If you run an ecommerce business and find yourself drowning in order fulfillment tasks or burdened by logistics demands, you might want to consider partnering with a third-party logistics provider (3PL).
A 3PL is a company that provides expert supply chain solutions that fit the needs of your business. The biggest benefit of outsourcing logistics is the ability to allocate company resources most efficiently—that means your 3PL handles all-things logistics, and your time can be spent on sales, marketing, fundraising, manufacturing, or product development. That doesn’t mean, though, that you should blindly partner with the first 3PL you come across, particularly since a logistics provider typically has direct contact with your customer base. Outsourcing logistics support provides many benefits, but there are some key things to consider about how to choose the right 3PL for your business. Here are our top six tips for finding the right third-party logistics provider.
Understand Your Current Needs But Also Plan For the Future
If you only focus on what you need today, you’ll likely be back to the drawing board a few years down the line. Save time later by choosing a 3PL that can scale as your requirements grow. Similarly, there are some services that you may not need, for example, if you have no intention of ever outsourcing returns processing, you could choose a provider that doesn’t offer this option. Here are some of the services you may need to consider when researching different 3PLs:
- Storage: Storing your goods for a period of time. There are different kinds of storage depending on the commodity, so check potential suppliers can offer the right storage for your product.
- Cross-docking: Goods are stored while waiting for other shipments for the same order before they are consolidated and prepared for delivery.
- Palletizing: Placing your goods onto pallets for easier handling and storage.
- Sorting: Organizing goods by set groupings, e.g. Stock Keeping Unit (SKU)
- Labelling: Ensuring packaging is labelled correctly
- Pick and pack: Receiving orders, retrieving the products and packing for outbound shipment.
- Repacking: Sometimes, goods arrive in packaging that isn’t suitable for delivery. Warehouses offering this service will receive your items along with replacement packaging and repackage accordingly.
- Order fulfillment: Receiving orders from a customer and fulfilling it accordingly.
- Reverse Logistics: Receiving and properly handling returned goods on your behalf.
Understand Your Technology Requirements
Establishing your technology requirements is critical when choosing a 3PL. How do you want to communicate with your provider? You could need regular inventory updates by SKU, or you may need them to receive orders directly from your website for processing in real time. Ask each potential 3PL about their warehouse management system (WMS), so you have a thorough understanding of its capabilities and future roadmap. What integrations already exist? Can it work with your shopping basket software? Does it work with specific marketplaces such as Amazon or Shopify for example? Make sure the technology is sophisticated enough to handle your product flow, and also user-friendly for you and your team to quickly adapt. Their technology solution should be able to scale as your business expands, when demand rises during the holiday season, or when new industry technology is introduced.
Be Clear On Your Budget
However you decide to store goods, fulfill, and distribute orders or manage your returns; it will have an impact on your profit margins and bottom line. It’s therefore vital you are clear on what services you need and what budget you have for these services before you speak with the 3PLs you are considering. This way, you’ll be clear on which options offer a viable solution.
Different 3PL companies have different cost structures, making it slightly difficult to compare the prices. However, you can still divide the costs into five parts and weigh each cost according to which is a higher priority for your business needs.
- Onboarding Costs—Many 3PL companies charge extra for initial set up. It can take anywhere from a few weeks to months to complete the entire set-up process, which will vary depending on time and scale of onboarding.
- Receiving—The cost of acceptance and storage of incoming inventory, including per unit, per pallet, flat rates, or per hour basis, may vary greatly.
- Storage—You will be charged separately for warehouse storage space. It will be per shelf or pallet basis, or per cubic or square footage. Temperature control (for perishable goods) will be charged extra.
- Order Fulfillment—This usually includes pick-up and packaging costs. You have to pay per item or per order fee when a customer places an order.
- Shipping—This includes a variety of factors such as freight charges, parcel Less Than Load (LTL) or Full Truckload (FTL) costs, delivery time and destination, shipping zones, and dimensional weight.
Define Your KPIs
Develop a set of highly descriptive key performance indicators (KPIs) that include precise times, quantities, and other numerical measurements so that your team and your 3PL are both striving to accomplish the same goals. Being clear on your current and future business requirements is an important step in partnering with a 3PL.
The preferred location for your outsourced fulfillment operations may dictate which suppliers you consider. While it may be possible to fulfill your orders from one warehouse, cost and time may dictate that two or more facilities would be suited to your needs. Considering your entire supply chain will help you determine where your warehouses would be ideally located. The location of your 3PL partner, and their fulfillment centers, should suit your overall distribution plan—it’s important that they are close to your high consumption area. The closer you are to your partner, the easier it will be for you to manage them and work together. The closer your products are to your customers, the more efficiently you’ll be able to ship to your customers. The more strategically-placed warehouses and fulfillment centers that a 3PL has, the more cost-effective they will be on shipping. Strategic placement means being in major cities (for population density) or close to accessible transportation routes (ports, airports, major highways, etc) . However, you can’t compromise the location with the quality of service. The carrier still needs to provide you with on-time performance, lower product damage, billing accuracy, and fewer delivery irregularities.
Visit the 3PLs Warehouse
When considering outsourcing fulfillment, nothing can beat visiting the warehouse yourself to assess the standard of facilities and see their working practices in action. A professional looking website can hide a multitude of sins, so don’t skip the step of inspecting the warehouse just because you’re impressed with the quote and sales material, visit in person before signing on the dotted line. Look out for how employees work and interact, ask questions about processes such as storage, fulfilment, security and health and safety, meet the staff and look out for evidence of excellent communication. If you’re not sure what you should be asking your potential suppliers, here are a few sample questions:
- What type of racking and storage is available for?
- What are your standard operating hours? How do holiday periods/ bank holidays affect these hours?
- What warehouse management systems can you integrate with?
- Do you provide any value-added services?
- What is the average turnaround time for an order?
- Are there any commodities not able to be serviced at this location?
- What are your security procedures?
- Do you work with specific marketplaces such as Amazon or Shopify?
Choosing the right 3PL partner is vital and can have a significant impact on your company’s success so consider the tips above when choosing your 3PL to make sure your relationship is a good one from day one. Making the best decision will mean weighing many pros and cons, but choosing the right 3PL for your brand will improve your business processes and help your company grow.
If you are considering partnering with a third-party logistics provider we would love to hear from you. Send us a note to connect about how DCL Logistics can help your company. You can read DCL’s list of services to learn more, or check out the many companies we work with.