Selecting a 3PL Without an RFP
Eleven years ago, Chuck Franzetta, president of logistics consulting group Franzetta Associates, was asked to consult for a major transportation entity trying to to jump-start its struggling third-party logistics division. He discovered that the 3PL was primarily focused on preparing detailed responses to a slew of RFPs (Request for Proposal), which cost the company a significant amount of money, and brought in little new business. Franzetta recommended that the 3PL stop responding to RFPs, which it did. Many other 3PLs have done the same. Here are Franzetta's 10 tips to selecting a 3PL without using an RFP.
1. Consider getting outside help. You understand your logistics operations better than anyone else, but you may not understand completely what a 3PL relationship can represent to your operation—and to its profitability. Getting outside help when choosing a 3PL might simplify the process, and reduce staff and time commitment. Seek someone knowledgeable in third-party logistics who can demonstrate experience with a broad scope of outsource operations and providers.
2. Define a clear process for interfacing with potential 3PLs. One of the greatest frustrations reported by individuals who attempt to evaluate third-party logistics providers is that too often no defined process exists. Nobody is clear as to what results are expected, and in what order.
3. Consider a maximum of three 3PLs. With or without external assistance, conduct advanced research on potential 3PLs that fit your requirements—and do a detailed evaluation of only those entities. If you are dissatisfied with the end result, you can modify the process and investigate others, but trying to evaluate more than three 3PLs thoroughly will prove extremely demanding.
4. Don't use an RFP. An RFP limits you to functional costs. A good 3PL relationship should result in a quantifiable value significantly more dramatic than any RFP can identify. It is imperative that you choose the 3PL that offers the clearest quantitative value to your company.
5. Institute an internal 3PL evaluation team. This team must include representation from the supply chain/logistics, information technology, sales/marketing, purchasing, and finance departments. Doing this ensures corporate-wide buy-in for your ultimate decision. It also demonstrates the impact logistics has on the broader corporation, and provides insight that will enhance the dollar value represented in the ultimate agreement.
6. Create an enforceable, mutual non-disclosure agreement. Do this before starting formal meetings with your third-party logistics provider candidates; ask your legal department to help. Execute this agreement before you initiate the development of a value proposition.
7. Clearly identify technology issues between your company and the 3PLs. You may need to invest in technology to fully appreciate the benefits available from a 3PL. Investigate what technology benefits the 3PLs possess that can work to your advantage. Often, accessing that technology is the greatest value a company derives from 3PL relationships—and the benefits often lead to enhanced customer service.
8. Show the impact on sales throughout the process. Nearly all logistics projects are actually marketing projects. When evaluating the true quantitative value proposition of partnering with a 3PL, make sure you note the impact on sales. Often, attaining the lowest costs determined from a traditional RFP can lead to customer service problems, resulting in a negative impact on sales.
9. Insist on regular meetings with senior executives. Any agreement must require that senior executives from the 3PL participate in a quarterly—at minimum—meeting with a multi-department team. Treating the 3PL as an integral part of management, rather than as a vendor, evokes a degree of interest and responsibility in achieving overall corporate goals.
10. Clearly define a timetable for handing off responsibilities to the 3PL, and document the responsibilities you will retain in-house. The relationship should not be initiated until this process is put in place.