Selecting 3PL Service Provider for Warehouse Management

Global business models are rapidly changing. Shorter life cycles of products and new business need exert pressure on Supply Chain managers to keep pace with the new scenarios. They are often faced with the target to reduce logistical costs and establish new supply networks.

It has now become a common practice to outsource all logistical activities to third party vendors both in procurement side of logistics as well as finished goods, spare parts and reverse logistics areas too.

Today the 3PL service providers market is filled with players of all sizes and competencies, from single owner driven local service provider to multi national companies. Most of the companies have traditionally been transporters or freight forwarders and over the years have acquired warehousing and contract management capabilities keeping in line with the growing needs.

Selecting a 3PL service provider to provide warehousing services needs careful considerations on the part of the SCM manager responsible for the decision. The right partner selection is important because you are handing over the companies assets to someone else’s custody and secondly any performance hindrance can seriously affect the sales and revenues of the company in case of FG Supply chain or effect the plant production in case of Raw Material supplies.

1. Size of company, Structure & Responsiveness

   The business volumes and size of the project will determine the selection of the Service Provider. Most of the Multi National Companies can offer integrated logistics services to manage the entire supply chain including freight, transportation and warehousing; you will also find companies at regional or local levels that offer warehousing as a core competency area.

   The size of the company is important as a key parameter as one would not want to deal with a small company that does not have the capability to invest or a fly by night operator. The Management structure of the company holds a clue to their focus on the various businesses and customers. This will enable you to find out the kind of management focus that the service provider has in warehousing or CL as a product.

   A multi national company being able to invest into your business does not necessarily make the best choice. They can more often turn out to be expensive. Besides the availability of CL expertise in another location or country does not necessarily ensure competence locally. However Multi nationals are preferred as partners most of the times due to many other advantages like integrated services, global standards, ability to invest, etc.

   Responsiveness measures the quality and speed with which the service provider company responds to your bid request and engages with you to offer a solution. The nature of response and interaction hold key to the company’s culture and enables us to evaluate options of investing into a relationship or partnership possibility.

2. Technical & Operational competency of Vendor

   A vendor should be able to demonstrate the competency regarding its experience in managing functions for other customers and products. Besides the competency can be demonstrated and seen in the solution building process or document prepared and presented by the vendor.

   A company with experience in managing distribution center operations would have the team comprising of people with sufficient experience in the operations at management level, supervisory and staff levels.

   The company needs have to have a strong IT management and functional operational competence and capability in managing the IT system at site as well as being able to support the site with IT administration at management level.

3. Service provider’s interest and attitude towards your business proposal

   The capability, interest and attitude of the vendor would help you to choose the vendor who is interested in your business with long term prospect and is willing to invest time, money and effort and not somebody who is chasing business as a sales target and doesn’t have the required interest, organizational and operational capability to service your business.

Lastly the cost drivers play a major role in vendor selection for the project. An RFQ document should seek information on above criteria from the vendor, and the process of selection should be based on evaluation, demonstration coupled with site visits to vendor’s site to assess overall suitability.