Choosing a supply chain logistic partner is a significant step. Ideally, it's a relationship that stands the test of time as both parties develop a deep understanding of each other's values and priorities. It's worth spending time understanding the capabilities and strategies of your potential partners. Making the right decision can boost your company's profitability and customer service performance. Entering into a relationship founded on misaligned expectations could prove costly to everyone involved.
As you're considering a partner to outsource some or all logistics operations, develop a list of questions that will reveal the information you need to make an informed choice. It's likely your list of requirements will be long as you interview prospective partners, and you may have a formal process in place. We think these 20 questions provide a solid foundation for understanding the value and capabilities that a potential logistics provider can offer.
What are your inventory management capabilities?
While overall capabilities are essential, the inventory management system is vital. Ensure your provider offers real-time inventory tracking, especially in a forward stocking location. As inventory moves from a centralized point to distributed warehouses, it's more challenging to avoid any inventory discrepancies.
What type of customers do you work with?
Ask about the types of customers they usually deal with. It's helpful if they have experiences with similar businesses. Requirements for medical devices are different than food & beverage, for example. Managing service parts for machines may require different capabilities than medical devices. Understand the vertical industries the provider specializes in. It's beneficial to use a facility along with other customers involved in similar types of products or parts.
What are your transportation capabilities?
Ask about the transportation capabilities in terms of pickup and drop-off expectations at a site. Understand the courier capabilities for on-demand, critical inventory components. Be aware of the hours of operations, staff coverage, and fees for non-business-hours services. Ask for their on-time percentage for SLAs. If you need all-hours, on-demand shipping in a next-flight-out situation, make sure the provider and their site are TSA approved, or any partner they're utilizing is TSA approved.
What is your coverage/footprint?
Look at the geographic coverage or footprint that a provider offers. The provider may have owned assets as well as subcontracted assets that can be accessed as needed. The ability to scale with customer demand and SLA requirements is critical when looking for a partner. Depending on SLAs, it may be necessary to have multiple sites close to demand points or have multiple nodes in a given market. It's not always possible to forecast new requirements or additional customers. Can your partner keep up as your business evolves along with your customers?
What are your IT capabilities?
Deep dive into IT capabilities. Understand if integrations such as APIs or EDI will be required. The provider must be able to meet your needs from a flexibility standpoint and have integration and connection capabilities to tie into your existing systems. If they offer a standalone platform, make sure it's robust enough and configurable to make changes when they come up and doesn't require excessive internal resources.
What value-add services do you offer?
If your operations require assembly, packaging, kitting or other customized services, check on the capabilities and costs. Ask about how they would handle high-priority situations on an exception basis – are they flexible enough to make sure you can service your customers?
What is your fee structure?
Make sure pricing is transparent for basic operations such as receiving, storage, pick and pack, and shipping. Ask about hourly, per piece or flat-rate charges for special handling or ancillary services beyond the basic agreement.
What is your inventory accuracy?
Your outsourced logistics provider should have excellent management technology and controls to avoid stock-outs and incorrect order fulfillment. RFID technology provides hands-free tracking of products inside the four walls. Bar codes are effective as well but require human action, which can lead to errors.
Do you have capacity constraints?
Make sure your partner can scale if demand spikes or your plans change. Multi-tenant warehouses typically offer more flexibility in the same location. Distributed warehouses allow you to tap capacity across a broader geographic footprint.
Can we use your shipping rates?
Due to the volumes they ship, an outsourced logistics provider will likely have negotiated discount rates with carriers of all modes. You might be able to save with lower rates or consolidated shipments.
How do you measure performance?
Discuss relevant KPIs and how those support your business goals. Look for regular reports on fulfillment lead times, fill rates and order accuracy, as well as damaged or missing goods.
What is your implementation process?
Ask what's required and how long it will take to stand up the operation. Will it be a matter of weeks or months? You need to know about any IT or equipment requirements. Find out if the partner provides training on their systems and processes for your staff.
How do you handle returns?
Return logistics can be a deal-breaker, so make sure this process is built in from the beginning. Understand how your procedures can align with the logistics provider for seamless handling of product moving upstream. A returns process can help capture value in product that's still useable or sellable and reduce inventory footprint. It also supports a sustainable supply chain by reducing waste.
How do you handle service failures?
Understand what happens if service commitments aren't met. Ask about a service recovery and claims process. Understand who's responsible for damaged or misplaced product.
Do you anticipate any problems?
Ask for their assessment of your plans. Would they have any recommendations to simplify your operations or ensure your vision fits within their capabilities? A frank evaluation can help sharpen your strategy and lead to unanticipated improvements. Work together to make the plan better.
These are a few questions designed to launch a dialogue with potential outsourced logistics partners. Ask the same questions of several possible vendors for a baseline response to guide your decision. These questions will help you evaluate the overall value the vendor delivers relative to the costs. Better overall performance will pay off over lower costs.