Technology September 10, 2010
A Reflection of Service?
How many times have you received a quote for a service and you believed that it was too high? You diligently did your homework and gathered some quotes from other providers to ensure that the service quoted is competitive and a reflection of what the current marketplace will offer. Once you compare the quotes-the question often becomes: Which competitor is going to provide me with top-of-the-line service and at a fair price? 3PL providers and prospects do not operate any differently. In fact, as a salesperson, I get to listen to the prospect ask all the time-well your quote, at times, is higher or lower than the rest. I always respond by walking the client through the service quoted and the value that our 3PL will provide for the rate that has been quoted. It is my job to convince the prospect that the rate quoted is a reflection of our service levels and our ability to get the job done right the first time.
The Perfect Order Index
Within any industry, mistakes can happen. Taking responsibility for the mistake and correcting the service failure can be costly especially if it happens on a consistent basis. Think about the amount of labour that goes into fulfilling an order for a customer; handling of the inbound product, replenishment of cartons to a pick line or pallet position, processing an order, picking an order, quality check, calling the carrier, staging the product, and finally but not limited to, freight co-ordination. There are a host of reasons as to how and why an order does not get to the right place or with the correct item inside. Depending on the error, majority of 3PL's will gladly right the wrong and absorb the full or partial cost for the error that was committed in the first place. That said, when comparing quotes from 3PL providers, take a look at the lowest priced services that have been quoted in relation to order fulfillment and ask the salesperson: what is your current perfect order accuracy rate? The "perfect order index", consists of: on time delivery, on time shipping, order accuracy, correct documentation received, and damage free shipment. If the order fulfillment rate is too low- do not be surprised if you get what you pay for. The low fulfillment cost quoted could be a reflection of potential poor service levels. At McKenna, our perfect order index is 99.89% for the month of August. Our rates are a reflection of our service levels and we stand behind them.
3PL Cost A Key Factor To Choosing a Provider
Take a moment to think about what the key factors are when choosing a 3PL provider. Both parties are essentially entering into a strategic partnership in an effort to grow and sustain a profitable business relationship together. That said, prospective clients will need a 3PL that has a long standing reputation in the industry, has grown in size over time, and can offer long term partnership proposals and value add services. The last thing a client wants to hear after on boarding their product and starting a distribution relationship is that the product has to be removed ASAP because the 3PL is closing down. When receiving prospective quotations for 3PL services, it is important to ponder who is gaining in this relationship? Ultimately, both parties should be. 3PL costs should reflect service levels. Therefore, if you pay a fair price or what appears to be higher than the competitors-you should have a sense of comfort that you will get fair or better service levels.
Consider What Services You Need
Overhead costs and quoted services go hand in hand. For instance, if you decide to go with a 3PL provider that offers pick to light, voice pick, RFID (radio frequency identification) technology for order fulfillment, sophisticated and flexible EDI (Electronic Data Interchange) capabilities, warehouse management systems, invoicing capabilities, web portals, and inventory management abilities, to name a few-then chances are you are not going to get the lowest quote for 3PL services. Similarly, the 3PL may have multiple buildings that are leased and/or owned and total over 100,000 SQF versus a 3PL that may be occupying a smaller square footage footprint such as 10,000 SQF. Overhead costs, use of sophisticated technology, and other value add services will all be factored into the quoted 3PL services. Consider what services you need for your business model and choose a 3PL that meets and can eventually exceed your demands.
3PL Costs is a Service Level Indicator
One of my favorite quotes relating to business is, "if you do a job do it right or there is no point". When researching and comparing quotes from 3PL providers, keep this quote in mind and refer to it when reviewing each proposal. At the end of the day, if you get super cheap pricing, you may get cheap service. Ultimately, 3PL costs should be an indication of the service levels that you are paying for. You may save now with the cheapest quote but pay much more at a later date.