Rising complexity of freight management and technology-driven logistics has businesses of all sizes turning to 3PLs to help them drive efficiency, cost savings, and visibility into their supply chains. Therefore, a successful relationship with a 3PL comes down to choosing the right provider and creating a partnership. When you dig deeper, like looking closely at a company’s financials and operational structure, you learn more about how a 3PL or carrier will perform for you over the long haul.
How to Properly Vet 3PLs
Break down your analysis into four key areas:
1. Operational structure and communications
2. Carrier relationships and interactions
3. Financial strength and insurance coverage
4. Technology capabilities
Operational Structure and Communications
Look for how the provider treats its customers: Can you contact them anytime with questions? Do they provide you with a broad team of experts that can easily handle all the transportation scenarios your company contends with?
Choose a company that’s big enough to move a large volume of freight, but nimble enough in operations where no customer is considered too small. Work with a company that can quickly scale service from local to national. It shouldn’t matter if you’re a first-time customer or long-term client, the right 3PL will help you find the best solutions for your specific logistics needs. Here are the most important points to consider:
- Who are your operations and sales points of contact?
- Have dedicated 24/7 year-round support?
- Are appointments and scheduling processes convenient and seamless?
- Will the 3PL tailor its processes to conform to your needs, not force you to adapt to their practices?
- Will the partner provide you with frequent updates on your active shipments so you have complete transparency into your freight activity?
- Will the company provide you with regular scorecards depicting how you’re performing against your KPIs (key performance indicators)?
Carrier Relationships and Interactions
When evaluating a 3PL’s carrier network, consider how it treats its carrier base.
- What are their average days to pay?
- How do they handle assessorials?
- What are some of the fringe benefits the company offers carriers? These could be anything from fuel advances to quick pays.
And from the carrier’s perspective, how easy is the broker or 3PL to conduct business with? Is there great communication? Do they genuinely care about their carrier partners?
Financial Strength and Insurance Coverage
It’s important to select a stable 3PL with a solid financial track record of strong profitability and growth. Effective 3PLs must be financially sound to pay carriers quickly, invest in their own business operations, solutions and technology, and be in healthy financial position to take advantage of innovations that will both protect and advance your business. Use the following checklist to review a company’s financial strength closely, and check bank references:
- How is the business structured (corporation, LLC, partnership, public, private)?
- How many years in business?
- What are their operating margins?
- What are their annual revenues?
- How does shareholder equity breakdown?
- What’s the supplier’s credit rating?
- How much cash do they have on hand?
- How do they pay their carriers? Check, ACH?
- Is the company a SmartWay partner? SmartWay carriers and 3PLs agree to high standards of accountability and transparency. Their businesses are run more efficiently, demonstrate continuous improvement and learn best practices.
To minimize the risk of disruptions, audit the 3PL’s various insurance coverages and operations to ensure they provide enough coverage to meet your minimum levels. Review and check-off the following items:
- Auto insurance
- General liability
- Errors and omissions policy (Yes or no)
- Cargo insurance levels
- The step-by-step breakdown of a claims procedure
Advanced application of technology throughout your supply chain helps a company become more efficient, increase productivity and gain a competitive advantage. Make sure the 3PL you choose provides a robust TMS with the following capabilities:
- EDI and API integration to connect all your business systems
- Real-time tracking for full visibility into all your shipments
- AI and machine learning technology to help automate processes
- Multi-modal freight management
- Predictive analytics and reporting to help you make data-driven business decisions
Last but not least, we encourage you to contact or call at least three customer references for each 3PL you’re considering. All those references will help you validate a company’s range of service capabilities and provide you with insight into how a prospective 3PL performs over a span of years.
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