Third Party Logistics Providers Do’s and Dont’s

By | June 2, 2016

Third Party Logistics providers (3PL’s) have grown tremendously in recent years as the expectations and buying habits of consumers continue to evolve. Customers expectations are higher than ever: Retailers top concerns in 2016 are meeting these customer expectations (38%) and having an inefficient supply chain (31%). This kind of data shows that customer relationships go beyond the product; customers expect not only timely and efficient packing, but affordable packaging too.

But if your fulfillment provider is so vital to the success of your ecommerce business, how should you go about evaluating the right options?

The owners of Red Stag have learned this answer the hard way. Red Stag Fulfillment is an ecommerce fulfillment company that was established when the owners of an ecommerce brand couldn’t find a high quality 3PL to handle their picking, packing, and shipping operations. While they eventually established a 3PL of their own, this isn’t an option for most entrepreneurs, so here’s a few tips on the “Do’s & Don’ts” of shopping for a 3PL.

Do’s

  1. Define exact and measurable KPI’s

It’s hard to evaluate something if you don’t have anything to compare it to. So when shopping for, or trying out a 3PL, make sure to set measurable KPI’s that will guide your 3PL and give you something to track for efficiency. KPI’s can be set up through logs, time stamps, and even barcode scanning.

You should also have the ability to measure on-time delivery autonomously. Don’t rely on the reports from the 3PL, request access to this information so you can keep track of how well they’re performing. For example, Red Stag has a multifaceted tracking system in place that gives both their clients and their clients customers access to their shipping information.

  1. Meet your 3PL partners           

It’s important that you not only understand how everything works, but how the company manages itself and its workers. When touring the facilities, talk to management about how the employees are compensated and incentivized. Are warehouse workers incentivized to get orders picked correctly and on time? Or is it all about getting orders out the door? Do you feel they are honest, trustworthy and sincere? Do they show you their passion for the business, and a commitment to customer service? By asking these questions you’ll get real insight into how your product and business are going to be handled.

  1. Include systems capability and support as a criterion

Your business is probably prepared for the worst case scenario, and your 3PL should be too. Check their criterion for backup systems and plans for when the unexpected take place. For example, say their system crashes. Do they have an internal IT department, or do they outsource?

Check out this ecommerce fulfillment questionnaire for a list of other questions to ask your potential 3PL.

  1. Understand the 3PL’s ability to scale

Don’t just factor in the ‘now’ when choosing a 3PL, consider your future. Your business is probably brainstorming ways to grow right now, so you should be partnering with a 3PL that can handle those future booms. Or say you have a massive order volume increase unexpectedly, does your 3PL have the room and manpower to handle it? And will they have a system in place that can get those orders out the door just as quickly as before?

Dont’s

  1. Don’t limit yourself your search to your immediate proximityShipping out of major metropolitan areas like Miami or LA may seem advantageous but these can actually be the worst places to ship to customers if your customers are spread all over the country. Instead it’s best to look at centrally located cities. Shipping parcels from these cities will be far less expensive than the freight cost to get your product there.
  2. Don’t lock yourself into a long-term contractYour 3PL has the ability to influence the value experienced by your customers. Therefore, you should be able to walk away if their service levels waiver at all. And besides that, what if you scale, or have unexpected events? Your 3PL is much too important to your business to be stuck in a contract that can’t accommodate your growth, which is why some ecommerce fulfillment companies are moving to month-to-month contracts.
  3. Don’t make a decision based on Price rather than Value

 This isn’t to say the highest quality service can’t be achieved at the lowest price, but it’s rarely the case. What you need to do is properly weigh price with the aspects of your business that are going to be directly affected: accuracy, and customer service.

Take into account strategic buying situations when fast processing (in order to have product available to sell) is paramount.

You also need to consider what the effects of customer service inquiries if 100% of products ship on time and accurately. Red Stag Fulfilment has safeguards and processes in place to ensure proper delivery, that kind of efficiency pays off when you don’t have an entire call center dialed into customers complaining about late, or undelivered packages. 

  1. Don’t’ make a decision without comparing options

You shouldn’t be afraid to put a few 3PL’s on trial periods to test which one works best. In fact, it’s the smartest thing you can do. You want a 3PL who’s willing to earn your business over the long haul.

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