How to Choose Your Logistics Provider
Choosing the right 3PL can be one of the most important and most difficult decisions any ecommerce company can make, especially now more than ever. In the time of Coronavirus and massive disruption to the global supply chain, in an increasingly complex and interconnected world, how do online businesses plan for growth and scalability? Partnering with the right supply chain fulfillment company can make or break your long-term success and directly impacts on your organization, customers and revenue.
Four Key Aspects
The 3PL ecosystem is a fractured and confusing world: older versus newer companies, outdated technologies, customized versus siloed point-of-sale solutions. Many full-service, end-to-end providers are now more niche focused specialty shops honing in on, say large freight products, or fragile items that need special handling or care, or products that need cold storage. Here are a few key considerations on whether to go with an outsourced third-party solution or keep your logistics in house—choose wisely!
Ask yourself, do we have enough internal talent and experience to develop and maintain a robust, modern and scalable supply chain system? Where is your company at along its growth trajectory and what are your core competencies? Perhaps you’re already well established in managing your supply chain—sourcing, packing, shipping, ERP, customized software implementation and utilization and other basic infrastructures—and maybe you’re thinking of outsourcing just one or two key components of your operation? If we take all of your management and add up the years spent working on just logistics, how much real experience is there— five years? Ten years? Twenty or more years?
With your own warehouse and transportation infrastructure, you can manage every aspect of the process from the top down, but are you ready for that? Ensuring that your clients get a high quality and seamless customer experience is critical. Knowing when to let go and outsource that experience can save you lots of headaches and potential costs down the road. Ask your 3PL provider to provide customer testimonials from existing clients—examples of outbound emails, materials included with the product and make sure returns are included in the price or plan!
Client experience is everything and providing a wonderful customer journey is key to building your brand. This includes the post sales experience that starts the moment after the customer clicks the ‘buy now’ button. Email follows up, product returns, customer call-ins, and product support are all components that can also be provided by a modern 3pl solution.
Supply chain logistics and transportation operations are increasingly data-driven and heavily influenced by rapid improvements to relevant technologies. What systems do you currently have in place and how will they integrate with your 3PL provider? Making sure that you’ve planned for scalability around your technology infrastructure is perhaps the most important aspect to your planning, but again, there are trade-offs. Large enterprise tech platforms can be costly and take years to implement. You might want to ask for a free trial login to the 3PL provider’s platform and see how easy or intuitive (or now) it is to use.
Evaluating you're currently spending—avg price per order, including sourcing, picking, packing and shipping vs. the true cost of outsourcing—can be complicated. Many times, business owners are looking at the bottom line but there can be hidden costs to outsourcing your fulfillment that aren’t readily apparent. The more effort you put into understanding your current costs and margins, the easier it will be to evaluate cost-on-cost comparisons when choosing the right outsourcing solution for your business. You might also consider a variable cost model with little or no fixed costs so you're only paying for what you use.
The billing models for 3PL’s vary widely. Many third-party providers break their costs down into categories that may include:
- Transportation - shipping products from your warehouse to a shipping facility
- Receiving - off-loading your product inventory
- Warehousing - stocking and holding space for your products, usually billed by the month on a square footage basis
- Picking and Packing -pulling your items from their shelves and packing it for shipping, usually by monthly volume.
- Shipping - the costs of getting your product to your clients front door.
- Set-up & Monthly Account Fees - getting started with a new provider, software and system setup fees and ongoing monthly maintenance fees.
- Returns & Restocking Fees - The and cost of accepting returns and restocking the shelves.
What Questions Should I Ask a Potential 3PL?
Establishing a strong relationship up front with any potential business partner seems pretty obvious. Just like in the sales process—asking needs-based questions—to determine if this is a potential fit is critical. Any logistics company worth their weight should happily be able to provide you with whatever information you’re looking for. The more you qualify them upfront, the better you’ll be able to determine if they are a good fit.
Some essential questions you may want to ask include:
- Number and locations of warehouses they operate?
- Do those locations match up well with our current customer demand?
- Can I reach out to some of their customers for referrals?
- Do they work specifically with companies in our industry?
- What technology platforms are they using and will they easily integrate with our current systems?
- How will they handle increased demand to service your projected growth?
- How do they handle returns and restocking of inventory?
- Can they include gift cards or special wrapping on certain orders?
- How do they price out shipping and what is included in a price quote?
Knowing your business and your individual needs will help determine what you’re looking for in a potential supplier and can help you to generate a list of additional questions to ask of any potential partner.
The fact that your business is growing is great! And now you’ve got to choose how best to go forward. It's like the Matrix—choosing the wrong logistics partner can be disastrous to any growing business, but, spending quality time and effort to really understand what you need and research the right solutions will pay off long run.