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The Importance of Thinking About 3PL Implementation BEFORE You Hire a 3PL

NOTE: The following 3PL implementation steps include information about warehousing. Cerasis is a non-asset freight logistics company or lead logistics service provider specializing in streamlining freight logistics processes and saving you money on LTL, TL, and small package freight shipments through freight management services and freight management software. However, this blog post’s goal is to educate and offer value on the selection of a logistics provider which at times requires thoughts for warehousing. If you are need of warehousing, please feel free to contact us as well and we can direct you to trusted consultants who can find this on your behalf.

implementationDetermine Customer Service Requirements 

Conduct upfront research to identify a select list of preliminary 3PL candidates. All eligible 3PL companies should be surveyed to determine facility locations, ports, if imports are involved, technology: WMS/TMS systems integration, warehousing and distribution (LTL/TL) strengths and weaknesses as well as their service areas in relation to your customer locations. Where are the majority of your customers in relation to the 3PL location? This will help in eliminating companies that cannot adequately address your functional specifications. Developing a detailed method for critically evaluating the capabilities of 3PL candidates can make or break an outsourcing selection process: Do they warehouse our type of product? Do they know how to handle/manage our type of product/SKU? What is most important to us in using a 3PL?

Create a 3PL Cross-Functional, Internal Company Team to Meet Occasionally

Assignments are given to members with dates/names or requests by them to the committee. There should be an internal 3PL Project Leader (Logistics Manager is best, or Supply Chain, etc.) aside from the 3PL/Logistics Consultant. Key members: very critical (integration to 3PL’s WMS/TMS, what reports will we need, other I.T. issues, SLA/KPI-IT input), Marketing/Sales (Customers: V.O.C.: Voice of the Customer), Customer Service, Returns Management (RMA), Cost Accountant (Internal costs versus quotes received), Warehousing (pallet sizes, freight receipts/shipments, LTL, TL, Warehouse inputs, our Warehouse set-up and current work instructions), Supply Chain, Purchasing, Administration (procedures, work instructions), General Manager, owner and other critical areas within our company.

Have you done the math and know what all of our internal costs are so we can properly judge the 3PLs pricing?

Do your realize that there will be transition costs, as we prepare to move freight to a 3PL facility?

Solicit Requests for Quotation (Or Use 3PL RFQ format):

The request for information (RFI) or quotation (RFQ) is a tool to gather information and measure the strengths with respect to capabilities and initial, non-negotiated cost effectiveness of outsourcing. Do we have detailed costs for our current warehousing activities to use to judge the 3PL’s initial pricing based on the detailed data give them? What does it cost to ship an average order to our customers? When selecting a 3PL, the RFQ document should be as detailed as possible and it should be accompanied by all relevant documents about the project and expectations: estimated quarterly/ yearly volumes, initial, estimated square foot usage in the 3PL, seasonal demand, all pallet sizes and cubage, container loads/amount of SKUs in a container (unloading costs/LTL costs). The RFQ should include a detailed description of the areas to be outsourced including: the scope of the contract, locations, facilities, departments; information on volumes involved, number of deliveries, warehouse sizes, number of items, etc.; the logistics tasks to be performed; the level of performance required. Furthermore, the RFQ should indicate a format for price quotation and a time-frame for responses.

There will be times when a 3PL candidate will want to visit the Customer’s facility. They will visit to see how you handle your product, review work instructions, review your cycle counting and other procedures, do you slot your goods, etc. the type of Warehouse you have, and if your company is a fit to be a partner to them. It will help them in their initial pricing to you.

Visit the Potential Provider’s Facilities (Locally first, then the final city at a later date) 

Facilitating tours of a potential 3PL provider’s facilities and interviews with their existing clients is an important next step. Send an agenda in advance to outline what information you need during this initial visit. Experiencing the company’s facilities gives you a chance to determine how flexible their operation is and their willingness to work to meet your needs as they change. Do you feel a good chemistry with all of their people and especially the point person you will be working with at this 3PL? Would this make a good partnership? Do they have what you require? Do they meet OSHA/CA requirements, Cleanliness, 5S and LEAN initiatives, Six Sigma qualified people, Kanban, Kaizen, et al? Do they have inter-company competition on meeting their successful 3PL standards? Are they unionized? Are they a private or public company? Are they transportation 3PL or Warehousing/Distribution 3PL or both?  Do they have state-of-the-art WMS/TMS/YMS systems in place to meet your needs?

Call on customers of the 3PL to get feedback on their service and pricing negotiations. Get a long list of customers and choose a few so the 3PL does not know who you are calling.

Develop a Project Implementation Plan

There should be a detailed logistics outsourcing project implementation plan as well as periodic reviews in place to make sure everything is on track and there are no drastic deviations in the scope of the project. The project implementation is the process of translating thoughts into actions and it requires active co-operation and co-ordination on both sides of the relationship. Project implementation includes IT integration, operating procedures customization, understanding the service measures, defining the escalation process etc. All these activities require precise handling and a dedicated team. The 3PL companies usually have their own project implementation methodology. What is critical here is customization, to suit the specific requirements and deliver agreed service levels.

Design Efficient Performance Measurement Systems:

Establish key performance indicators (KPIs) to manage the 3PL performance along with a service level agreement (SLA) (or Contract as it is sometimes called by the 3PL).  The SLA/KPI is a key document to manage the Service Level of the 3PL. During the startup phase of the outsourcing relationship the customer must take the initiative to develop performance measurements (KPIs) and reporting methods that support the company’s business goals for the outsourcing strategy. The 3PL’s performance should be measured on qualitative and quantitative performance measures regularly (KPI review monthly during honeymoon period and quarterly thereafter). Sometimes called a Quarterly Business Review (QBR). Ideally, financial, productivity, utilization, quality and cycle time measures should be considered. List Cycle Counting for Inventory Records Accuracy 98-100%, RMA details, Service to Customer details (VOC), Cost Reduction must be clarified using Continuous Improvement or LEAN concepts, 5S, LTL needs defined, savings from the 3PLs TMS systems based on your freight optimization, rate negotiations, etc.; it is VERY SPECIFIC. One of the objectives of performance measurement is not just to measure the performance but also initiate necessary corrective actions with regard to negative performance and explore the possibility of gain sharing in the case of positive performance so as to encourage continuous improvements. Regular performance measurement presents the perfect opportunity for both the customer and the 3PL to communicate effectively to make the outsourcing relationship a great success.