There are many advantages to using third party logistics (3PL) for order fulfillment, system support and customer service for omnichannel businesses. Companies can achieve competitive costs; avoid capital expenses for facilities, automation and systems; and concentrate on marketing and merchandising rather than managing fulfillment. (Read 10 Ways A 3PL Can Help Multichannel Companies Operate Profitably for more information.)
Using 3PL services is not for every company. The relationship you’re seeking is not just a service but more importantly, a partnership. In our consulting, we have clients that are long term users of 3PL as well as firms that are 3PL providers.
This blog discusses 11 key indicators of service. Use these 11 items when you negotiate your 3PL contracts -- include them as Service Level Agreements (SLAs) that show contract performance goals that are reported and discussed on a regular basis. And of course, when problems are severe, the first course of action is to resolve the issues before deciding to leave the 3PL.
Excessive Customer Problems
Are there sufficient complaints that indicate you are losing customers and the service threatens your business? What procedures and reporting do you have in place to monitor quality and timeliness of the services provided? We recommend keeping your customer service functions in house to monitor customer complaints and questions.
Shipment accuracy below 99.9%
Shipment accuracy can be maintained at this high a level if the fulfillment process fully utilizes bar coding. This includes product, stock locations, processes like picking, ship confirmation, returns, etc.
“Same day” shipping misses
There are three categories - customer requested same day shipment; same day shipment and delivery; and clearing a high percentage of customer orders by a cut-off time. Goal is to ship 100% of orders in the first two categories and 100% by the cut-off time.
Ineffective account management
The 3PL’s account manager should be your advocate; providing timely, consistent service to your organization to answer questions, and should teach your people how their systems and services work and resolve issues. The account manager is the key to providing great service.
Poor customer presentation
How does the product look upon arrival? Is there excessive box taping? Does a 3PL’s sloppy housekeeping (i.e. dusty, dirty, lack of care) carry over to customer presentation? Restate your standards for packing.
Internal Operations Problems
Inventory accuracy below 99.9%
Maintaining 99.9% accuracy can only be achieved when the internal systems are fully bar coded, along with the products. How much must you absorb in lost inventory before the vendor is responsible?
Not enforcing vendor compliance
Do you have vendor compliance policies? By not executing these policies, do problems get introduced into your fulfillment operations, which later cause problems (e.g. QA problems) and increase costs?
Do you have protracted discussions about invoicing which can’t be adequately explained? This can become a credibility issue. Many times the issue is that the WMS wasn’t designed to serve a 3PL business. As a result, manual analysis is used to come up with the invoice detail which can be difficult to explain.
Prefers hourly charges
One thing that helps bring about more predictable billing is to have a cost per transaction for services provided, rather than project costs invoiced on a per hour basis. An example would be kitting. Can you negotiate a cost for various level kits, such as 2 component kits versus a more involved kitting like a gift basket? Cost per transaction billing gives the 3PL incentive to measure and manage productivity closer.
Fails to bring you new ideas
Does your 3PL bring you new ideas of how to save money and improve customer service? This attribute is essential in a good 3PL partner.
Lacks continual process improvement
Do they have a continual improvement process so that they become more efficient and pass on benefits to you as a partner? Examples include full use of bar code technology and investing in MHE and automation to remain efficient.
Here’s how to proceed to get performance back on track:
- Address problems with 3PL management. Are there SLAs and procedures that can be implemented without reopening major contract renegotiations? We often see contracts that lack key SLAs. Trying to add them after contract signing may increase costs. The give and take in trying to achieve consistent, high performance often tells you how much the 3PL wants your business.
- Establish a monthly management meeting and review performance. You’re on the phone daily with the account manager but 3PL management may not have the same view of their service. Have a brief recurring meeting monthly to review performance.
- As a last option, you may need to undertake a search and selection for another 3PL. This should be the last resort considering the expense and disruption involved in making a move or establishing internal fulfillment.
3PL is a good alternative to internal fulfillment for many companies. Agree beforehand on the measures of customer service and review monthly to keep service high.