With literally thousands of Third Party Logistics (3PLs) and Logistics Service Providers (LSPs) scattered around the world, ready to make outsourcing a reality for you, how do you make the selection process less daunting for yourself? 

Evaluating the business proposition for each LSP and 3PL becomes even more confusing when you begin to see that some are asset based, some are management based, some are integrated, and some are administration based. It can be like comparing apples to oranges, at best, to find the best fit for your organization’s unique requirements. In fact, many organizations lack the resources, time, or experience with outsourcing LSPs and 3PLs even to assess the need to outsource or its feasibility objectively. That’s why, when it comes to outsourcing, it’s a good idea to hire an experienced consultant, someone who can provide objective advice and practical assistance - someone who has “been there, done that.”

Whether you enlist additional help from a consulting resource or go it alone, however, you’ll need to apply the same solid purchasing and procurement skills you’ve used in the buying of any type of service (for example, transportation, warehousing, or logistics services) to your LSP or 3PL outsourcing process. You’ll also need to have a fundamental understanding of price versus cost.

What follows is a tried-and-true game plan for achieving a successful outsourcing experience. The process doesn’t have to be cumbersome or overwhelming if you follow the Four S’s.

In principle, outsourcing is a rendition of the sourcing process, of evaluating alternatives and making the best choice of a provider. Therefore, the Four S’s - Source, Solicit, Select, and Secure - are applicable. Our experience tells us that due diligence applied to these four areas will directly impact the longevity and effectiveness of your outsourcing relationship with the LSP or 3PL you select.

As obvious as it may seem you need to review, identify, and clarify the Business Process Outsourcing (BPO) requirement. You’ll need to review the internal organization metrics and Key Performance Indicators (KPIs) for the function, department, or process that will be outsourced. Then you will analyze gaps in performance, establishing which are most critical. Gathering data and manipulating information will be done by compiling six to twelve months’ worth of history and activity requirements, in detail.

The next step is to obtain feedback on potential LSPs or 3PLs. This will necessitate a Request for Information (RFI). You will then need to prepare a profile questionnaire for the prospective providers to complete. Once a list of potential sources, both current and new, is prepared, you can review their profiles. Additionally, you will provide candidates with preliminary information about your solicitation and about your organization. Upon receipt of the completed RFIs and your review of submitted financials, insurance certificates, authority and operating documents, and references, you are ready to Solicit.

Based on the RFI results, decide which providers will receive a Request for Proposal (RFP). Refine the list of prospective providers, based on their knowledge of your industry, their outsourced process orientation, and their geographic capabilities, discerning how consistent these factors are with your particular needs. When you Solicit, you also need to determine your preferred pricing and contract formats. Specify whether the bid or proposal is defined by the following:
• Traffic lane or facility allocation
• Geographic region
• Complete scope or network

If at all possible, you should hold a pre- proposal conference to invite qualified providers to:
• Discuss expectations
• Hold a question and answer dialogue
• Exchange feedback prior to submission of their proposal.

As you formulate your bid/proposal package for qualified provider sources, you should also include an information gathering template, where each LSP or 3PL can insert detailed data that allow you to make “apples-to-apples” comparisons. In addition to providing clear instructions concerning the information you want the provider to include, we recommend attaching a copy of the anticipated contract’s terms and conditions, up front, to avoid surprises later in the process. The RFP should establish what is considered to be a responsive bid/proposal and the deadline date. 

Look for the other two Ss in our August e-news!

Thomas L. Tanel, CTL, C.P.M., CISCM, is the President and CEO of CATTAN Services Group, Inc., specializing in Logistics and Supply Chain issues. He is also the Chair of ISM’s Logistics & Transportation Group and can be reached at tanel@cattan.com or (979) 260-7200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.