Outsourcing the Warehouse: Building a Successful Partnership with a 3PL

Sooner or later, every shipper has to decide whether to run its warehouse operation in-house or outsource it to a logistics service provider (LSP). Here is how to assess the value of outsourcing and select the right partner.

Before making that decision, a shipper needs to be clear about what it expects an LSP to add. That value typically lies in three areas.

1. Cost

Smaller shippers in particular can benefit from the economies of scale a third-party logistics (3PL) provider offers. On a multi-client site running a standardized WMS, staff can be moved between customers with relative ease, absorbing fluctuations in demand and staffing levels. This works best when the customers operate in different sectors and peak at different times of the year. Material handling equipment, such as forklift and reach trucks, can likewise be shared between customers over the course of the day.

Storage space follows the same logic. Because inventory peaks rarely coincide, the average space requirement is, ideally, lower than in a dedicated facility with fixed capacity. A shared site also lets a fast-growing shipper expand step by step, rather than committing from day one to a building sized for future growth, and to the costs that come with it. Finally, outsourcing shifts the cost base from capex to opex, turning fixed costs into variable ones.

2. Specialist expertise and technology

LSPs often have in-house expertise that a shipper does not, for example in customs procedures and regulations. The same applies to the Warehouse Management System (WMS) that drives the operation. Most 3PLs run a high-end WMS that can select the most efficient picking strategy for a customer’s order profile, such as batch picking or multi-order picking, and allocate tasks dynamically across the workforce to keep labor utilization high.

Outsourcing also gives access to advanced automation that would not stack up as a business case at a single shipper’s volumes. Auto Store is a good example. This goods-to-person tote system can shorten order lead times considerably, allowing the shipper to offer its own customers faster delivery.

In addition, 3PLs typically use advanced workforce planning software and work closely with temporary staffing agencies and other organizations, such as sheltered employment providers, to secure enough qualified staff in a tight labor market. Planning is based on the shippers’ forecasts and on the 3PL’s knowledge of productivity across the various warehouse activities.

3. A formalized partnership

The relationship between a shipper and an LSP is a professional one, governed by a contract. That contract sets out formal agreements on the KPIs and SLAs used to define and monitor the quality of the operation. In an in-house operation, such agreements are seldom put in writing. Shippers do well to be just as concrete about what they expect from the future partnership.

Choosing a partner

Once a shipper concludes that outsourcing adds value, the challenge is to find the right partner: an LSP with the expertise and execution capability to run the operation successfully, and a corporate culture that matches its own.

A selection on expertise and capability usually starts with a Request for Information (RFI). A questionnaire, often in Excel, is sent to a number of LSPs, asking them to set out their capabilities, the availability of space and resources within the required timeline, and their ambition to win the shipper as a client. They are typically also asked to name reference cases. Candidates are then scored against weighted criteria and compared, resulting in a shortlist.

The shortlisted providers receive a Request for Proposal (RFP). It describes the operational processes in sufficient detail, including special requirements such as dangerous goods, customs activities or sterile storage, so that every bidder knows what to base its quotation on. Sharing order data under an NDA helps, because it allows providers to develop their own solution design for the operation. Relying on the average number of order lines per order can be misleading. A profile of many small orders with one or two lines, alongside a handful of very large orders with more than 100 lines, produces an average that describes neither. The RFP should also define KPIs, such as OTIF (on time, in full) and inventory accuracy, and SLAs, including order cut-off and carrier collection times, so that all parties work from the same assumptions and know the service level expected.

To make a balanced comparison, the tender should use a standard pricing structure with fixed volume assumptions. Consider how fixed and variable costs are to be included, so that every bidder recovers its costs through the rates in the same way. To keep paying a fair price as the business and the market evolve, define separate rate lines for the main cost drivers. In the example above, separate picking rates for e-commerce and retail orders make sense, because the line profile and picking method differ between the two. If the mix then shifts, costs remain covered and the rates do not need to be renegotiated.

Based on the RFP responses and the rates offered, a further multi-criteria analysis identifies two or three providers for a reference site visit. These visits give the shipper a view of each provider’s operation, organization and IT capabilities. They also allow the dialogue to continue, with the providers sharpening their proposals to the shipper’s needs.

Following the site visits and any revised quotations, the shipper selects the provider it expects to run the operation at the highest quality, at competitive rates and with a good cultural fit. Together, they can then work on the future growth of the shipper’s business.

October 2026

Sebastiaan Verburgh, Senior Consultant

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