As we work with clients looking for a fulfillment partner, or 3pl, to meet their needs, a few recommendations come to mind. One of the greatest fears in giving your fulfillment operations to someone else are the unknown factors of how your customers will be treated and what your cost will be for their services. The first concern is best dealt with by calling existing and past clients of the vendor to solicit their reference as to the adherence to the service levels. The second is a bit more complicated.
One complaint we hear often is the surprise that occurs when the first invoice for services arrives. In addition to a detailed Request for Proposal (RFP) outlining requirements and expectations, two additional steps can be used to reduce the risk of surprise in costs.
The first is to make sure the vendor spends time with your operation to review what you do today. Even with all the care and attention you apply to your RFP, some things can be missed. You should ask your proposed vendor to evaluate your operational needs and metrics to make sure their submitted bid is appropriate. If any differences are noted during the site visits, they can be reflected in a revised bid for services. This will permit you to make the most informed decision possible. Make sure the vendor understands that it is their responsibility to discover and point out inconsistencies with the RFP and the actual operation. Your goal should be to have the actual cost per order come within 5% of the proposed cost per order in the RFP response by the vendor.
The second suggestion is to have a set of productivity metrics or standards as part of the contractual Key Performance Indicators (KPI’s). These should reflect the commitment of the vendor to meet certain productivity levels in specific warehouse functions. Many cost estimates are based on applying an hourly pay rate to the hours used to calculate the cost for a functional area. The estimates of cost in the RFP response assume some level of efficiency by the vendor. When the invoice arrives, you should be able to determine if any variance occurred in actual vs. estimated cost is caused by a different volume of activity being required or if the expected level of performance is different than that proposed. Having a committed level of productivity in your contract reduces your risk in this area.
If you are able to use these two suggestions, it should lower your stress level in dealing with the unknown factors of utilizing the third party distribution option.
One complaint we hear often is the surprise that occurs when the first invoice for services arrives. In addition to a detailed Request for Proposal (RFP) outlining requirements and expectations, two additional steps can be used to reduce the risk of surprise in costs.
The first is to make sure the vendor spends time with your operation to review what you do today. Even with all the care and attention you apply to your RFP, some things can be missed. You should ask your proposed vendor to evaluate your operational needs and metrics to make sure their submitted bid is appropriate. If any differences are noted during the site visits, they can be reflected in a revised bid for services. This will permit you to make the most informed decision possible. Make sure the vendor understands that it is their responsibility to discover and point out inconsistencies with the RFP and the actual operation. Your goal should be to have the actual cost per order come within 5% of the proposed cost per order in the RFP response by the vendor.
The second suggestion is to have a set of productivity metrics or standards as part of the contractual Key Performance Indicators (KPI’s). These should reflect the commitment of the vendor to meet certain productivity levels in specific warehouse functions. Many cost estimates are based on applying an hourly pay rate to the hours used to calculate the cost for a functional area. The estimates of cost in the RFP response assume some level of efficiency by the vendor. When the invoice arrives, you should be able to determine if any variance occurred in actual vs. estimated cost is caused by a different volume of activity being required or if the expected level of performance is different than that proposed. Having a committed level of productivity in your contract reduces your risk in this area.
If you are able to use these two suggestions, it should lower your stress level in dealing with the unknown factors of utilizing the third party distribution option.
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