3PL Service Providers: Weighing Transactional Costs vs. Supply Chain Value

When evaluating third-party logistics providers, there are three basic areas in which they should be performing:

Risk Management – Perhaps the most crucial area where 3PLs add value is by mitigating risk for shippers. A supply chain at risk can expose a business to many things including missing time sensitive delivery windows of component parts or finished goods, delays in crossing international borders, or costly fines for non-compliance.

Those are tangible things that can be seen and corrected fairly easily - but what are the longer term effects a broken supply chain can have on a company’s brand name? Today’s consumer has access to many alternatives and wants immediate gratification. Failure to deliver product on time will degrade a company’s brand; an optimized supply chain is critical to business success today more than ever.

Visibility – Supply chain tracking in ocean transportation has been elevated through EDI technology and web-based trace & trace systems. Shippers know when containers are booked, picked up and on board a vessel, “in–transit”, cleared customs, landed, and delivered or drayed to their distribution point. Where a 3PL service provider can add value is by providing supply chain visibility. Visibility is integrating PO, transportation and inventory data to provide a clear picture of the supply chain. Visibility is having foresight to plan & flexibility to adapt to unforeseen issues to ensure product keeps moving from source to final consumer. 3PLs who provide visibility do so with a blend of technology and proactive service.

Cost Management – Finding the right balance between reducing the bottom line impact of transportation costs and maintaining a stable chain is an art. Logistics managers need partners who actively find the most optimal ways to transport their products. Tight delivery timelines require a provider to proactively manage each logistics detail to ensure there are no delays. When capacity is tight, being able to find space at a fair market rate can be invaluable. Other times, an out-of-the box solution is needed when unforeseen issues disrupt the flow of goods internationally or domestically. Shippers should always challenge providers to provide a blend of high level of service and fair market price. Regular evaluation of service and price performance is important as a shippers’ logistics needs change.