Logistics form the backbone of many businesses. And when the business goes global, a seamless supply chain is of utmost importance. Logistics requires vendor choices and other dynamic variables and this makes the outsourced 3PL decision-making process very critical.
The wrong third-party logistics provider can affect your entire shipping and delivery process, leading to missed deliveries, high costs, and customer frustration. But with the right one, you can ensure seamless operations and a strong logistics backbone that scales as fast as your business.
It will promise competency, cost savings, and visibility. That’s why 3PL vendor selection is a critical business decision that can enhance your operational efficiency. But this is where it gets more complicated. It’s a tricky decision, especially because there are 24000+ 3PL providers in the USA alone.
So, how do you pick the right one?
In this guide, we break down the 3PL selection process, the key challenges, and how you can approach the 3PL vendor selection process with precision.
What is a 3PL Selection?
3PL selection is the process of evaluating and choosing a logistics provider that aligns with your business needs. A 3PL handles warehousing, fulfillment, shipping, and even returns, essentially taking the heavy lifting off your plate so you can focus on growth.
3PL vendors have the right tools, infrastructure, and expertise to manage warehousing activities, reducing costs and improving efficiency for your business.
However, not all 3PLs are created equal. Some specialize in high-volume e-commerce shipping, while others cater to specific industries like healthcare or perishables.
So, the key to accurate 3PL selection is understanding your logistics pain points and choosing a provider that not only integrates seamlessly with your current operations but also anticipates future challenges before they disrupt your supply chain.
Challenges faced when selecting a 3PL provider
Finding the right 3PL sounds simple. You compare services, check pricing, and pick the best fit, right? Not quite.
The reality is that different logistics providers may cater to different industries or may not have the expertise you require. However, businesses often only realize the gaps once orders start piling up and problems emerge.
From hidden costs to tech incompatibilities, choosing a 3PL comes with challenges that can impact your bottom line and customer experience. Here are some common obstacles e-commerce businesses face:
1. Poor communication
Effective communication is the backbone of any successful partnership. A lack of collaboration or ineffective communication can lead to misunderstandings.
If your 3PL provider is not on the same page as your business goals, it can result in operational inefficiencies and a diminished customer experience. For instance, if your focus is to cut costs, a 3PL partner must prioritize it to make a real impact on your operations.
2. Lack of industry knowledge
Not all 3PL providers possess the specialized knowledge required to navigate the unique challenges of the e-commerce landscape. A provider unfamiliar with e-commerce dynamics may struggle with handling high order volumes, managing peak season demands, or integrating with online sales platforms, potentially hindering business growth.
3. Increased dependency
Relying heavily on a 3PL provider can create a dependency that may pose risks if the provider fails to meet performance expectations or encounters operational disruptions.
For instance, a business relies on its 3PL vendor to maintain its inventory, warehouse management, and supply chain processes. Such reliance can make it challenging for businesses to pivot quickly in case of disruptions and affect how they operate and manage processes.
4. Reduced operational control
While increased dependency can impact business, the opposite can also be a challenge. Outsourcing logistics operations to a 3PL inherently means relinquishing a degree of control over warehousing, inventory management, and order fulfillment processes.
This reduced oversight can be concerning for businesses that prioritize maintaining stringent quality standards and swift issue resolution.
Key Factors to Consider in 3PL Selection
What goes into the decision-making process when selecting a 3PL provider?
Alignment of duties and responsibilities
The biggest obstacle businesses face with shipping is to do with controlling the visibility of an international supply chain, lead times, and total landed costs – including inventory carrying costs, obsolescence costs, and customer service.
So, a shipper needs a third party logistics provider to meet specific needs, culturally and operationally. The shipper and the logistics partner need to share the same values, ethics and responsibility. Both parties should be willing to resolve issues that crop up – a blame game between partners can turn ugly and disruptive.
Infrastructure
The shipper and logistics partner need to share data on shipments. So, it’s critical that both parties have technological infrastructure to share information globally. They need common capabilities and resources for the 3pl to deliver good supply chain visibility.
So, you need to look for a partner with the right infrastructure: regional offices and liaison places in regions you work in, for example, are signs of good infrastructure.
IT capabilities and compatibility
A 3pl needs to share real-time data. It needs to exhibit timely responsiveness to form a seamless supply chain. IT compatibility is crucial for providing global logistics services like shipment documentation, purchase order visibility, cross-docking support, forecasting, inventory replenishment, and life cycle management.
Before you look at the compatibility issue, look at your technical capabilities. Step up in case it’s necessary for an efficient system.
Ease of doing business
A deal is possible when two people meet midway. There needs to be flexibility in the partnership. There will be exceptions in scheduling and services. The partner should be willing to handle emergencies. After all, a chain is only as strong as its weakest link.
Several partners offer value-added services in their bouquet. A detailed analysis of these services, along with their historical performance, will give you a good idea of what to expect out of the alliance.
Cost
Of course, cost is an important factor in choosing a 3pl provider. Effective and competitive pricing is what a shipper looks for in a 3pl provider. Like with every business decision, a cost quote is a deal-maker or deal-breaker.
How to choose a 3PL provider?
The efficiency of your supply chain and customer experience relies on your 3PL selection criteria and strategy. After all, you’re putting your trust in a third-party provider to meet your brand expectations and deliver a consistent customer experience that you’re known for.
As a result, you must have well-defined 3PL vendor selection criteria and a 3PL selection process that involves the following steps-
1. Identify your business objective
For many businesses, a common reason to partner with a 3PL provider is to streamline their logistics operations. Perhaps your inventory management isn’t running smoothly, or the order fulfillment process is slow, affecting customer satisfaction, on-time delivery, and conversions.
So, it is important to identify your logistics priorities before selecting a vendor. Do you need a partner who can reduce last-mile delivery costs? Someone who can handle large order volumes during peak seasons? Or a provider with expertise in international shipping?
Before reaching out to any 3PL, write down your top three logistics pain points. If a provider can’t directly address those, move on.
2. Research 3PL vendor-based services and presence
Once you know what objectives you want to achieve, start researching potential 3PL vendors based on their range of services and presence.
Most 3PLs offer a range of logistics services, from warehousing, fulfillment, and distribution to inventory management, as well as picking and shipping orders. Based on your requirements, partner with a 3PL provider whose services align with your needs.
Plus, don’t forget to evaluate their network to ensure they have a presence in the markets you supply to for a seamless logistics process.
3. Understand the cost structures
Many e-commerce businesses fall into the trap of choosing a 3PL based purely on pricing. The lowest-cost provider might come with hidden fees, poor service levels, or lacklustre customer support.
Look for vendors whose pricing structure works for your business. Be cautious of any extra fees for returns processing and limited carrier options, which can mean higher shipping costs for you and a lack of transparent reporting.
4. Check scalability and flexibility
A 3PL that works for your business today might not be able to keep up when you scale. This means identifying their capacity to manage seasonal demands and handle increased inventory levels or expectations arising out of business expansion.
A flexible 3PL vendor will easily adapt to your changing logistics requirements and accommodate your needs for a lasting business relationship.
5. Determine delivery service levels
Before committing to a 3pl service provider, understand their operational and service commitments. Evaluate the types of companies they have worked with, the number of warehouses they operate, and how they execute next-day deliveries or handle reverse logistics.
Not to mention, determine how the provider manages delays and refunds in case of operational failures and how adept they are at meeting the delivery expectations. It is important to sweat the small stuff – it’s going to have the biggest impact on your business.
6. Review the vendor's technology capabilities
A 3PL should make logistics smoother and not more complicated. If they’re relying on outdated systems, you’ll struggle with tracking, reporting, and process automation.
Evaluate the technology, such as warehouse management systems, that the 3PL vendor is using to know how they operate. If they cannot offer real-time insights into the supply chain or data-driven analytics to manage inventory needs, they’re probably not the right fit for you.
Once you’ve identified the right 3PL vendor for your business, draft a service-level agreement that defines the performance standards upon which you and the 3PL provider agree.
Conclusion
Choosing the right 3PL vendor is a critical business decision that can make or break your supply chain performance. The right 3PL selection ensures seamless order fulfillment, cost-effective shipping, and a positive customer experience.
To make an informed decision, focus on key factors like scalability, delivery performance, and customer support and negotiate a clear SLA to safeguard your business from hidden costs and service failures. Most importantly, don’t settle; Test potential 3PLs to see if they truly meet your needs before committing.
But even with a well-vetted 3PL, inefficiencies can creep in. We’re talking about missed deliveries, lost packages, and hidden carrier fees that can impact your bottom line. That’s where LateShipment.com comes in.
It helps e-commerce businesses monitor shipments in real time, recover refunds for late deliveries, and optimize shipping costs without extra effort.
With LateShipment.com, you ensure your delivery processes perform at their best. Reduce delivery failures, improve customer experience, and take full control of your logistics operations.
