Third Party Logistics (3PL): Search And Selection
Our client, headquartered in the US, is a multinational company that produces many products and vaccines to assure the well-being of domestic pets, farm animals and wildlife. It has more than fourteen percent share of the global animal healthcare market.
As a result of a distribution network redesign initiative that we completed in which we recommended that our client to consolidate operations in two distribution centers (DCs), we were engaged to manage the process for assessing and selecting the 3PL or 3PLs to distribute their products.
The locations for the distribution centers were:
- A Central Distribution Center (CDC) located in or near Memphis, Tennessee.
- A Regional Distribution Center (RDC) located between Allentown and Harrisburg, Pennsylvania.
The search extended to 3PLs with existing or planned distribution capacity in Memphis and Eastern Pennsylvania as well as to different providers for each location.
The services to be provided included:
- Managing and staffing the operation(s) to support the anticipated workloads.
- Receiving container and truck shipments of products from overseas and domestic plants. Note: Some containers received from overseas are floor loaded.
- Maintaining adequate storage capacity and complying with all governmental regulations and client specifications related to product storage.
- Complying with specific environmental requirements:
- Most of the products require temperature controlled storage (59 – 86°F)
- A limited portion of the products require cold storage (35 – 45°F)
- A small number of the products are Class 3 Flammables and Class 9 Misc Hazardous
- Fulfilling orders, including picking, packing, checking, shipping and the production of associated documents and labeling.
- Maintaining accurate inventory controls (product, lot and quantity) and conducting physical counts to confirm inventory levels.
- Complying with service performance requirements and reporting actual performance levels.
- Filling and shipping 98 percent of the delivery orders received by 5:30 p.m. local time on the day they are received.
- Performing other services as required/needed (carton labeling, carton sealing, etc.)
The deliverables from the 3PL Search and Selection included:
- The recommended overall best candidate providers (finalists) with whom to negotiate an agreement.
- A brief negotiation positioning strategy for each candidate provider.
- RFP responses with an evaluation matrix.
- 3PL requirements/selection criteria.
The methodology we used to create the deliverables included:
- Develop a comprehensive initial list and gather preliminary information on potential 3PL warehouse service providers to support the distribution network strategy.
- Issue a Request for Information (RFI) to as many as 20 to 30 service providers.
- Meet with management to structure the work, review the 3PL requirements/selection criteria and the initial list of potential service providers.
- Refine and prioritize the operating requirements to focus the list of potential candidate providers.
- Prepare and issue a Request For Proposal (RFP) to a short list of candidate providers.
- Evaluate the RFP responses to identify best candidates to support the new network from the perspective of:
- Cost (start-up and operating)
- Service performance
- Financial strength
- Physical characteristics (plant and equipment)
- Industry experience
- Overall capabilities
- The overall best (finalist) candidate providers.
- A brief negotiation positioning strategy for each recommended candidate.
The selection process yielded substantial cost reduction benefits. Proposals from two well qualified 3PLs that could satisfy all the service requirements projected annual operating costs that were one million dollars below the conservative projections made during the development of the distribution network strategy. Then, we developed a customized negotiation strategy for our client to use with each of the two candidate providers. Subsequently, our client negotiated with the providers and selected the one with whom they were the most comfortable.