What’s Included in a 3PL Evaluation?

The 3PL Evaluation and Selection process was an important topic of discussion at our recent Supply Chain Secrets Free Seminars. The subject of course was  Logistics Outsourcing. Having been involved in 100+ Logistics Outsourcing projects, I was sharing this experience and stressing the important aspects of the 3PL evaluation and selection phase.

What is a 3PL Evaluation, and why is it important?

A 3PL evaluation is key to finding the right 3PL provider for your business. It’s about assessing the capabilities, services and alignment of potential providers to your business and its needs. A well structured 3PL evaluation can ensure you find a provider that can meet your needs, improve your supply chain and overall logistics performance.

By evaluating all of the potential logistics providers available to you, you can find those that can run your logistics operations successfully, so your supply chain runs smoothly. Evaluating 3PL providers is essential for several reasons:

1. Improved supply chain efficiency: A proper evaluation will help you find providers that can improve your logistics operations, reduce costs, and enhance overall supply chain performance, which ensures that your supply chain runs smoothly and efficiently. .
2. Enhanced service quality: By assessing a provider’s service quality, you can ensure that they meet your expectations and provide high-quality logistics services. This is crucial for maintaining customer satisfaction and loyalty.
3. Better risk management: Evaluating providers helps you identify potential risks and mitigate them, ensuring that your logistics operations are secure and reliable. This includes assessing their contingency plans and security measures.
4. Increased operational efficiency: A well-structured evaluation process helps you identify providers that can optimise your logistics operations, reduce costs, and improve overall operational efficiency.

With these fundamental evaluation criteria in mind, every organisation must develop a systematic approach to assessing potential 3PL partners. And, a well-structured evaluation template serves as the cornerstone of this process, ensuring that all critical aspects are thoroughly examined and scored objectively.

3PL Evaluation Template

We must assume of course, that prior to this stage you’ve ensured that you have a shortlist of suitable 3PLs.  You will have carefully selected them based on your specific needs and the 3PL’s experience and capability.  (These elements are covered elsewhere in this blog in articles and videos)

So here are some key points about the 3PL evaluation phase:

1. Make sure you have prepared an ‘objective‘ scoring or ‘evaluation‘ process.  This may often be a spreadsheet with your key evaluation criteria listed and weighted according to your needs.
2. Then, try to ensure that your RFT (Request for Tender) response format, matches this evaluation format.  This makes the evaluation process a lot easier.  For example, if key criteria #9 is asking for details about similar contract implementations, that make that ‘section’ 9 of the RFT response template.
3. Try to have a cross functional team involved in the 3PL RFT evaluation process.  I always try to include managers from all key functions impacted.  These might include Logistics, Production, Sales, HR, IT, Finance, Quality and others.  You might even consider asking ‘external’ people to join your evaluation team?  Perhaps you have a friend who has been through the same process in another organisation?  All subject to the appropriate confidentiality arrangements of course.
4. And now the most critical element of the 3PL evaluation phase.  Remain OBJECTIVE for as long as you can!  This is why I stress the essential nature of scoring or evaluation templates.  It makes each member of the evaluation team think about their scores, and justify scores that are significantly different to other members of the team.  This is OK of course, because they make have seen something others missed.  But at least the difference in score is identified and investigated.

Here’s an example of the type of 3PL evaluation template that I often use.  It’s just a small part of it.  As you can see, there were 83 different 3PL evaluation criteria.  But this was quite a complex contract.

While the evaluation template provides the structural framework for assessment, it’s crucial to understand the specific factors that demand careful scrutiny during the evaluation process. Each of these factors contributes to the overall effectiveness of your logistics operation and requires detailed examination to ensure alignment with your business objectives. Let’s explore these key evaluation factors that should be weighted and scored within your assessment framework.

1. Inventory management: The first question we often ask is: can they manage your inventory effectively, including storage, tracking and reporting? Inventory management is key to keeping stock levels and meeting customer demand, and is at the crux of your logistics operations.
2. Supply chain operations: Next, can they manage supply chain operations, transportation, warehousing and distribution? A provider with strong supply chain management can get goods to you on time and in full.
3. Key performance indicators (KPIs): Next assess the provider’s ability to meet your KPIs, including on-time delivery, order fulfillment rates, and inventory accuracy. KPIs are essential for measuring the provider’s performance and ensuring they meet your standards.
4. Service level agreements (SLAs): What are their SLAs, service quality, response times and issue resolution procedures? SLAs are key to setting expectations and making sure they meet your service requirements.Risk management: What are their risk management strategies, security, insurance and contingency planning? Risk management is key to protecting your supply chain from disruptions and business continuity.

This evaluation criteria provide a robust framework for assessment, the final selection process requires a structured approach that combines both quantitative scoring and qualitative assessment of cultural fit. This comprehensive evaluation methodology ensures that organizations can identify partners who not only meet technical requirements but also align with their operational philosophy and business objectives.

3PL Selection: Choosing the Right Third Party Logistics Provider

When is comes down to the final selection process here are my key tips.  Maybe you have some you could add in the comment section below?

1. Aim for three 3PLs to be in the final selection process.  Why three?  Here’s my simple logic.  You don’t want to be left with one.  that leaves you no choice. And if you are left with two, and one falls out….  So aim for three well qualified and capable 3PLs to make it to the final evaluation stage. This may mean you start the RFT process with five or six.  (this allows you to assess the capabilities of new participants of those who have recently added to their service offer)    If you are an ‘informed’ buyer, you certainly don’t need to approach more than five or six.
2. Ensure that all finalists meet the minimum standards of your selection criteria. As an informed buyer of 3PL services, this is vital.
3. Involve the whole evaluation and selection team in ranking the final three 3PLs.
4. Make sure you include meetings with the 3PL finalists and visits to the 3PL sites, as part of the selection process.  Meetings at this stage will typically review resourcing, pricing, IT, contract structure, KPIs and implementation plans (and team).
5. Then finally, go with your GUT. Does that sound strange?  Not really.   Once you have gone through the objective evaluation and selection process, you should be left with three 3PLs who ‘on paper’ at least can do everything you require, have the right capabilities and experience and are in the right ‘ball park’ regarding costs.  So you now have to decide who feel confident will do the best job.  Who you want to work with?  Who you feel a high level of trust with?  That’s why the very final stage needs to ‘tap into’ your gut feel.  Because it can’t be measured.  It’s ultimately about people.

I hope your own 3PL evaluation and selection process works well for you.  Perhaps you gained some additional ides from this post?  I hope so.

Best Regards,
Rob O’Byrne
Contact Us or +61 417 417 307