What are the best ways to measure 3PL provider value beyond cost savings?

Evaluating 3PL performance isn't just about the dollars and cents. It's about how well they understand and cater to the unique aspects of your business, like what you're shipping and to whom. When 3PL partners experience match the customers needs/priorities, it’s a triple win — for them, us, and the customer. It's all about finding that sweet spot where cost, service, and customer experience intersect.

In other words, I called it expertise and specialization. When one specializes in an area they will over time gain better ways to serve and better ways to satisfy customers. It is just natural and part of the learning curve. Although it doesn’t happen without effort. The referral is one way to know if someone real expert on something another way is to create clear milestones to identify in earlier stages whether the service provided adds value and is up to expectations.

I agree having clear KPIs agreed upon between your business and the 3PL is key in measuring how useful they are to your business. Having a set of KPIs defined in the service level agreement (SLA) between both entities prior to engaging in actual business, I found it to be of great importance at later stages of your relationship with the 3PL.

industry requirements can influence the criteria for determining the quality of a 3PL company. Excellent customer service is indeed an important aspect, and responsiveness beyond 8-5 business hours can be a sign of a good 3PL. Moreover, a 3PL that is willing to customize and provide flexible services demonstrates their commitment to meeting specific needs and requirements.

Quality and reliability also applies to how they handle failures. Are they up front? Do they show quick and decisive action? Do they seem to have a solid grasp of the root causes? Measuring when things go well is a given, however how a service provider responds when there are mistakes or failures shows a lot more about how they view their customers, the importance of their quality and their professionalism through commucation.

Never settle for a service provider who doesn't think ahead. Market and customer needs will always be evolving. It's imperative to work with partners that are forward focused and challenge themselves to continue to build new capability.

It takes two to tango in innovation and systems implementations. 3PLs are not magicians. The shipper (and sometimes the consignee) have critical roles to play in systems and in innovative improvements. It is imperative to have an open eyed discussion on responsibilities, authorities, expectations, and risk management. Way too many clients nay say proposals from their 3PLs, then complain they are not innovative enough. Some think change is all about the other guy. These ones frequently fail to innovate and excel over time. Consider that fulfilment by Amazon has overtaken UPS as the biggest retail 3PL: Over $600B in revenue.

industry requirements can influence the criteria for determining the quality of a 3PL company. Excellent customer service is indeed an important aspect, and responsiveness beyond 8-5 business hours can be a sign of a good 3PL. Moreover, a 3PL that is willing to customize and provide flexible services demonstrates their commitment to meeting specific needs and requirements.

I believe one of the main reasons to hire 3PL is to keep the logistics cost variable, and accordingly allow scalability whenever necessary and when required. Another reason is to reduce the risk of fluctuating business and make it easier to adapt to changes.

In the fast-paced world where customer needs are constantly changing, a 3PL's ability to stay agile and grow with you is crucial. Flexibility is all about how quickly a 3PL can pivot to keep pace with your changing needs. what does scalability mean? That's their capacity to level up as your business expands, making sure they're not just a provider but a growth partner. The real test is in their response times, their 'always-on' attitude, and a variety of options they bring to the table. at the end of the day, it's not just about growing bigger, it's about growing smarter together.

Variable costs are certainly attractive, but the fundamentals remain. Logistics is a very capital intensive business - building, equipment, systems, skills,... That capacity comes at a cost. Being transparent in forward volume expectations is critical to helping your 3PLs succeed. If volume volatility is important to you, make sure you discuss how your 3PL deals with it, and what your role is. I have seen relationships that were built around ramping down volume as companies exited markets. Shared infrastructure is a powerful tool, make sure you use it properly.

Measuring value beyond cost in a 3pl provider is about their approach to communication, ability to scale and performance when challenges arise. You can tell a good deal about the frequency and quality of the interactions with your 3PL partner. Do they present solutions to new challenges without being asked? Do they address them quickly, take great care in remediating and communicating the root cause and solution to avoid continued challenges. Are they advocates for top-to-top relations and middle management or just doing enough? As well, do they have an appetite to scale with you as you grow and are they transparent about their needs and what that level of a partnership would need to look like for them to make continued investments.

An example of sustainability can be if a 3PL provider uses electric vehicles for local deliveries, implements a recycling program in their warehouses, and uses eco-friendly packaging solutions.

With many customers, 3PLs are well positioned to conduct trials on new equipment, testing the limits of their use. You can learn a lot from their experience, and you can make it easier for them by helping with the initial investments and ramp-up costs.

In the 3PL industry, an often-overlooked yet critical aspect is the importance of building strong relationships with both clients and suppliers. From my experience, these relationships are the backbone of successful logistics operations. For example, during a particularly challenging period, it was the strength of our relationships with suppliers that enabled us to find quick solutions to unexpected shipping delays. Lastly, sustainability in logistics is becoming increasingly important. Implementing environmentally friendly practices, like optimizing routes to reduce fuel consumption or using eco-friendly packaging, not only benefits the environment but also enhances brand reputation and meets the rising eco-conscious demands of customers.

Strategic Fit is one of the key aspects to look at a lot me. Along with everything else discussed above, 3PL company's initiatives, innovation apatite and drive towards Sustainability, needs to be aligned with its clients' business. A top tier 3PL provider with experience, infrastructure and systems to manage an electronics supply chain might not be a perfect fit for a fresh produce company.

In addition to the factors mentioned earlier, there are other aspects to consider when measuring the value of a third-party logistics (3PL) provider beyond cost savings. These include: Customer Needs: Before evaluating a 3PL provider, it is important to understand exactly what your customers, clients, and business need out of warehousing and distribution. This will provide the right context to evaluate a 3PL solution

Furthermore, it's worth mentioning that implementing these changes not only saves costs, but also reduces wastage. In addition, it helps streamline operations and provides more flexibility for management to make necessary adjustments. Overall, it's a win-win situation that should definitely be considered.

The relationship you have with your 3PL makes all the difference to how well they perform. If they are treated like mushrooms... Having the right expectations, the right governance, the right collaboration at all levels, and a fair deal that rewards the 3PL's exceptional results will go a long way. Check out Dell/Genco (FedEx) for an amazing example, or head to vestedway.com