3PL Selection Factors
Why did you choose your 3PL?
Was it really only about price? What sets one logistics provider apart from the other? What factors led to you choosing a certain 3PL provider over another?
These are a few questions that I have struggled with over the years in finding factors that set one 3PL provider over another. 3PL’s typically offer similar services, have comparable rate structures, and operate in similar geographic locations. So what is that really sets a provider apart from the other?
Is it really only about price?
In my experience, there are two types of customers. One that is focused solely on the concept of price, in other words, how much is going to cost me? I find that these customers are typically the first ones to complain when a shipment goes awry and will change providers at the drop of a dime.
The other is the customer that recognizes the overall value add that a company can bring to the table. They recognize the importance of good I.T. systems. They value customer service. They understand the importance of developing a partnership with their providers. They understand that shipment problems will occasionally arise and value the pro-activity of a partner who quickly resolves shipment problems. This type of customer recognizes that although price is a major factor, it is not the only factor. They are willing to pay a little more for the piece of mind that their provider is working hard for them.
What sets one logistics provider apart from another?
Is it really the concept that bigger is better? Is it their overall product market share, global scope, menu of logistics services, overall logsitics spend, rates, I.T resources? The list could go on and on. I recognize that the items I just mentioned absolutely play a critical role in differentiation from a competitor; however, I would suggest that the biggest differentiator is CUSTOMER SERVICE. Afterall, 3PL providers are in the business of service. They typically do not own their own airplanes, ocean vessels, trucks, etc. so the best way to establish that differentiation is through the level of service they provide. How good is your provider’s local operation in responding to your needs? How quickly does your sales executive follow up when you request information, rates, etc? When issues arise, does your provider try to hide the details and brush them aside or are they open and honest in their dealings with you?
What factors led to your selection of your current 3PL provider?
I would be interested to hear what factors you as a shipper take when selecting a 3PL provider. What is the main reason for putting your business out for RFQ? Does your decision hinge on price, service, scope, systems, geographic reach, or some other determinant factor or is it a combination of factors?
Drop us a line and let us know.
Brian on Fri, 23rd May 2008 2:34 pm
I totally agree with your post. As a business owner of a 3PL called SBC Fulfillment, we try to instill Customer Service in all our employees. The main reason we have been able to grow our small business has been through word of mouth because of our commitment to customer service. We do not do much sales and marketing, instead we focus on providing the best service we can and let our customers market for us.
Conversely, I was recently importing a container for a customer, using their freight brokerage agent. The Freight Brokerage Company was so rude that I will never use them. Nor could I recommend them to any of my customers. Not only did they lose me but they lost everyone I know.
Customer Services is king if you are in a service business. Never forget what business you are in…..
Clement Wan on Sat, 24th May 2008 1:02 am
I agree and have enjoyed this blog for a while now. I’d like to say that we’re always in the latter grouping of clients but sometimes our projects are highly price sensitive but this is not to say that we’ll also give our business to the lowest bid. We may not jump based on one or two hundred dollars but if costs exceed 10-20% for services/features we not or will likely not use, a friendly agent only goes so far. To us, IT is important, local representation is important from where we ship out of across China and also to where we ship to in North America but what I find is that we’ve been able to generally negotiate pricing with preferred vendors that reflect our requirements. You make an excellent point though, we have switched on the basis of poor customer service and/or learning that pricing we have been getting have exceeded 20% over other comparable 3PL’s.
Splatty on Sat, 24th May 2008 11:15 am
Hi Brian…I appreciate your comments. It’s amazing how many people in the industry do not get the simple fact that customer is king. In this highly competitive industry where the large keep getting larger through acquisitions and gobbling up market share, the best way for the small to mid size companies to compete is through superior customer service.
Splatty on Sat, 24th May 2008 11:21 am
Hi Clement…I’m glad to hear you are enjoying the blog and I hope you continue to find it useful.
It’s nice to hear your input as a shipper. Don’t get me wrong, I absolutely believe that price is a major consideration in selecting a freight forwarder. If a forwarder cannot be competitive in terms of price (i.e. 20% higher) then typically no amount of customer service can make up for that fact. It sounds like you have a great approach in analyzing price and service from your current providers. It’s always to good to keep them on their toes just to make sure you don’t run into the situation you described above in regards to learning that your current pricing was 20% than fair market value.
Michael Arvidsson on Wed, 28th May 2008 12:33 am
Hi
I run a consutansy in Sweden working with 3PLs and shippers who are in the process of outsourcing. My experience is that one of the major factors influencing shippers willingness to look beyond the price tag is the ability of the 3PL to explain the value their services add to the shipper. The 3PLs that manage to discuss solutions rather than prices with their clients are specialized in their clients industry and understands the business their clients are running. Effective 3PLs has gone beyond price discussions and focus on cost discussion based on the solutions they deliver. If you want your clients to listen to arguments about costs rather than price you have to understand the logic of your clients business and how they make their money. When marketing and sales can make 100% difference in the price your client get for their product the 3PLs that can explain the impact on sales figures of a logistics solution gets a fair chance to get a fair price. 3PLs has to look beyond logistics and understand that they are a small piece of the machinery that makes it possible for shippers to stay in the market. If a 3PL supports product development, marketing and sales the value added makes it possible to get a fair price. In order to do that 3PLs has to specialise.