Business owners who decide to use third-party logistics providers (3PLs) for their fulfillment – or in other words manage some or all of their supply chain – will need a way to measure their performance. 3PLs manage the logistics of a supply chain, providing everything from warehousing to transportation and many other areas of supply chain management. However, finding one that can keep up with your business needs can be a challenge. In this article, we will take a closer look at how you can measure KPIs for 3PLs to find one that can help you achieve your business goals.
Managing your 3PL’s performance can be tricky when you’re first establishing a relationship together. Let’s take a look at some potential problems and offer some tips on how to mitigate them.
It is wise to designate a senior employee, ideally a manager or owner experienced with the supply chain of your organization, as the single point of contact with your 3PL. You can then request that your 3PL designate someone on their end who will deal only with your chosen representative. This will reduce the problem of having “too many cooks in the kitchen” and eliminate many communication issues that can arise. Your appointed contact person should have the necessary decision-making capabilities for speedy problem resolution.
Because you are entering into a partnership with your fulfillment provider, you must set your expectations clearly at the beginning and do your best to stick to them. Define exactly how issues are resolved right from the start. You may find it useful to utilize Key Performance Indicators (KPI) to assist in setting your expectations. This will also help your 3PL know whether they are meeting your needs or have areas for improvement and will mitigate lengthy discussions on success versus failure.
It is helpful to lay out periodic, formal performance review periods that allow both you and your 3PL to examine the KPIs you outlined (as described above) and adjust your performance standards as needed. You might also find this step useful to create progress reports if your organization is quite large.
Your 3PL is essentially your business partner, so it’s important to inform them of any product or organizational changes that might affect the relationship. Even large organizations could easily lose sight of this and miss out on opportunities by assuming their partner “already knows” what’s going on. Open communication will solve many problems down the road and also make your 3PL a more effective partner.
The best way to ensure a smooth relationship up front is to design a formal escalation procedure and stick to it. You may wish to maintain a chart showing this process. Because 3PLs can have issues ranging from quality control to costs to customer demands, if an issue is not satisfactorily resolved it will prove helpful to chart a path and keep track of these trends to improve future resolutions in whatever area the issue(s) may originate.
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There are many important KPIs you will wish to track when setting up your relationship with a 3PL, and we’ll take a closer look at those here. You will want to add these to your service agreement or Quarterly Business Review (QBR). Keep in mind that not all of these will apply to your organization, depending on what level of services you’re requesting from your 3PL. On the other hand, there may be some not on this list you might want to add to your tracking list. This is an important area to consider and revise based on your organization’s size, product line, level of service, and many other factors.
Creating the proper foundation for your 3PL relationship will go a long way toward determining success. By using the steps shown below, you will have a much better chance of achieving the success both you and your 3PL desire.
Related: How to Improve the Order Fulfillment Process
Selecting a Third-Party Logistics firm can be a daunting task. The time and cost associated with it may even prove too much for some companies, depending on their size and needs. However, using the tips outlined above, you can minimize the pain associated with it and find the 3PL that’s right for you. Ship My Orders is a leading 3PL company that, unlike other 3PLs, combines industry expertise with cutting-edge technology to provide tailored logistics solutions, ensuring your business operations run smoothly and efficiently. Request a free quote today.