4 Advanced 3PL Management Strategies to Shrink Transportation Costs

As the need for swift and dependable deliveries continues to grow, businesses worldwide are swiftly embracing multiple carrier partnerships to tap into their distinct value propositions. According to Statista, motor freight services stand out as the most frequently acquired service, with 83% of shippers procuring them.

Additionally, a substantial 73% of shippers agree that third-party logistics providers (3PLs) play a pivotal role in enhancing customer service for the end customer and introducing novel and creative approaches to enhance the efficiency of logistics operations.

However, managing multiple vendors can be a complex and costly endeavor for businesses as transportation costs alone account for two-thirds of business logistics costs. Without a centralized system for vendor management, it’s easy to fall into the trap of inefficiency, confusion, and escalating transportation costs.

Advanced vendor management capabilities enable organizations to gain greater control and transparency over their vendor relationships while significantly reducing transportation expenses. Let’s quickly examine four such advanced vendor management capabilities that are transforming the logistics landscape, making vendor management easy and efficient, and ultimately, driving cost savings.

Vendor Selection and Prioritization

Effective vendor management begins with selecting the right partners and prioritizing them based on specific criteria so that businesses can align their vendor selection and prioritization strategy with business objectives.

Common examples of these criteria include factors such as delivery urgency, consignment size, value, customer preferences, and delivery SLAs. When done manually, businesses can prioritize and select vendors based on one or two criteria only. 

This results in underutilized resources or over-reliance on expensive resources, which ultimately leads to poor operational efficiency. Advanced vendor management systems use intelligent algorithms that allow businesses to select vendors based on multiple custom criteria.

These systems also generate a prioritized vendor list for each shipment type based on specific prioritization criteria which helps reduce transportation costs via increased resource utilization, and selection of the most optimal vendor every time. 

KPI-Based Vendor Performance Evaluation

Key Performance Indicators (KPIs) are essential for evaluating vendor performance objectively. Setting performance evaluation criteria and measuring them for all vendors offers visibility over the business value delivered by each one of them.

Further, businesses can easily gain insights into crucial service parameters, such as transit times, customer feedback, successful deliveries, delivery patterns, etc. 

These insights uncover bottlenecks and prevent cost leaks via proactive exception management. Advanced vendor management platforms enable businesses to establish KPIs tailored to their specific needs. They can set different KPIs for different types of vendors and unlock improved visibility over the field operations.

These platforms also monitor vendor performance in real time, allowing for immediate corrective actions when KPIs are not met. This proactive approach enhances vendor accountability, reduces performance-related issues, and ultimately drives cost savings.

Digitized Management of Finance Operations

Traditional vendor management often involves a mountain of paperwork and manual financial processes, leading to delays and errors. Manually-managed financial operations are vulnerable to errors, fraud, and inconsistencies.

Manual processing of bills and charges also introduces challenges in the form of non-standardized billings that might or might not be genuine. Further, managing bills and invoices in a multi-vendor organization can increase the remission time, affecting vendor partnerships. 

Advanced systems digitize financial operations, including invoicing, payments, and reconciliation. By automating these processes, businesses can reduce administrative overhead, minimize payment discrepancies, and ensure timely vendor payments, thereby maintaining strong vendor relationships.

Advanced platforms also digitize the bulk billings, cash settlements, settlements against payouts, and any additional charges or penalties incurred anywhere in transit. This increases transparency and trust and reduces man hours and frauds, which helps reduce transportation costs.

Real-Time Indent Management

Efficient transportation management relies on real-time visibility over shipment and asset movements and timely indent management with vendors. Many times, businesses are unable to contact the driver in real-time or to manage exceptions where the driver denies the transportation request owing to some reason. This not only affects the delivery SLAs but also inflates transportation costs because businesses often end up hiring expensive vendors for assured delivery.

Advanced systems offer real-time indent management capabilities that allow businesses to optimize their transportation costs. Businesses can raise indents via a centralized dashboard, allowing vendors/drivers to accept them in real time.

Every driver gets the trigger notification for starting the real-time tracking and in case the driver rejects the indent allotted by the vendor, it gets automatically floated to the next one. These help reduce the sudden hiring of expensive resources and ensure flawless transportation. 

Managing multiple vendors in the logistics and transportation industry can be a daunting task, but advanced vendor management capabilities have revolutionized the way businesses approach this challenge.

To truly optimize vendor management and reduce transportation costs, the best approach is to invest in an intelligent carrier management platform that offers these capabilities as an integrated solution.

By doing so, businesses can centralize their vendor management, enhance performance evaluation, streamline financial operations, and achieve real-time indent management. Ultimately, this approach leads to cost savings, improved efficiency, and enhanced vendor relationships, setting the stage for strategic business growth.