Third-party logistics (3PL) is a big player in supply chain management, driving cost savings, providing access to expertise in new markets, and empowering business growth. It’s no wonder that over 90% of Fortune 500 companies use 3PLs, mainly in sectors such as e-commerce, with 87% of shippers increasing outsourcing in areas such as transportation and warehousing. Companies wishing to contract with a 3PL provider for the first time or to expand their existing 3PL needs can save costs through key strategies such as smart vendor selection and contract negotiation, network and mode optimization, tech-driven performance management, and collaborative planning.
Choosing the Right Vendors
Precisely because the logistics sector is booming, companies have a wide array of 3PL suppliers to select from. Cost is a prime consideration at the selection stage, but the aim is to strike the right balance between price and efficiency. Companies considering a new third party logistics company can begin by conducting formal Requests for Proposal (RFP) and Requests for Quotation (RFQ) events, comparing the prices and services offered by each vendor. Factors to be compared should include freight rates and full door-to-door costs (including transport, duties, and handling).
They should also negotiate fuel surcharge formulas, extra fees, and service-level agreements that define performance targets and penalties. Some companies allow carriers or freight managers to share in documented savings or offer discounts when their provider commits and delivers specific shipment volumes. Others negotiate fixed rates when freight markets are soft, protecting their revenue when markets tighten.
Ensuring Network and Mode Optimization
Companies should take time to consider the physical flow of goods, with a view to reducing miles, utilizing the most affordable transport modes, and improving load factors. Cross-docking plays a key role here. Without cross-docking, manufacturers must ensure delivery to multiple stores. With cross-docking, goods are sent to a delivery center, which then delivers items to individual stores. Cross-docking not only allows companies to fulfill orders faster but also reduces storage and inventory needs. Another way to avoid unnecessary expense is by avoiding less-than-truckload shipments.
Efficient 3PL companies can ensure that orders are aggregated by region or customer. Many strategies can help ensure trucks are loaded to full safe capacity, including the introduction of shipping windows and the utilization of pooling strategies for last–mile distribution. Companies can also reduce transportation costs by contracting with 3PL services near major demand centers and by shifting from expensive modes of travel (such as air) to more affordable ones, such as ocean or rail transport.
Embracing Technologically-Centered Performance Management
Transportation Management System (TMS) and Warehouse Management System (WMS) platforms are key for tracking KPIs such as cost per shipment and damage rate. Through these platforms, companies can achieve significant operational savings and reduce inefficiencies.
Today, companies rely on detailed supply chain management dashboards to obtain real-time information on factors such as revenue, shipment volume, fleet efficiency (including average loading times and loading weights), profit by country, delivery status, and average delivery time. They can compare their KPIs to industry standards, ensuring their 3PL suppliers maintain optimal shipment volumes and on-time performance.
Engaging in Collaborative Planning
Companies in logistics and shipping must align not only with 3PL partners but also with all commercial, operational, and logistics teams. 3PL needs vary greatly with market conditions, which is why sharing rolling forecasts, identifying high-demand periods, and pre-securing capacity for low-demand seasons is essential.
Companies can benefit from exchanging data with 3PL providers in a transparent manner. Sharing allows for capacity reservation at better rates, labor planning in warehouses, and optimal equipment positioning. There are many ways companies can reduce costs, including investing in packaging redesign to use transport more efficiently. Wasted space in pallets and trucks increases freight costs, and oversized packaging limits warehouse capacity and increases handling time.
Quality is also key, since poor-quality packaging can damage materials in transit and lead to more returns and customer complaints. Taking time to work with packaging designers can help companies reduce size and void space, fit more units per pallet, and choose a stackable design that improves handling and storage.
The 3PL industry is booming, with companies now able to access numerous suppliers. To ensure cost matches efficiency, companies need to embrace a multifaceted strategy that includes choosing the right vendors, adopting technologically centered performance management, and engaging in collaborative planning. Seemingly small choices, such as packaging, can have a big impact on profits if they are ignored. As such, the choice of 3PL provider should be part of an integrated approach to cost-effectiveness, speed, and excellent customer service.
