3PL Management: Metrics You Should Pay Attention To Best Track Your Performance

Third-party logistics has increasingly played a major role in today’s supply chain. As 3PLs do bring numerous benefits to a business, it is important to leverage this advantage to gain a competitive. 

Nonetheless, this cannot be done if companies do not manage their partner’s performance. In the worst-case scenario, without proper management, your logistics operations will even be affected negatively. This article will take you through everything you need to know regarding 3PL management.

What is a 3PL and why you need to learn how to manage it

3PL (Third-party logistics) definition

The term third-party logistics (or 3PL) describes the outsourcing of eCommerce logistical operations, such as inventory management, warehousing, and fulfillment, to a third-party business. By providing eCommerce retailers with the infrastructure and tools to automate retail order fulfillment, 3PL providers enable companies to enjoy smooth logistics operations while focusing on core business activities.

Why should you know how to manage 3PLs?

Partnering with a 3PL business certainly helps out your business a lot, no matter what size your company is. However, it will not be nearly as effective if you approach 3PLs with a “hands-off” approach. It is true that 3PLs will take care of most of the 3PL operations for you, but you still need to learn how to manage them effectively. After all, this is your company’s operations we are talking about. Managing 3PLs will help you:

• Establish solid and long-term relationships.

• Strengthen your business’ reputation.

• Keep track of the performance and make timely improvements where needed.

• Measure performance per SLA terms.

• Set a stepping stone toward long-term success.

• Make sure the operation runs per your operation to keep up with your competitors.

• Meet customers’ high expectations for a fast and efficient shipping service, especially after Covid19.

On the grounds of these enormous benefits, you should and need to learn how to manage your 3PL providers effectively. This article will provide you with a quick and useful guide to measure your partner’s performance. 

Here is how you should manage your 3PL

No two partnerships with a 3PL provider are the same. Nonetheless, there is still some general rule of thumb you can always refer back to. You know what they say, the foundation is the key to success. 

Communicate, communicate, communicate

It goes without saying that communication plays a crucial role in every aspect of our lives, especially in 3PL provider management. Communication is key to building a strong, lasting relationship; boosting productivity encourages engagement from all parties and even improves customer experiences. Communication plays a particularly vital role at the beginning of your partnership as it helps set the tone for the relationship. 

Furthermore, in the business world, the first impression is everything. Do remember, word of mouth goes a long way, so building solid relationships matters.

Have a contact point

In order to manage your 3PL effectively, assign someone to be your business’s main point of contact. This person should have a certain number of years of experience in the supply chain field and has the capability to make decisions when complicated situations arise. It is a good idea to request your partner to do the same thing.

Doing so helps avoid any possible communication complications and allows for problems to be solved quickly.

Transparency – set clear expectations

Be transparent. Have clear expectations from the beginning and make sure your views are aligned.

Talk to your 3PL partner about the problems that you want to work together to solve, any part of the operation that needs improvement, or any new areas that you wish to tackle. Try to stick to your expectations. It is an even better idea to draft an SLA to refer back to should any conflict arise during the partnership. You and your partner can agree upon the metrics that you would like to track. More on this in the next part of the article. 

Track specific KPIs

This tip is closely related to the emphasis on effective communication. State the metrics that you wish to track clearly. Again, no two companies track the same metrics, so do spend some time trying to figure out what your needs are and what KPIs you find matter and have an impact on your company’s bottom line. 

Moreover, let your 3PL know where the essential data can be collected, what the formula is, and how the metrics are measured. More often than not, 3PL providers can help you automate the KPI measurement process. 

Once again, the metrics you wish to trace, track and measure really depend on your business’ vision and goal. The following are a few suggestions for you to consider. 

• Customer-service rate of satisfaction 

• On-time shipping percentage

• Delivery cost

• Put-away time

• Transportation fee per weight/ unit/ etc.

• Quality assurance and control

• Hours/days of operation 

• Delivery distance/time 

• Safety history cost-reduction objectives

• Fuel-Surcharge Control (FSC)

• Damage or loss

• Lost time or accidents

• Inbound recevint time

• etc.

Have performance reviews

In order to constantly improve, set up regular performance review sessions. Both parties can go over the KPIs and determine what expectations have been met and which ones need further improvement. Some standards might need to be adjusted or processes need to change here and there. 

These reflection sessions give both parties an insightful view of the business operation. You can also generate helpful reports from these meetings – this especially helps if you work in a large company.

Choose credible partners

Choosing a 3PL partner can be considered to be a leap of faith. After all, they do play a huge role in your business – and you also need to learn how to manage your 3PL partner well. Hence it only makes sense for the company to be extremely careful when choosing a 3PL provider. You can always go look for testimonials on your potential partner’s website or ask for a direct review from their client list. Of course, there are also other factors to take into consideration, like their expertise, technology, etc. You can check out more tips to choose a suitable 3PL provider here.

Identify payment schedules

For both parties in the relationship, defining a payment plan can be challenging. You might stop the cash flow if you agree to make monthly payments. On the other side, offering lengthy payment periods might lead to subpar services. 

Therefore, we suggest you keep the payment intervals at 30 days.

Final thought

In light of this information, it is about time for you to take back control of your 3PL. If you have been working with your 3PL provider for a while, maybe it is time to review their performance and how you have been interacting with them. 3PL management matters.