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Your company likely already has a relationship with at least one third-party logistics (3PL) provider. Whether your organization is updating its supply chain strategy or just needs to change partners, engaging with a 3PL is a complex decision with significant stakes for your business.

Finding the right fit is essential. Which supply chain functions should a company keep in-house and which activities should a 3PL take over? There’s no easy answer for any shipper. In this post, we’ll review critical factors you should consider to find a 3PL that meets the needs of your business.

7 factors to consider when looking for a 3PL

Total value

A 3PL should deliver added value as well as cost efficiency at a time when shipping and labor costs remain high. Overall, a 3PL can provide capabilities that a company would otherwise need to develop or invest in, such as information technology, warehouse automation, experienced staff and prime locations.

Engagement level

Some shippers rely solely on 3PLs to manage their entire fulfillment operations. Others depend on 3PLs for specific segments or geographies. For example, some warehouses are set up for pallets or full case quantities but are not configured to efficiently pick, pack and ship individual orders for e-commerce delivery. Companies can focus on their capabilities and rely on specialists for the rest.

Network design

A national distribution center footprint can reduce delivery schedules and freight costs, so consider existing and projected market forecasts to ensure you have capacity where it’s needed. Regional distribution centers can send packages with one- or two-day delivery at lower costs than shipping across multiple zones.

Alignment with values and business strategy

A 3PL relationship should be a collaborative process, starting with a jointly developed statement of work to reduce unanticipated expenses. A truly mutual partner will ensure the onboarding process is comprehensive and fair.

Specialized expertise

For supply chains with specialized requirements such as climate control or hazardous materials, an experienced 3PL brings experience and infrastructure to handle the workload.

Value-added services, such as reverse logistics, kitting, bundling, customization or other specialized handling, are critical factors in determining compatibility with a 3PL. The right partner will explore your needs for the future.

Systems for shared process improvement

A 3PL and its customers should have systems in place for continuous improvement, using frameworks such as Lean or Six Sigma. The process should include root cause analysis for long-term process improvement. Regular communication — such as quarterly business reviews and daily conversations as needed — builds the relationship for the long haul.

Commitment to sustainability

Environmental, social and governance (ESG) reporting is becoming increasingly common, as companies must track risks such as carbon footprint and exposure to forced labor. Companies are being held accountable by governments, non-governmental organizations, investors, customers and other stakeholders to know where their products come from, where their products have been and where their products are going.

To effectively manage that information in its supply chain, a company needs visibility and transparency from its partners. As regulations on environmental sustainability and carbon emissions come into force, reliable information sharing and technology to enable it will become a requirement for 3PL relationships.

Your 3PL is an extension of your business

For many companies, the 3PL manages the customer-facing relationship through last-mile parcel delivery, pallet delivery and drop shipping. To the customer, the 3PL is your company. Deciding which 3PL to work with is not simply about saving money. Instead, it is about consistently delivering the best value and experience and doing that as efficiently as possible.

Your supply chain should reinforce your value proposition in the marketplace, and a 3PL with the right fit can make that happen.