Green & Red Flags: How to Select the Right 3PL

Choosing a third-party logistics provider (3PL) can mean assessing a large number of options.

In 2023, the United States was home to nearly 69,000 3PLs, reports IBISWorld. The global logistics market will grow from about U.S. $3.8 trillion in 2023 to more than $5 trillion by 2030, according to Grand View Research.

One reason for the industry’s growth is advances in IT systems, which enable more transparency, visibility, and seamless connections.

“As technology gets better, outsourcing becomes less painful and more productive,” says Jon Gilbert, senior consultant and project manager with PLG Consulting.

While the logistics provider sector has seen consolidation, many small entrants remain, so shippers often can seek out the specific skills they need.

For example, some 3PLs focus on providing less-than-truckload services. They can aggregate large numbers of small shippers and then leverage their cumulative transportation spend to capture better rates than many shippers could get on their own.

Logistics providers’ continued investments in technology allows them to boost efficiency and provide more value-add services, such as analytics, says Adam Borchert, global lead of the supply chain practice with Bain. Many insurgent consumer product brands rely almost entirely on third parties for manufacturing and distribution.

“They simply don’t have the capital and wherewithal to build ahead of the growth that they’re aspiring to,” he says.

Even as small companies scale up, 3PLs can provide value by bringing new ideas to the table, says Bob Brown, senior vice president with LynnCo.

Logistics providers also can be a critical resource when companies expand to new markets and lack local logistics knowledge and infrastructure, says Sri Sripada, managing director, operations excellence, West Monroe.

Look for These Green Flags

Whatever the reason that prompts an organization to engage a 3PL, identifying the best fit is critical, given the importance of this partnership. The following attributes are key:

A Match in Services, Geography, and Expertise

Before partnering, assess the 3PL’s overall capabilities, Sripada recommends. What services does it offer and how do they match your needs? How well does the company’s industry expertise, as well as its distribution and transportation networks, align with your needs?

CKE Restaurant Holding, the company behind Carl’s Jr. and Hardees, uses third-party distribution partners to handle final-mile delivery to its restaurants. Given that these shipments are of food items, they “require close to white glove service,” says John Brewer, director of distribution and logistics.

Brewer also considers the locations of potential 3PLs’ distribution centers (DCs). Ideally, these will be within about 250 miles of his internal customers. “Deliveries start to get inefficient the farther away you get from the DC,” he adds.

Effective Processes and Operations

Evaluate how effectively the 3PL handles warehouse assignments and space utilization, Sripada says. For instance, are they employing inventory management best practices? What compliance and safety checks are in place?

Check how late the provider can receive orders and still ship them out that day. A later cut-off generally means customers receive their orders more quickly, says Jeff Haushalter, partner with Chicago Consulting.

Also, assess the provider’s relationship with the carriers it uses. “We prioritize our carrier relationships,” says Tracy Meetre, chief commercial officer with Sunset Transportation.

Among other practices, Sunset pays quickly, which enables carriers to invest in their equipment. Sunset also employs stringent carrier vetting processes.

Shippers benefit from this approach. VEKA, a leading provider of innovative window, door, deck, and other solutions, had been working with another 3PL, but wasn’t able to get consistency among its carriers, and experienced more delivery challenges, says Dyan McCall, director of customer supply chain for North America. That changed when VEKA moved to Sunset, she adds (see sidebar).

Flexibility and Scalability

Given the unpredictable nature of supply chain operations, flexibility is key. For example, strong 3PL partners should be able to shift lane coverage when a shipper needs to change or diversify its supply and shipping routes, says Paul Bellamy, logistics leader at Genpact, a global consultancy.

Leading 3PLs can also recommend alternative suppliers, drawing on their knowledge and experience, he adds.

One reason Sunset Transportation is a strong partner is its ability to grow as VEKA grows, McCall says. In part, this is a result of Sunset’s purchase by Armada Supply Chain Solutions, as it enhances the 3PL’s ability to scale.

Partnering with one 3PL that can meet a range of logistics needs can offer a shipper a single point of contact, which tends to streamline communication, Haushalter says. That’s particularly helpful during challenges. “If there is a problem, you don’t want to be dialing for names,” he adds.

Technology

Given the role technology plays in all businesses, strong 3PL contenders need updated and integrated technology across their order management, fulfillment, warehousing and inventory management operations. This helps ensure visible and accurate information.

3PLs that can provide shipment level details, such as origin, destination, and line-item charges, and then report that data with insight will be preferred partners. “Data analysis paired with planning is essential today,” Bellamy says.

Brewer asks potential logistics partners to walk through their technology platforms. Among other attributes, he looks for track-and-trace solutions that enable CKR to take action, if necessary, while shipments are still in transit. He also reviews their warehouse management solution and follows an order as it’s processed to identify any inefficiencies.

Dashboard options should have a straightforward interface that shows critical data, such as on-time delivery and order accuracy. “You want to know if your plane is flying straight and true or if it’s headed toward the mountain,” Brewer says.

Along with the technology itself, it’s important to understand how 3PLs structure their technology operations. “Automation works wonderfully until it doesn’t,” Meetre says.

When a critical issue arises and it’s necessary to talk to a person in charge, that needs to happen quickly so the challenge can be resolved.

The ease with which the head of IT at VEKA can connect with Sunset’s IT head was a top reason VEKA partnered with Sunset Transportation, McCall says.

Labor Management

A company’s ability to keep and maintain a productive workforce boosts its reliability, Borchert says. Prospective clients should ask about the average tenure of 3PLs’ employees, as well as the training programs in place, as these can boost both productivity and retention.

Understanding the safety record is also key to assessing a potential partner’s fitness.

Shippers should also review the 3PL’s recruiting pipeline, Borchert says. Ideally, they’ll have relationships with local vocational and technical schools.

Organizations whose operations have seasonal peaks will want to know if the 3PL works with staffing agencies that can bring in workers to cover these spikes, he adds.

Avoid These Red Flags

Along with the attributes to look for when engaging a 3PL, shippers need to watch for signs that may reveal a logistics provider that likely isn’t going to be a good fit. These include:

A Babysitter Mentality

A strong logistics partner helps promote growth, rather than simply “babysits your business,” Brewer says. To that end, the 3PL should regularly ask how it can improve its processes, as this will help the shipper enhance its own operations.

A Lack of Integrity and Communication

Integrity can be a relationship builder or killer, Brewer says. For example, it’s worth probing if a logistics provider walks back a promise it made to offer a specific service. There might be a legitimate misunderstanding, but given the importance of the partnership, both parties need to be confident they understand and can trust the other.

Also be wary of logistics providers that appear to shy away from presenting important, but unfavorable information. “Don’t let my customer tell me you screwed up before you do,” Brewer says.

An inability to get clear pricing information is another red flag. A mature, sophisticated 3PL should be able to, when given a set of services and a forecasted volume of activity, calculate the expected cost.

Poor Customer Retention

Long-term customer relationships show a 3PL is providing not just rates, but valuable services, Brown says.

Moreover, given the disruption and potential risk inherent when shippers switch 3PLs, strong logistics providers often have relationships that extend for 20 years or even longer, Gilbert says. Shippers will want to investigate if it becomes clear customers stay with a particular provider for only a short time.

An Inability to Tour a Facility

Scheduling a warehouse tour shouldn’t take weeks, Haushalter says. It doesn’t have to be the day a shipper inquires about it, but a shipper should be able to get in relatively quickly. This cuts the chances they’re tidying up only because a potential client is coming in.

Unstable Finances and Insufficient Insurance

Partnering with a 3PL that’s not financially stable can quickly lead to legal challenges. “Next thing you know, all your products are tied up for months or years,” Brewer says.

Given the litigious nature of the current business environment, particularly in the United States, insufficient insurance limits on the part of a 3PL are another red flag, Brewer says. Typically, when negotiating the contract, the shipper sets the limit it expects. Each year, the 3PL should provide proof of this insurance coverage.

Shippers Responsibilities

As in any partnership, all entities involved in a logistics relationship contribute to its success. At the outset, shippers should invest the time needed to understand their organizations’ needs and articulate them in an organized, detailed request for proposal (RFP).

As part of the RFP process, shippers should obtain pricing information that fits the structure they envision, and make sure it’s comparable across different providers.

If an organization has any processes that are complex or require additional work, this should be highlighted and discussed early on. “Otherwise, you can have some disappointments on implementation,” Gilbert says.

A first step when evaluating potential logistics providers is desktop research, Borchert says. This includes reviewing rankings and other public resources to gain an understanding of the solutions available.

Look for evidence, such as case studies, showing a provider has clients in your industry and understands the typical pain points, Brown says. For example, do they have experience going into secure facilities or handling high-value shipments?

Talk to as many providers as feasible, Gilbert says. Include their operations employees in the conversations and assess how knowledgeable they are. Ask about their services, as well as other companies that are using the services you’re considering.

Conducting site visits to the 3PLs who rise the top of the list of candidates helps provide an understanding of their operations, as well as their labor and safety environment, Borchert says.

Consider secretly shopping a 3PL, especially if it will be interacting with your customers, Haushalter says. That is, order from one of the 3PL’s clients—ideally, from the warehouse in which your products will be located—and see how long the process takes and how nice the presentation is.

A Smart Selection Process

The team at VEKA invested time and effort to structure a thorough, smart selection process, Meetre says, adding that McCall was “a very informed buyer.”

Both sides need to understand the shipper’s current operations and shipping patterns, McCall says. For instance, VEKA has several unique ways in which orders can come in, as well as some that need to be handled within short time frames.

“You have to know that going in and be able to communicate that well to the 3PL,” she says. Without this information, logistics providers are less able to provide the services that best fit the shipper’s needs.

Early on, McCall brought VEKA’s IT and operations teams into the RFP process, to both gain buy-in and to connect with their counterparts on the Sunset side, Meetre says. This helped Sunset understand the current pain points and roadblocks and to begin considering ways to address them.

When McCall’s team visited Sunset’s operations center, the members met the directors of Sunset’s international division and its oversized project group, Meetre says. Even if capabilities like these aren’t needed immediately, they might be down the road.

By spending time assessing all a 3PL’s capabilities, a shipper can align itself with a provider that’s likely to be able to handle its needs and growth further into the future.

An in-depth selection process requires an investment of time and effort by the shipper. Given limited resources, it can be tempting to instead rely heavily on the RFP. That can lead to less-than-optimal results. “Face-to-face, in-person communication is so important,” Meetre says. Open communication at all levels of the two organizations boosts the likelihood of a productive, sustainable relationship.

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VEKA’s 3PL Partnership Waves the Green Flag

VEKA, which provides PVC profile systems for windows and doors, partnered with Sunset Transportation to address operational inefficiencies and enhance customer satisfaction across its North American locations. With 49 sites worldwide and more than 6,700 employees, VEKA sought a logistics partner that could balance advanced technology with personalized service.

The Challenge

A previous 3PL’s focus on automation led to diminished responsiveness and increased frustrations for VEKA’s operations and customer service teams. Issues such as delayed truck tracking and unresolved claims disrupted workflows and strained customer relationships. VEKA needed a reliable 3PL to improve delivery performance, enhance communication, and manage claims efficiently.

The Solution

VEKA selected Sunset Transportation for its culture of engagement, robust IT integration, and proactive operational support. Sunset’s Application Programming Interface integration with VEKA’s SAP system streamlined order processing, reduced manual intervention, and enabled real-time logistics reporting. The improved automation allowed VEKA to reduce its customer care center workload by 21%.

The Results

Sunset’s carrier screening and relationship-building reduced delivery issues, improving on-time delivery to 98.7%. Efficient claims management brought VEKA’s 2024 claims ratio to near-zero, eliminating delays and fostering trust. Additionally, Sunset’s 24/7 operational support ensured smooth handling of VEKA’s high shipment volumes.

Looking Ahead

The partnership continues to focus on innovation and efficiency, with plans to enhance vendor-managed inventory and improve supplier shipping processes. Through this partnership, VEKA and Sunset exemplify how strategic alignment in logistics can drive superior customer service and operational success.

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