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Keep logistics management in mind when selecting a 3PL

When selecting a 3PL provider, focus on how the provider handles logistics management.

Logistics management software can help manufacturers make better decisions on everything from optimizing warehouse operation and choosing the right mode of delivery transportation to smoothing the path of global trade.

There’s another important piece of the logistics equation -- namely, 3PLs, or third-party logistics providers. Many manufacturers rely on 3PLs to physically move goods from one place to another quickly, reliably and cost effectively. Use of 3PL services is on the rise in manufacturing as well as other industries and for good reason. 3PLs have perfected the art of getting goods from one place to another, allowing their customers to become leaner and more agile.

3PLs offer a wide range of transportation management services, including inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. In recent years, many 3PLs have expanded their offerings, taking over greater pieces of the supply chain, according to Josh Greenbaum, principal at Enterprise Applications Consulting in Berkeley, Calif.

In many cases, "the 3PL providers are now doing the fulfillment as well as the delivery," said Greenbaum. "Many companies are connected directly from the call center to the 3PL provider." Leaning on a 3PL for additional capabilities like fulfillment gives manufacturers greater resilience in their logistics network, he added.

3PL use on the rise for transportation management

The advent of overnight carriers several decades ago allowed manufacturers to embrace just-in-time production, which saved warehousing space and reduced overall costs. Since then, the largest 3PLs have become household names, relied upon for business-to-business shipments and consumer package deliveries alike.

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This market sector, perhaps unsurprisingly, has seen steady growth for more than 10 years. The U.S. 3PL market reached $133.8 billion in 2011, according to Armstrong & Associates Inc., with a compound annual growth rate of more than 10% per year since 1996.

Choosing a 3PL provider

A manufacturer must carry out much due diligence when it is in the market for a 3PL provider. At a high level, manufacturers need to define their transportation management requirements, ask for quotes, sit through vendor presentations, review proposals, interview customer references and visit their short lists -- preferably with executive sponsors -- before doing the final comparison and making a selection. Selecting the wrong provider could be disastrous. Be sure that any 3PL has a proven track record in your specific industry. Domain expertise goes a long way toward ensuring the provider can meet all transportation needs and execute well against its service-level agreements.

But as manufacturers evaluate the provider’s performance of all the logistics-specific functions, it's important not to forget to evaluate how it handles the IT aspects, according to Dwight Klappich, research vice president of logistics for Stamford, Conn.-based Gartner. 

Klappich suggests potential 3PL customers look at what kinds of apps the 3PLs offer, what kind of support is available and how adaptive the 3PL's technology is. "In particular, evaluate what kind of tools they use for onboarding customers," he said. "This is frequently an area where customers are unsatisfied."

Many 3PLs -- even some of the big-name, first-tier providers -- have not yet invested in integration technology to smooth connections to the customer’s ERP system, said Klappich. That is something to think of in advance. "We often see companies that pick the 3PL without getting input from IT. That can be a problem down the road," he said.

In this age of visibility and collaboration, the information about the package is as important as the delivery of the package itself, an idea attributed to prescient FedEx founder Fred Smith in 1979. Experts say that if a company can access the wealth of information available to its 3PL, it has the opportunity to take actions that move the cost and productivity bars significantly.

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