Navigating Third Party Logistics

Navigating the Third-Party Logistics World

Product companies have a tough job – innovating to match the consumer wants/needs, managing overseas manufacturing, marketing new products and services in the new world of social media, establishing selling avenues, developing a web presence and driving “clicks” – the list goes on! On top of all the product development needs, you still need to run the operations of the organization. Whether you are an established brand or a start-up, maintaining focus on your products is priority #1. The selection and use of third-party logistic (3PL) organizations are extremely important and needs to match your company’s DNA. Here are other essential considerations to keep in mind when choosing a 3PL partner:

How to select the right 3PL for your products?

First, you need to determine the channels you would like to focus on for distribution – retail stores, retail ecommerce, Amazon, marketplace, direct from your website, to name a few examples. Once you have made that determination, you can narrow your search to 3PL’s that specialize in particular categories. Your 3PL evaluation should focus on your candidate’s ability to adapt and scale, considering the following criteria: Warehouse space, workforce size, portfolio of services, technology, and infrastructure. Outsourcing these processes affords you with many benefits but choosing the right 3PL provider involves much more than just scanning a series of price lists. It is a partnership. While pricing is very important to your overall profitability, choosing the wrong 3PL for the right price may cost you serious dollars in retailer compliance, expedited freight, lost inventory and potential, lost customers. The value of the latter can never be identified!

Simply questions to ask your potential candidates would include the following:

• What is the size of your warehouse facility(s)?
• How much space would be dedicated to your products?
• How do you manage the warehouse workforce?
• Can you provide all services that you provide, both in-house and outsourced?
• How many clients do you currently manage, and can you provide a list?
• What are your most common fulfillment destinations (ie: retail, commerce, end consumer)?
• Can you describe your order management and warehouse management system(s)?
• Do you automate order entry and shipment notification? If so, please describe.
• Do you provide the following: Branded packing slips, Unique shipping requirements for each retailer, reverse logistics, ASNs and pallet configurations, custom packing, and short-notice orders and recalls?

Once you feel comfortable with the services offered, then begin the pricing discussion. The key is to find a 3PL that will work with you on the pricing and help you grow, which will benefit them in the long run.

How 3PLs can deal with unexpected order volume & peak seasons?

Being able to have a 3PL flex with your growth is critical. If a 3PL is familiar with the retail space, seasonality should be a common discussion topic in your evaluation. If it is not, that is a red flag! Since the days of the Sears Catalog, the holiday season means major volume increases. Confirming that with the candidate is critical. What about promotional opportunities that succeed beyond your expectation?? That is a great problem, but it should not impact service level agreements with your customers. A strong 3PL will embrace these unexpected volume increases. It is important to ask that question up-front. As noted above, asking how their warehouse workforce is managed will provide you some idea of their readiness. Look for phrases like “team focused fulfillment” and “cross-trained staff’s”. Ask to talk directly with the warehouse leadership. A strong candidate will have no problem making that introduction. Lastly, ask about their utilization of temporary help. This is a good thing and a bad thing. Temp help is fine as an auxiliary solution but having the majority of staff as temp help may decrease the quality of work.

How to optimize order fulfillment and freight with a 3PL?

The key to order optimization is simple, automation. The less you need to touch the order process, the quicker the order turn-around and the higher the accuracy. Please keep in mind that there will always be a cost to automation. Development costs are never fun, and they are typically passed along to the product company. Try to find a 3PL that has a lower up-front fixed cost AND a variable, per order/transaction cost. This shows partnership in your growth.

Freight is confusing and expensive. Making the right choice on freight is very important. Your 3PL candidates should be VERY knowledgeable in freight – USPS, UPS, FedEx, LTL, Truckload and International. Each of these services have multiple products within and are based on weight, zones, and service levels. A strong candidate should be able to provide you with pricing examples and price matrixes.

Do they have technologies that support your business now (and into the future)?

Your technology needs should have been answered by this point, but if they have not. Ask for a system demonstration. Being able to test and see the order management system before selection should be fine with the 3PL candidates. Be very leery of candidates that do not provide access to the order management system and recommend daily/monthly report distribution. It is your inventory and you should have complete access to it. You should also have excess to robust reporting within the system. Have discussions about various order transactions (ie: EDI, XML, API, Shopping cart integrations) to get a feel for their technology strategies. The answers will give you insight into their technology future.

As always, talk to people that have worked with or know each candidate. Word of mouth is always a great way to help assess and complete the selection process!