Choosing a third-party logistics (3PL) provider is one of the most important decisions your company can make — after all, your 3PL provider will be tasked with the vital responsibility of ensuring that your products are delivered into your customers’ hands at the right time, for the right cost. That’s why you’ll want to shop around before settling on a partner — a process made considerably easier by having a strong request for proposal (RFP) process.
If done well, an RFP can attract a 3PL partner that meets all of your warehousing and fulfillment needs. Emphasis on the done well: Most 3PL RFPs lack the specificity to warrant providers’ attention, let alone give them enough information to craft a suitable response, so it should be your goal to be as clear and specific as possible.
To ensure the success of your 3PL RFP, it is essential to start with a complete understanding of your business needs and how you expect your 3PL provider to help address them. Consider the goals of your various sales channels, what level of optimization and operational efficiency you require, what your current costs are (and how much you hope to save), what challenges you’re currently facing and so on before you get started. Your current technological capabilities and needs, as well as your in-house ability to effectively work with an outsourced logistics provider, are two critical areas of importance often overlooked in the 3PL selection process. Once you’ve settled on an answer to these and other important questions, use these 12 items to begin crafting your 3PL RFP:
In order to protect all parties involved in this strategic endeavor, the first step in the process should always be a non-disclosure agreement (NDA). An executed NDA not only protects your confidential business and supply chain information but also protects the 3PL’s competitive interests and ability to bring forth a solution tailored for your business. This is a critical step to ensure that the relationship starts from a point of transparency and trust.
This is your opportunity to tell prospective 3PL partners about what your company does, what sets it apart from competitors, what your product delivery philosophy is, why you’ve submitted an RFP and what you hope to achieve through your partnership. Third-party logistics providers typically receive a continuous flow of RFPs, so the more compelling a case you can make for your company, the better.
[Recommended subcategories: company, product delivery philosophy, project goals]
Use this section to create a timeline for the 3PL RFP submission and selection process. Be sure to include specific milestones — such as the date by which respondents should confirm their intent to participate, the date by which any follow-up questions are to be submitted and the final RFP due date and award notification — and make a note of who is responsible for each milestone (either your company or the respondent). Be sure to provide contact information should prospective partners have any questions about the timeline.
Similar to schedule, this item sets an expected timeline for the duration of your relationship with a 3PL provider; this can range anywhere from a few months to years, depending on the nature of your fulfillment needs.
Different 3PL solutions come with many different pricing structures — cost-plus, transactional, fixed variable, fixed variable with incentive and so on. It is essential that you understand your supply chain cost structures, your landed cost threshold and your business cash flow requirements in order to evaluate the various pricing structures you will be presented with. You’ll also find more success and opportunity to realize cost benefits by understanding how this decision affects long-term capital investment requirements, including technology and warehouse infrastructure such as racking and materials handling equipment.
To get exactly what you want out of a third-party logistics provider, you need to be specific about your expectations. In this section of your 3PL RFP, clearly outline what components should be included in each respondents’ proposal (and accompanying presentation, if relevant), as well as provide any additional pertinent details.
[Recommended items to include: logistics concept, variable handling (per outbound shipment), location, startup costs, 3PL equipment responsibilities, storage, assorted fees (management, accessorial, customization, etc.)]
This section should not only provide the criteria by which respondents will be assessed, but also explain the selection process — for example, who within your company will be responsible for evaluating incoming proposals, how many stages the selection process will include, and so on. Whether you provide a definitive rubric by which respondents will be “graded” or a general idea of the most important criteria, this can help ensure that only well-qualified 3PL providers respond.
[Recommended evaluation criteria: pricing, management structure, past performance, KPIs, industry references, average implementation timeline (for projects of a similar scope)]
In order to craft custom solutions, services and strategies that meet your fulfillment needs, prospective third-party logistics partners must first understand the current state of your business. Provide an overview of current business operations, including items such as your product portfolio, where your products are sourced from and how custom orders are processed, so that respondents can more efficiently work to resolve your business challenges.
This is your opportunity to outline partner expectations as they pertain to specific Service Level Agreements. For example, for service requirements, you might list expected utilization rates during peak inventory periods; for inventory management, you might indicate expected inventory levels relative to days of inventory on hand. Detailing your safety, service, quality, cost and inventory expectations allows for a better fitting solution from the 3PL.
[Recommended service areas to include: site requirements, quality control, order fulfillment, inventory management, inbound/outbound transportation, returns, value-added services, order management, customer service and system, hardware and software requirements]
The more uniform 3PL RFP responses are, the easier they are to compare — therefore, it’s in your best interest to create a framework that respondents can use when drafting a proposal. This framework should include:
When it comes to finding the right 3PL provider, you might not give much thought to company culture — after all, things like product delivery philosophy and positive references likely seem more important. The reality, however, is that culture matters more than you might realize, and a lack of cultural alignment could easily send your partnership off the rails. You might, therefore, consider including a section in your RFP that defines the specific cultural characteristics you’re looking for in a 3PL partner, such as an eye for innovation, a commitment to continuous innovation, an emphasis on engagement and so on.
To keep it simple, look for insight from a cultural perspective on these four critical areas:
Conclude your 3PL RFP with any additional questions you might have for respondents that didn’t fit with any of the other items mentioned above, but that might affect your final decision.
Although not specifically a part of the RFP, the importance of site visits cannot be overstated. Allowing the 3PL to visit your current distribution operation, along with visits to the 3PL’s current and/or proposed facilities allows both parties to experience each other firsthand both operationally, as well as personally.
Another important factor to consider when evaluating 3PL RFP respondents is whether they have ideas about how to optimize for the future. Even if you’re only interested in retaining their services for a one-off project or a limited period of time, a 3PL provider with vision is an invaluable resource, one that could offer innovative solutions to your most complex logistics challenges or ideas on how you can streamline operations and grow your business.
As always, if you have any additional questions, don’t hesitate to contact the supply chain experts at LEGACY SCS.
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