When a company is looking to venture into the 3PL warehousing environment, some things need to be taken into consideration.
How will we be billed for the work performed and what functions will we allow the 3PL provider to perform?
Do we have the warehouse space or do we need the 3PL provider to furnish the warehouse?
How can we validate the billing, what backup is required?
The above are just some of the questions one needs to ask prior to determining the structure in which a contract should be written.
Advantages for a transaction based model –
You know the handling cost down to a sell-able unit.
You are only billed for the handling/movement of the material.
The warehouse will be more likely to implement process improvements.
Disadvantages for a transaction based model –
Short notice or emergency requirements are often unable to be performed.
Normally additional hourly charges for requests outside of anything that is transaction based.
Customer service related functions.
Advantages for an hourly based model –
Ability to assign short notice or emergency shipments.
Additional functions pertaining to inventory or inventory movement can be accommodated.
Including Customer service related functions.
Disadvantages for an hourly based model –
As volume fluctuates, your cost per sell-able unit will change.
Advantages for a Cost+ based model –
Similar to the hourly, but with an established markup.
Must have access to validate billing.
Disadvantages for a Cost+ based model –
More time to validate billing.
Less incentive for the warehouse to provide process improvement.
As shown above, the pros and cons of each has to be weighed prior to trying to identify a warehousing solution. In most cases, a mixture of these can be used to most benefit your organizations logistical requirements.
Prior to looking for a 3PL provider, consider the functions you’ll need to implement. Identify the frequency in which these actions take place. Seek to understand the current time it takes to perform the task, understanding that the likelihood of improvement will fall within the 3PL provider to identify efficiency and implement the improvements.