If you’ve recently hired a new fulfillment partner or are shopping around and touring distribution centers, you probably have questions about how to rate your 3PL’s performance. One of the biggest ways you’ll want to measure your 3PL is by their warehouse efficiency.
If your products are in a warehouse that is not optimized for efficiency, your 3PL may lose your products, or have delays in getting order to your customers.
Outsourcing fulfillment to a new 3PL isn’t a small decision and you want to be sure that you’ll get great service. Here are the top ways to track your 3PLs warehouse performance.
Questions to Ask When Touring a Warehouse
When touring a new warehouse or distribution center, it may feel overwhelming, and you may not know what to look for to ensure it’s running efficiently.
Here are some high-level questions to ask:
- How do you track safety?
- When was the last time you updated your incident rate?
- What’s your inventory defect record?
- Do you follow a warehouse organization method? If so, which one?
- How often do your pallet locations and pack stations fill up?
- What kind of capacity do you have in your warehouse?
- What is your SLA rate?
- How do you hire for high volume seasons?
- What is your automation infrastructure?
- Which custom packaging will work with your automation systems?
- How close is your warehouse to capacity?
Top Three KPIs for Measuring Warehouse Performance
The number one thing to look for when touring a new warehouse is their incident rate. This is also called injury rate and the data should be displayed somewhere in the warehouse.
You want to ensure your 3PL tracks this often. One thing to ask when you tour a new facility is how often they update the safety board (which is usually where the incident rate is displayed). If it’s every three months or more, that indicates they aren’t tracking safety measures often enough. Failing to update their safety measures means there may be other aspects of warehouse performance that go untracked as well.
The second reason safety is an important metric is the health of the employees. These are the people who are handling your products and working for your brand. If they are not treated well and are working in unsafe conditions, they may not be performing their jobs as best they can.
2. Cleanliness and Organization
There is a strong correlation between warehouse cleanliness and inventory management. If a warehouse is organized well, it naturally follows that inventory can be managed more efficiently.
When you tour a new facility, first scan for obvious visual cues. As a visitor, even if you don’t have much warehouse experience, you should be able to see some obvious organization. Here are a few tips:
- Clear signage: one of the best warehouse organizational systems is called 5S and it means that everything has a place, and everything is in its place. 5S often relies on visual signs (like painted floor markings, for example) that tell workers where things should go. If your 3PLs warehouse uses 5S there should be a lot of very clear signage.
- Full pallet locations and pack stations: if you see pallet locations and pack stations are completely full, that means there isn’t much more room in the warehouse for your products. A 3PL with a full warehouse (no matter how good they are at fulfillment) is going to lose products more often.
- Inventory defect record: your 3PL should be tracking defective inventory, and you can tell a lot about a warehouse from that metric. If it is greater than 1% that’s a big red flag. That means for every 1,000 products, 10 are considered damaged which ultimately comes of your brand’s bottom line.
3. Use of Data
Warehouse efficiency largely runs on data efficiency. A 3PL without a robust tracking system won’t be able to see where they need to make improvements.
Because a warehouse has so many moving parts, automation and data usage are critical to keeping any fulfillment facility up to speed with the current needs of the market. Your 3PL needs to not only collect data, but also manage it correctly and use it properly to make operational decisions.
Here are a few examples:
- Your 3PL should be using data to make staffing decisions. With large order volume throughput, your warehouse needs to be staffed based on data. The most efficient way is to automate and use data to understand how many employees there are on the lines at any given time.
- Your 3PL should be tracking orders per hour. They should track the number of orders fulfilled per hour both collectively and individually, it will be obvious where improvements can be made. This is helpful information for an ecommerce brand to ask about when they tour a facility.
- Your 3PL should track productivity. There are many inventory management metrics to follow, your 3PL should proactively be tracking these and sharing the data with you regularly. At DCL Logistics, this is a big part of our quarterly review with each brand. Not only do we show the data, but we make suggestions on how improvements can be made to increase efficiency and lower costs.
The types of data the warehouse should be using include:
- Customer forecasts
- Internal calculated forecasts
- Historical and seasonal trends
- Market information and news
Data and its analysis should be accessible to all managers and associates who help run the warehouse floor. Some 3PLs will display this information on screens throughout the warehouse so that everyone sees the same information and can act accordingly.
How do you know if your warehouse has a good order throughput per hour, or not? You can do some quick math based on what you’re paying the 3PL and what their order throughput is, to come up with your fulfillment cost per order. Having that number will help you see if the warehouse productivity aligns with what you’re paying.
What to Look for in a Warehouse: Capacity and Scalability
Every brand puts a lot of time and effort into scaling their business. It’s easy to sell a small batch of your product, but what happens when demand increases? You want to know that your 3PL can support your brand no matter which sales channel you choose to go after, and warehouse capacity has a lot to do with that.
Here are some big things to look for when touring your next 3PL’s warehouse:
Is this warehouse already at peak capacity?
Ask how many shifts they are currently running. A very busy warehouse might operate on three shift operations, which means they are running lines almost 24 hours a day.
One shift would mean they operate during normal business hours, but not outside of that.
Warehouses may distinguish shifts differently, so ask hard questions about how many hours per day the facility is in operation. You want to find a sweet spot between a warehouse that is busy, but not overbooked. If your 3PL is already running shifts at all hours of the day and all days of the week, the warehouse might be over peak capacity. On the other hand, if they only have limited hours of operation, they might charge a lot more for overtime or extended day operations.
What does it look like if a facility isn’t scalable?
Space utilization is key when looking for scalability of a warehouse. What does their pack station utilization look like?
Pack stations are the last touch before orders go out to get shipped. If the pack stations are always full, or overflowing, there may not be enough room in their warehouse for your products.
Pallet location storage is another indicator of warehouse capacity. How many do they currently have and how many of those are filled? If all pallet locations are full, that means the warehouse is full and a full warehouse means the following might occur:
- The 3PL is more likely to lose your product
- The warehouse may need to work overtime to fulfill everything
- Errors and safety incidents will likely increase
- You may end up paying more (for lost product, overtime, or other issues)
What infrastructure does the warehouse have to process orders?
Currently a big theme in warehouse optimization is automation. With the rise of ecommerce sales, plus the need to physically distance warehouse workers, many 3PLs have invested heavily in automated processes: conveyance systems, robotic picking arms, automatic labeling and tape machines.
With automation comes maximum efficiency and faster order throughput. But it also means that customized packaging may not work within their systems.
If you rely on branded packaging and specialized fulfillment projects to wow your customers, be sure to ask which ones will still work within your 3PLs automation systems.
How do they hire labor for high volume seasons?
Do you anticipate higher order volume during the holidays? Maybe your brand gets a majority of orders at a time when others are usually slow. Ask how your 3PL handles labor hiring when they get high volume forecasts.
In 2022, the labor market was particularly difficult and many 3PLs had a hard time staffing appropriately. An experienced fulfillment provider will have the resources to hire quality staff at any time of year.
How do they measure performance? What’s their SLA?
SLA stands for service level agreement—this is the main component of what your 3PL contract will include. Specific SLA measurements often relate to how quickly the 3PL can get orders shipped after they come in.
To track SLA performance, you need to look at how well the 3PL is executing the way they have said (in contract) they will execute. If your 3PL says they can get 100% orders processed and on a carrier truck the same day that the order comes in, you’ll need to look at their actual percentage over time.
How a 3PL measure up to their contract agreement has so much to do with how well their warehouse is organized and how it operates. Ask your prospective 3PL what their typical SLA rate is for customers, and you’ll get a good glimpse into how their warehouse performs.
If you’re looking for a 3PL with fulfillment centers in cities across the US, we own and operate facilities in The Bay Area, Los Angeles, and Kentucky. Use DCL’s national footprint of warehouses to distribute your inventory across the country to reduce transit times and save on shipping costs. If you need fulfillment or shipping support and want to partner with DCL Logistics, we’d love to hear from you.