STRATEGIC SOURCING – EVALUATING THE 3PL

by Matt King, Manager

Third-party Logistics Providers (3PLs) can be a major component of a company’s Strategic Sourcing Strategy. They can save a company money by utilizing larger economies of scale, react more quickly to a business environment changes like rapid expansion or decline, and even more importantly, serve as logistics experts allowing the company to focus on core strengths, rather than importing, warehousing, and distribution. However, the 3PL needs to be properly managed and understand the requirements of a company if a partnership is to be successful.

One of the most disappointing observations when evaluating a company’s strategic sourcing is a total lack of control and visibility within their 3PL. Admittedly, as a consultant it makes my job in a supply chain evaluation very easy to diagnose, but there is little reason for a firm to be held hostage by their 3PL. If customers aren’t getting product on time, if there are quality control issues, or if there is inconsistent inventory levels, then it is past time for a 3PL review.

3PL Management By “Wandering Around”

The first and best step in evaluating a 3PL is by visiting and observing the 3PL. Too many companies are complacent and just assume that their 3PL is clean, organized, and follows a set of acceptable processes. This is not always true. Here are a few things that I’ve seen:

• Product scattered randomly throughout a warehouse or multiple warehouses.
• Product outside of the warehouse in the loading yard.
• Garments on hangers (GOH) stuffed into boxes.
• Open product lying on the floor.
• Empty boxes mixed with full boxes.
• Unlocked outside doors with no security.

Any one of these issues could easily cause quality control, inventory level, or shrink issues. But the nice thing about these issues is that in most cases they are very correctable. These are primarily caused by sloppy warehouse management and can be remedied by a little labor and organization. Management by “Wandering Around” is easy to do and a lot cheaper than having a disorganized 3PL.

3PL Warehouse Management Systems

It seems crazy that it in 2011 that a 3PL does not have a Warehouse Management System (WMS). If they don’t by now, then their clients should be looking for a new provider. As far as a 3PL is concerned, having a provider with a WMS is as basic of a requirement as having a roof on your building.

A warehouse management system is a sophisticated software set that provides for unloading, receiving, sorting, storing, packing, shipping, and loading of product.

A warehouse management system is not a spreadsheet with macros. It is a sophisticated software set that provides for unloading, receiving, sorting, storing, packing, shipping, and loading of product. Consider:

• How are timely inventory levels measured?
• Where is the product being stored?
• What is the age of the product?
• How is the product being accurately received, sorted, or shipped?
• How many entry errors are being made due to human mistakes?

3PL Processes

Most 3PLs are superb at following processes, but most clients don’t know what process instructions should be given to the 3PLs.

If the 3PL is clean, organized, and is using a WMS and there are still issues, then the trouble most likely stems from a lack of documented procedural and exception processes. Most 3PLs are superb at following processes, but most clients don’t know what process instructions should be given to the 3PLs. 3PL clients often assume that the 3PL knows exactly what the client wants done. They assume that after a couple of meetings and emails that 3PL can handle any situation that arises. Below are a few exception situations that happen daily in a 3PL. Any associated resolutions should be documented for the 3PL to follow. These may be:

• Product arrives without a barcode, no label, or is incorrectly barcoded and labeled.
• Product is damaged on arrival, within the warehouse, or at the point of shipping.
• Miscellaneous product is found within the warehouse.
• Product arrives too early or too late.
• Return processing.
• Too little product is available to fulfill shipments.
• Orders are submitted too late to make shipment deadlines.

Each standard and exception process should be documented into a single living document (not a multitude of emails) that is shared between with client and the 3PL. Most 3PLs are even willing to help in the creation of this document as it helps them better serve their client. The 3PL process document is time consuming to create, and many of the solutions may simply say “Call Distribution for Instructions”, but it is essential for smooth and consistent processing.

Utilizing 3PLs can be the most effective and efficient method of streamlining a strategic sourcing method, but without proper supervision, they can also be a huge detriment to a company costing them money and customers. Do not assume that they are always handling a product to your expectations; you need to visually verify how the product is being managed. But with a little overseeing, proper systems, and good documentation the 3PL can be a great partner in success.

Matthew King has led systems selection and implementation engagements across multiple verticals representing retail clients with locations across the U.S. and in over 50 countries.  Mr. King specializes in Retail/Wholesale ERP, POS, CRM, Merchandising, Planning, Allocation, Replenishment, Labor Management, and Pricing systems.