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4STHE 4S: HOW DO YOU BRING PURCHASING

SKILLS TO THE PROCESS OF 3PL SELECTION.

THOMAS L. TANEL, RONALD D. GROSSMAN AND GEORGE YARUSAVAGE

The 3PL contract cycle can be managed

just like any other outsourced services

procurement, and has four distinct

segments that we will call the four S: Source,

Solicit, Select, and Secure. Proper execution

of each segment is essential to developing and

maintaining successful 3PL relationships.

1. SourceFirst you need to identify, clarify, confirm, and

review all transportation requirements, as well

as your internal organisation’s transportation-

related metrics and key performance indica-

tors (KPI). And you need to separate the true

requirements from the ‘nice to haves’ to know

what you really need from logistics service pro-

viders. Then, seek out and analyse any gaps in

performance so you can build corrections into

your tender or proposal process.

Next, gather six to twelve months’ worth of

relevant data and put it into a useful summary

format for use by your potential providers.

If you need to include new 3PL, the next step

would be to identify potential providers. This

can be done through personal references within

the professional network community, or looking

at the providers used by your industry, or even

considering those used by your competitors.

Once you have compiled a list of incumbent and

potential providers, you can narrow the field by

creating and issuing a pre-qualification ques-

tionnaire (PQQ) or request for information (RFI),

which asks all potential providers to fill out your

profile questionnaire and provide the financial

and operating information you will use to qualify

providers for your invitation to tender (ITT) or

request for proposal (RFP) process.

A PQQ or RFI should be sent to all those

who have expressed an interest in supplying an

outsourcer with a particular requirement as well.

The PQQ or RFI is used to select a shortlist of

providers out of those who have expressed an

interest. In addition, you may want to provide

candidates with preliminary, overall informa-

tion about your upcoming solicitation and your

company in this document.

Upon receipt of the completed PQQ/RFI and

your review of submitted financials, insurance

certificates, regulatory authority licenses, operat-

ing and other documents, and references, you

are ready to solicit.

2. SolicitUsing the PQQ or RFI results to identify your

most qualified providers, send each of those

selectees an identical ITT or RFP. This must

include your specified pricing and contract

formats, and should clearly state that alternate

documents, electronic or hard copy, will not be

accepted. You should also clearly state the basis

ITT/RFP timetable, with due dates, milestones,

and targeted conclusion date(s) should also be

included. The ITT/RFP should also define the

requirements for a responsive tender/proposal.

If really needed, you should hold a pre-

tender/proposal conference electronically or in

person, and invite qualified providers to:

their tender/proposal.

As you formulate your tender/proposal package

for the qualified provider sources, you should

also include an information gathering template,

where each 3PL can insert detailed data that

allow you to make ‘apples-to-apples’ com-

parisons. In addition to providing clear instruc-

tions concerning the information you want the

provider to include, we recommend attaching a

copy of your standard contract terms and condi-

tions (T&C) up front, to avoid surprises later in

the process.

The ITT/RFP should establish what is consid-

ered to be a responsive tender/proposal and the

deadline date.

3. SelectNow you’re ready to take all the responding

tender/proposal submissions and conduct due

diligence such as:

compromise or negotiation.

negotiation strategy.

Use analytical tools to select. Do benchmarking

industry comparisons for the type of customers,

facilities, coverage, management and cultural

attitudes, cost models and fee structures, etc.

At this point, it’s also wise to review any noted

exceptions or modifications by providers to the

proposed terms and conditions of the contract,

especially considering how these might require

further adjustment, compromise, or negotiation.

As you analyse each tender or proposal, you

may note areas that require more investigation

or clarification, such as:

is offered?

to accommodate increased demand?

capability and technology roadmap and yours?

-

tices, process improvement, and value

added opportunities?

-

quality, and so on?

Your assessment and final selection of a

contract provider should include these five

critical consideration criteria:

1. Financial strength

THE FOUR S:Source.

Solicit.

Select.

Secure.

MHD SUPPLY CHAIN SOLUTIONS — SEPTEMBER / OCTOBER 2012

OUTSOURCING 49

2. Business experience

of work force.

rates will minimise personnel turnover.

your industry?

3. Business development

services.

-

ous improvement program.

4. Support services

-

ance strategy?

5. Business arrangements

and service levels.

business exigencies.

-

tracts.

operating contract.

Finally, you’ll want to consider conducting site

visits at finalist locations you may not already

50

“A 3PL can perform logistical services that

an organisation is either unwilling or unable to perform itself, but are they as good as

advertised?”

Assessment questions to ask & gauge a first-class third- party provider

department function. Are the process

flow and procedures realistic? What mod-

ifications would you make? Why?

under way for this business process or

department function? What role can you

play to help us succeed? What competitive

advantage can we gain?

system standards affecting this business

process or department function? Is there

a dominant movement? When will these

standards be functional?

-

ments and performance metrics? What can

be eliminated and/or improved? What are

the operational alternatives to our business

process or functional department? Do you

have some better ideas? Do you have better

ideas for handling operational transactions?

purposes? Are there operations being

done in-house that could better be done

by your firm? Would you be willing to talk

about them in more detail?

operation that you, perhaps, could help us

clean up? How would your recommenda-

tions affect our total cost of ownership and

your internal cost profile?

process or function effectively from a

long-range, strategic point of view?

be familiar with. Your site visit team should be

limited to 2 to 5 individuals, and should be

the same individuals for all site visits. Using a

formal checklist, talk with local management,

upper management if possible, and review each

provider’s qualifications, finances, management

philosophy, strengths and weaknesses, and

their ‘strategic fit’ for a long-term relationship.

4. SecureThis final step focuses on finalising and execut-

ing the contracts with your selected providers

and incorporating into those agreements the

measures of agreed performance or structured

service levels that you will use to monitor their

performance. It is imperative that both parties

define their expectations in writing.

To get the most out of your contracting

process, a strong emphasis should be placed

on establishing a mutually beneficial long-term

relationship, where both parties seek con-

tinuous improvement through KPI and user

feedback. You should schedule and conduct

regular in-person reviews with all outsourc-

ing service providers, even those satisfying

all of your KPI, at least every six months, no

matter what the term of the contract may be.

Additionally, a performance report card that

tracks each provider and compares all providers

to each other should be issued on a monthly or

quarterly basis, as resources allow.

Hopefully, everything will be copasetic and

what was promised will be delivered. But just in

case… be prepared to address and reconcile the

differences between what was promised versus

what is being delivered on an on-going basis.

It’s important to consider that both outsourcer

and provider share in the risks and rewards.

Both invest time and resources in the relation-

ship. So, just as in any supplier relationship,

there has to be mutual benefit.

Thomas L. Tanel is president and CEO of

CATTAN Services Group, Inc. a logistics and

supply chain management advisory, counsel-

ling and training firm. Ronald D. Grossman is a

practice leader with CATTAN Services Group, Inc.

and president and CEO of Argee Logistics LLC.

George Yarusavage is an executive consultant

with CATTAN Services Group and a principal in

Fortress Consulting. For more information call +1

979 212 8200, email cattan@cattan.com or visit

www.cattan.com.

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