The astonishing growth of online retail over the past 3 decades has created intense competition, enormous opportunity, and very few barriers to entry - a proverbial perfect storm of capitalism.
For both brands and consumers, it is a brave new world, and the demands of both parties have fueled an explosive expansion of the industry known as third-party logistics (3PL). 3PL services span the full range of eCommerce fulfillment processes, from warehousing to pick and pack to shipping to returns.
Whether a merchant is new to eCommerce or a seasoned veteran, the challenges presented by these logistics operations are immense, and outsourcing fulfillment services can be a wise move. Time saved here may instead be spent focusing on sales, marketing, product development, and everything else needed to build your brand.
Choosing the right 3PL company is not a simple decision, however. Just as intense competition exists amongst online retailers, so too does it exist between 3PLs, and not all are created equal. Determining which one is the right partner for your business will require you to do some homework.
At SkuNexus, we design management software solutions for merchants and logistics providers alike and have significant experience to help you make an informed decision. Here are 5 things to consider when selecting a 3PL fulfillment partner.
1. First Things First - Assess Your Needs
It is vital not to forget the fact that YOU are the customer here, and as such, hold all the cards. A self-assessment is crucial before making even the first inquiry toward working with a 3PL fulfillment center.
- Level of Order Fulfillment: Has your order volume grown to a point that is still manageable or are you struggling to keep up? Figuring out that threshold is absolutely necessary to making any decisions here.
- Amount of Existing Storage Space: Calculate not only the available warehouse space but also the cost of carry for your inventory.
- Capacity for a Demand Surge: This can require additional hiring as well as more space, and if you are handling order fulfillment manually, a sustained increase can be crippling.
- Types and Sizes of Products/Orders: Your products’ weights and dimensions, not to mention typical order combinations and the total quantity of SKUs, will all play a factor in pricing discussions with a 3PL.
Current needs are of course the most pressing, but future needs must not be ignored. Projecting your growth and what you will require a few months to years down the road will also help in picking a partner for the long haul. This information should be shared in any conversations so the 3PL can make an assessment of its own capabilities (e.g. if you have a wide range of new products or plan to expand your eCommerce business into an international market).
2. Weigh The Pros and Cons
Any business decision of this magnitude has its benefits and drawbacks. The cost savings and operational expertise 3PLs offer might be offset by the risk of diminished customer service, for example. These are trade-offs that each merchant must weigh individually.
Advantages to using a 3PL warehouse include:
- Reduction of overhead expenditures (e.g. warehouse rent/labor) can free up capital for investment elsewhere.
- Collective volume and order frequency allow them to negotiate lower shipping costs.
- Large networks can provide fulfillment locations far beyond a merchant’s own reach.
- Inventory can be strategically distributed across the network based on geographic sales data.
- The ability to manage international fulfillment and its associated challenges (customs, import laws, et al).
- Using a 3PL as a testing vehicle for international markets is a valuable strategy that should be considered by any merchant looking to grow overseas. The cost-effectiveness of testing a small amount of product in a foreign country by working with a local 3PL vastly outweighs trying to navigate the system on your own.
Such convenience comes at a price, of course. 3PL warehouses can provide support in several areas, but they are not without disadvantages.
- Loss of control over one’s inventory and processes is something many merchants will not allow.
- An upfront investment is required to onboard with a 3PL inventory management (e.g. software integration, SKU upload).
- You are a customer of a service provider with its own business plan. The 3PL’s fulfillment process fees can and will increase over time.
- 3PL companies have a myriad of clients across a range of retail markets. If you have highly specific needs, a general provider may not be able to meet them.
3. Services Provided
These baseline services must be part of any 3PL worth your consideration.
- Warehouse and Inventory Management: This goes beyond basic storage of your goods. A worthy candidate should also provide insights to help you make strategic decisions like where certain products should be stored and in what quantities.
- Order Management and Fulfillment: The 3PL needs to make the right decisions in this area to ensure correct order routing, efficient processing (pick and pack), and rapid delivery of your items.
- Shipping Management: Printing of shipping labels and rate-shopping across all viable carriers.
- Order Tracking: Confirmation of order status, shipping data and delivery info.
- Returns (Reverse Logistics): Just as they handle fulfillment, a 3PL should have a streamlined operation for returning your products back into inventory.
- International Logistics: If this is a present or future concern, the 3PL needs to have an extensive background (or affiliates) in foreign taxes, import duties, legal issues, et al.
4. Full Transparency
Clearly-defined pricing is a hallmark of any honest service provider, regardless of the industry, but transparency in regard to third-party logistics can go far beyond just costs. When the eCommerce merchant/3PL relationship is a true partnership, the results can be significant.
Being that an inherent element of using a 3PL is ceding control over one’s inventory and order fulfillment, establishment and maintenance of trust is key. Transparent 3PLs use software to give customers access to what is happening in the warehouse, as well as to the relevant data, metrics, and KPIs for their businesses.
Full transparency can also provide a useful audit trail for quality control. In a transparent 3PL, if errors are occurring during processing, data (made available to the merchant) can show what happened and steps may be taken to rectify the mistakes.
A transparent 3PL lets customers know how their products are being handled, its inventory management will keep them apprised of stock levels, and this all amounts to providing merchants with deep insights into things that are not fully within their control.
5. Software Integrations
Not surprisingly, we at SkuNexus pay very close attention to this. Time and again, integration problems between different software systems can wreak havoc on logistics processes. Order routing breakdowns result in delayed fulfillment, broken shipping promises, and diminished customer satisfaction. And, that is just for starters.
Our enterprise management software systems are specifically designed for their flexibility and ease of integration with other platforms. Our order, warehouse, inventory, and shipping management functionality can be customized for use by both online retailers and 3PL providers.
If you would like to get a closer look and learn more about what SkuNexus can do for your business, please schedule a demo.
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