clarify charges and how they are managed
    1. This is probably the simplest step, but it bears mentioning. You’ll want to ask about payment terms, learn about billing frequency and methods, and discuss any cost control measures. It may be helpful to determine if they offer itemized billing statements and to gain insight into how they manage charges, including how charges are captured, verified, and reconciled against agreed-upon rates or contractual terms. And though this goes without saying, always be sure to read the fine print, twice.
  7. Review security capabilities
    1. A partnership with a 3PL is a big one, they will be handling your assets, so you want to feel confident that the level of security they provide is one that you would employ yourself. This entails taking a 360-degree approach; don’t just assess their physical security measures, but also verify their cybersecurity protocols, and data security practices, and understand what supply chain security measures they have implemented. This includes learning what their risk management procedures entail along with insight into any past incidents so you’re deciding with all the facts accounted for.
  8. Prioritize a transparent, honest relationship
    1. While this may seem obvious, it’s one we can’t understate. A working partnership can only work if both sides are on the same page. This means communicating when an issue arises is critical, just as it is important to give positive feedback when merited. The more easily you communicate with one another, the smoother the partnership.

There you have it, eight ways to begin your evaluation of 3PL service providers. And while a 3PL evaluation takes much more than this, these are excellent first steps to take to eliminate the ones that are not a match. If you need help conducting a 3PL evaluation, Cornerstone Edge has vetted countless 3PL systems. We speak their language and can help you find the right fit. Simply reach out, and let’s see how we can make your supply chain your differentiator.


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