GUEST COMMENT What to consider when choosing – or changing – 3PL providers

The use of 3PLs has risen in popularity in recent years, driven by the need for businesses to stay competitive in a dynamic market environment. When implemented effectively into wider operations, 3PL providers can increase the efficiency of supply chains by managing inventory, reducing costs, and offering increased visibility of operations, writes Chris Clowes, executive director at supply chain and logistics consultancy, SCALA.

Unfortunately, however, partnerships don’t always drive the anticipated results. Earlier this year, for example, The White Company was forced to apologise to some shoppers who experienced delays to their online orders as it moved to a new distribution centre.

While some disruption may occur when changes are made to the logistics operation, businesses should take a strategic approach to selecting a provider, measuring the risks and ensuring they know what to expect in the months that follow.

Here are some of the crucial considerations retailers and manufacturers must make when selecting a logistics provider.

1. Service capabilities

To avoid impacting supply chain efficiency and overall business performance, retailers and manufacturers need to consider the service capabilities of prospective partners.

At the start of the review process, it’s important to establish the key requirements. This includes the scope of the service e.g. warehousing, transportation and order fulfilment, the volume and frequency of order shipments, and the required geography, whether that be domestic, international or both.

Customers should also assess the IT capabilities of the provider. The best 3PL providers will utilise advanced warehouse management and transportation management systems. They should also have the capability to easily integrate them with your existing systems.

Scalability is another metric to consider. A 3PL partner should be able to scale (up and down) operations to match the customer’s growth and seasonal variations. This is important for retailers and manufacturers who plan significant business changes during the contractual period – for example entering another market, change in order profiles, and variations in SKU profiles.

2. Cost structure

3PL providers that are transparent with pricing allow customers to better predict and plan for upcoming costs. This is essential for budgeting and financial planning. It also helps businesses avoid unexpected costs and hidden fees, meaning no unpleasant surprises that could impact cash flow. Pricing models differ across 3PLs with some charging per unit, and others offering fixed rates for various activities or even open book pricing. Analysing these models helps companies to choose the most cost-effective option, depending on their finances.

It’s important for businesses to assess their appetite for risk and how much involvement they want in the management of the day-to-day operation. If businesses want near guaranteed pricing and limited involvement in driving efficiency in the physical operation, closed book activity-based pricing is a good option. If you want to understand the operation in detail and drive out costs, open book pricing, or cost plus, is worth considering.

Logistics costs are a significant expense for retailers and manufacturers. Optimising these costs through a favourable 3PL cost structure can improve profit margins. Lower logistics costs can enable businesses to offer competitive pricing to their customers without sacrificing profitability.

3. Sustainability credentials

Retailers and manufacturers should consider the sustainability credentials of 3PL partners to ensure they share the same goals for environmental responsibility, regulatory compliance, and alignment with their customer’s expectations.

Most businesses understand that they need to demonstrate environmental responsibility. By partnering with a 3PL that has a robust and detailed sustainability plan, companies can appease stakeholders and enhance their brand reputation by highlighting their environmental credentials. Consumers are proven to be more likely to align themselves with brands that are transparent about their sustainability efforts. According to research from Deloitte, one in four consumers are prepared to pay more for brands that commit to environmentally sustainable and ethical practices.

Beyond the reputational benefits, sustainable logistics practices can also lead to significant cost savings. Reducing waste, improving packaging efficiency and route optimisation can lower costs whilst being more sustainable.

4. The quality of customer experience

The ultimate goal of all partnerships should be improving service quality and customer satisfaction. This makes high-quality customer service critical to the success of them. The service offered by the 3PL has a direct impact on the reputation of retailers and manufacturers, therefore they need to ensure it is sufficient.

To improve customer satisfaction and retention, support needs to be high quality. The 3PL should be able to resolve issues promptly to prevent minor problems from escalating. As we have seen, adopting a 3PL partner can come with some teething issues. But by having a high-quality customer service strategy in place, the reputational impact can be minimised.

Final thoughts
Whilst we can’t guarantee that selecting a 3PL provider will be without its hiccups, by considering how the partner aligns with the retailer or manufacturer’s business, it should be a much smoother process. By not thoroughly evaluating the service capabilities, pricing, sustainability and customer service of providers, retailers and manufacturers can leave themselves and their customer suffering.

Chris Clowes, executive director at supply chain and logistics consultancy, SCALA

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