Outsourcing with Third Party Logistics

Outsourcing Logistics with a Third Party Logistics Company (3PL) by Fred Miller, SIOR and Sheila Colfer, CCIM as featured in the Northern Nevada Business Weekly What exactly is a Three PL and what are the benefits and potential cost savings to a company trying to get its products delivered in a timely and efficient manner? We had the opportunity to speak with Kasia Wenker,  Director of Distribution Sales  and  Ken Tavener , Vice President of Sales, at  ITS Logisitics Company in Sparks, NV.  As Kasia  describes their services, “they manage all logistics activities for companies so they can focus on their business This process creates less stress for a company.” The 3PL warehouses the product and designs the optimal way for the product to be distributed and transported. They have the expertise to design a program that best suits each individual company. With the experience  of an industrial engineer  they can construct a specific solution that considers product velocity and  configurations that  move products  most efficiently. In addition to gaining their  expertise a company that chooses a 3PL can reduce fixed costs. Their warehouse has no fixed footprint which enables a company to have “rubber  walls”, as Kasia explained.  A company can literally expand or contract depending on market conditions. Using a  3PL also gives a company location flexibility as well.  In addition, it can be expensive for a company to  invest in the technology that creates the best logistics network for their product. To make things even more challenging there are many government regulations that need to be followed as well. ITS  has a dedicated fleet, that with regular shipping schedules produces an excellent  on time shipping record. ( See chart below) There is seamless communication with the drivers so companies can be confident that their products will be received on time. Incidentally with margins so narrow in the transportation industry, even bulk buying power does not create better rates with national carriers. So you may be wondering how much does all of this cost a company and how is it priced? The 3PL will need detailed information about the prospective client.  The company strategy, product size, product weight, labor involved and space requirement  to begin preparing a quote.  3PL’s can also offer food grade warehouses or other specialized climate controlled buildings. What does the 3PL option mean for real estate brokers?  If the company you are representing  may want to consider a  3PL  instead of leasing their own facility a fee arrangement would have to be discussed and handled by a separate agreement.  3PL’s offer many solutions for our clients and can be a tool to help assist a company in one of the biggest investments in their business.  How to select a 3PL. Once a decision has been made to outsource certain processes then a company will begin a search for the right 3PL that fits all their requirements at the best possible price. There are three types of Third Party Logistics Company that operate today.

• Asset Based
• Management Based
• Integrated Providers

Asset based third party logistics companies use their own trucks, warehouses and personnel to operate their business. Management based companies provide the technological and managerial functions to operate the logistics functions of their clients, but do so using the assets of other companies and do not necessarily own any assets. The third category, Integrated Providers, can either be asset based or management based companies that supplement their services with whatever services are needed by their clients. When selecting a 3PL, the request for information (RFI) or quotation (RFQ) should be as detailed as possible. The company that is selected should be able to fulfill all the logistics requirements and that can only be assured if every requirement is communicated to potential companies. The RFI should include a detailed description of the areas to be outsourced. This will usually include:

• The scope of the contract, including locations, facilities, departments.
• Information on volumes involved; number of deliveries, warehouse sizes, number of items, etc.
• The logistics tasks are to be performed, e.g. warehousing, transportation, etc.
• The level of performance required.

After the bids have been received by a company from the prospective 3PL’s, an evaluation would take place where a multi-discipline team will review each bid based on a pre-defined set of criteria. These will include some of the following.

• Does the 3PL provide the services required?
• Does the 3PL have the technology required to perform the tasks required?
• Does the company have the required warehouse space, dock capacity, warehouse personnel, etc.?
• Is the 3PL financially sound?
• Are the 3PL’s geographical locations suitable to cover the network?
• Does the 3PL have the flexibility to respond to changes?
• Are the 3PL’s environmental policies compatible?
• Are the costs of the services detailed enough for comparison to other bids?
• Are the customer references acceptable?
• Is the 3PL a good cultural fit?

When to Keep In House and When to Outsource

Many retailers and merchants are ultimately faced with the challenge of whether or not to keep the storage and distribution of their product in house or use the services of a 3PL (third party logistics) warehouse. Especially as companies struggle with the inherent difficulties of a sluggish economy, the appeal of gaining cost savings through the use of a 3PL can be very attractive. Furthermore, companies that sell product have to remain particularly competitive with regard to selling and marketing their products, as more and more retailers enter the market and cost of advertising increase due to increased demand. Being able to focus on the most critical function of the business, namely securing an ongoing pipeline of business, ultimately positions the company for the greatest amount of success.

Not Always the Best Option

Even still, there are instances when using a 3PL company isn’t the best option. First, if the business isn’t large enough and literally requires ownership to perform some of the shipping tasks because sufficient cash flow isn’t present, then outsourced services obviously won’t be an option. Second, if the distribution process is a “core competency”, then keeping the process in house may serve the needs better for the company. Most importantly, retailers and manufacturers should look at their unique situation and weigh the pros and cons of in house versus outsourcing. This is a very important function of the business, so much care must be taken with the considering all factors within the equation. What does the 3PL option mean for Real Estate Brokers? If the company you are representing may want to consider a 3PL instead of leasing their own facility a fee arrangement would have to be discussed and handled by a separate agreement with the 3PL.  3PL’s offer many solutions for our clients and can be a tool to help assist a company in one of the biggest investments in their business.]]>