As you well know, running a business is a complex undertaking. There are a lot of moving parts that demand your attention, and you have to be cognizant to know where to look–or delegate others to look–at all times.
There comes a point in many businesses’ growth, however, when the sheer amount of things that require attention and their own complexities begin to outweigh what the business owner and their inner circle can feasibly handle alone.
When your business involves getting products to your customers, this is the point to consider the benefits of a third-party logistics (3PL) company. By investing in a good 3PL, you’re taking advantage of the expertise and resources of a company that knows exactly how to cut through the complexity and get your product where it needs to be, when it needs to be there, and in the condition it was promised. This leaves you the time and effort to spend on the creative, productive work of actually designing and improving your product.
But when it comes to 3PL, it can be hard to know where to start as a business owner. How do you gauge the quality of a specialist’s work when it’s not your specialty?
Here are some important questions to ask a 3PL company to decide whether or not they are a good match for you and your products.
Fit for My Business
Are you equipped to meet the needs of an e-commerce business like mine?
Many 3PL providers actually don’t specialize in e-commerce. You may find a service that quite simply just isn’t equipped for the e-commerce market. And even for the ones that do work with e-commerce companies, it goes without saying that e-commerce is a world of its own. A 3PL may specialize in other parts of the e-commerce world that aren’t particularly helpful to your unique needs. Remember—businesses come in all shapes and sizes, so you should be certain that the 3PL you choose is equipped to cater to particular logistical services you require.
Do you specialize in my types of products?
Consider the types of products your prospective 3PL tends to handle. Do you see similarities or overlap with the goods that you sell? It may seem trivial at first, and you might think, “Who cares? Products are products! They’re not making the product, they’re just moving it.”
But when it comes to warehousing and shipping products, there are a lot of things for the 3PL to consider. For instance, the size, shape and weight of each product. How many can they reasonably stack on a shelf? How many square feet will the product take up in the warehouse? Will any specialized equipment be needed to move, package, shelf, or ship the product? Even in an industry as specialized as 3PL, there is still room for further specialization, so if a 3PL regularly works with products similar to yours, you’ll know that they’re equipped to handle yours.
Do you work with the shipping carriers I use?
If you prefer to work with a specific parcel carrier (USPS, UPS, FedEx, DHL, etc.) or freight carrier (England Trucking, Knight, XPO, etc.), it’s beneficial to see if your 3PL of choice has the ability to work with them. Not every 3PL is contracted with every carrier, so you may need to shop around to find one that supports your preferences.
Are you able to handle my company’s growth?
It’s also a good idea to know if a 3PL has enough space and resources to accommodate your products should your needs change in the future. If you’re working with a lower-volume 3PL and they’re expecting your order volume to remain stable at a certain level and planning their resources with that in mind, you may be put in a difficult situation when demand for your product grows, and you need them to handle more. Choose a 3PL that can grow and adapt to your needs.
Where are your warehouses located?
The physical location of a 3PL’s warehouses may be important to you. You may find comfort being within a short drive to your 3PL, or maybe you want to find a 3PL more centrally located to your customers. Keep in mind some 3PL’s may have many locations while others have a single location. Neither is right or wrong, but it is important to understand what you prefer and why?
What times and days do your warehouses operate?
When the warehouses are open and running, that’s when they are physically able to process orders from your customers and answer your questions and concerns should a problem arise. Choose a 3PL whose schedule aligns best with your needs.
Do you provide customization, kitting, or package inserts?
A valuable added service that 3PLs can potentially provide to your company involves special processing options for your items. These special options may differ depending on the specialties and capabilities of each 3PL, so if something like customized embroidery, engravings, painting, etc, is important to your products, be sure to look for a company that is able to do so.
Kitting simply involves selling more than one of your products in one package. You can provide an option for your customers to purchase two or more products in a bundled deal, and if your 3PL supports kitting, they can simply package those items together for that customer’s order. This way, you earn more revenue, and your customer gets more value.
Finally, package inserts are an easy but tangible way to garner good will from your customers. By printing a thank you note, coupon, instructions, or any of a variety of printed items, and packaging these with the products you sell, you can create a customer-friendly experience for a comparatively small additional price. Many 3PLs can include package inserts as part of your product’s packaging process, so it’s worth investigating.
If any of these options would be important to your business, ask your prospective 3PL if they have the ability to perform these services, and consolidate yet another step in your production process.
What is your pricing model?
Pricing can be tricky to quantify in 3PL, because each product has its own considerations for warehouse space, shipping, and packaging. Most 3PLs will not be able to give you a detailed quote for their services without knowing a considerable amount about your products and the volume you hope to sell. See what considerations your prospective 3PL needs to calculate their pricing, and compare to others in the business to see what works best for you.
The price tag of 3PL services can put off a lot of smaller businesses, because in the short-term, such an investment can be daunting. However, what businesses soon discover is that a good 3PL will allow them to scale upwards and create more revenue than they could have without it.
It is tempting to think that shopping for 3PL services is like looking for someone to landscape your yard: “Sure, there’s a difference in quality that you’ll see between a professional landscaping company and the eighth-grader next door, but for $30, young Jaiden can do a good enough job.”
But that’s precisely the wrong way to look at it. 3PL is much closer to finding someone to perform a medical procedure: “This may seem like a stretch now, but it will be more than worth it in the future to get it done the right way by someone who knows exactly what they’re doing.”
Be certain to look for a competitive rate that works for your company, but know going in that the type of service you need is specialized and complex, and is priced accordingly. Though it can be a big investment up front, it pays huge dividends in opportunity costs and increased business in the future.
What kind of contract will I need to sign?
As with any partnership or legal arrangement, you should know exactly what it is you’re getting into. Every business has its own needs, and these will likely change over time. You’ll want to make sure that a 3PL provider can meet, and continue to meet your needs for the foreseeable future, and that the intention to meet those needs is explicitly provided in the contract. Be sure that you don’t get trapped in something that is ultimately not the best option for your business.
What is your shrinkage allowance?
“Shrinkage” accounts for any items that end up missing, stolen, or broken, and therefore never make it to the end customer. Because errors are bound to happen, 3PLs usually have a “shrinkage allowance”, the number of your items that can legally go missing before they need to repay you for the lost profits. If at all possible, try to choose a 3PL whose shrinkage allowance is as low as possible. This will ensure that they give your products and your money the respect they deserve.
Do you have a minimum monthly order volume for your clients?
Because logistics require thinking ahead and allotting the proper amount of space, labor hours, and resources for each task, 3PL companies will need to ensure that stocking and transporting your products will be worth the space and effort they set aside for it. This means that many 3PL services will require a minimum monthly order volume. Estimate as closely as possible how much product you move and see if the provider you’re considering can accommodate.
Is your system flexible enough to handle spikes in my sales, seasonal or otherwise?
The market for many products fluctuates, often in somewhat predictable ways, as different times of year precipitate the demand for certain goods, and lower the demand for others. For instance, you can probably guess the month range when the vast majority of swimsuits will be sold, and likewise for snow shovels.
But even if the products you sell aren’t seasonal items per se, you don’t always know when some unforeseen occurrence will pop up that could disturb typical market forces and cause demand for your product to spike. Toilet paper, anyone?
Ask your 3PL some questions, and request case studies, to determine if they are flexible enough to process a sudden increase of your product.
What percentage of my orders will get to customers within two days?
Because of the nature of today’s interconnected world, consumers expect things to happen at a fast pace. Your customers are no different. Assess each 3PL’s delivery time capabilities. What percentage of your packages can you expect to reach your customers within 2-3 business days and would any special processing needed for your product influence delivery times?
Are you able to process same-day orders?
A big part of lowering the wait time for orders is in the processing. The more quickly a 3PL can receive and process your orders, the sooner your customers will receive their order. If quick delivery is important to your customers make sure you understand a 3PL’s capability to meet your needs in this area.
How are returns processed?
Returns are an expected part of modern business, and how you handle them matters to your customers. It should come as no surprise, then, that the way your 3PL handles returns on your behalf will reflect on you as a business. Does your 3PL move through the return process efficiently and accurately? Are they careful to assess damaged items and put good items back into circulation in a timely manner?
Do you provide customer service?
It may seem out of left field, but customer service for fulfillment and delivery matters and can be a huge time and productivity saver for you and the 3PL. When a customer calls in asking a question about their delivery, they’ll be talking to someone with all the answers directly at hand, instead of requiring you to play the middleman about something outside of your immediate grasp. If a 3PL provides customer service, it can save you unnecessary headaches.
Ethics & Trustworthiness
How do you ensure accuracy of orders?
Accuracy is one of the most important qualities of a 3PL. If they can’t demonstrate accuracy, it’s a sign that they’re going to be very costly for you to deal with. Accuracy doesn’t just “happen”—it’s something that needs to be planned for, and a 3PL should have solid answers, based on specific procedures and protocols, that they can point to when asked this question. The accuracy rate of a good 3PL should be as close to 100% as possible, usually above 99%, as adequate technology and procedures will minimize as much as possible the number of botched orders.
How are errors corrected?
“To err is human,” as the old proverb goes. Though a good 3PL can minimize their frequency, in an industry with this much complexity, there’s bound to be a minor error every once in a while. What matters at that point is how the 3PL service goes about resolving such errors. Does the company you’re looking at have procedures in place for certain types of errors, or do they just shrug their shoulders and say that they’ll do better next time? It’s important for a 3PL to be organized, even when things go wrong.
May I see testimonials from your existing customers?
It may seem like a pretty basic question, but it’s important to know what other people in your position have experienced with a company you hope to do business with. Pay attention to what types of clients tend to have the best experiences with this 3PL. If you can find a reliable online review forum, take a look at the pros and cons of the company, and note the industries that worked particularly well or poorly with this 3PL.
How is the security of your warehouses and data?
The quality of your 3PL’s onsite security is important to you because it affects your products. Lax security means a higher shrinkage rate and less accountability, which costs you money. Knowing the capabilities of a 3PL’s security system will give you peace of mind and allow you to trust that they can keep your products safe, therefore protecting your bottom line.
It also is good to know how seriously your 3PL takes your privacy, and the privacy of your customers. Because of the nature of the service they provide, they will be trusted with loads of personal, identifying information about you and your customers. Gain an understanding of your 3PL’s data practices, and make sure that every precaution is taken to prevent data breaches.
Which software and marketplace integrations do you work with?
Today’s e-commerce world takes place across a wide variety of marketplaces, and includes huge piles of data that can be read and interpreted by any number of software options. It’s important to be on the same page with your 3PL when it comes to your marketplace, and the data you require. Ask if the information they gather is compatible with your particular marketplace and the software you use to track your business.
Do you have power and ISP backups to avoid downtime?
In a business with so many moving parts, warehouses and fulfillment centers require a considerable amount of power and wireless internet to keep things moving. If one location loses power or signal, it can halt the movement of literal tons of merchandise. These kinds of outages can be extremely costly, not just for the 3PL, but for each of their clients.
If your prospective 3PL has backups for both their electricity and their internet, this can save considerable amounts of time and money by keeping the wheels turning, even when external infrastructure experiences hiccups.
How do you track your inventory?
The exact methodology of inventory tracking in a 3PL environment will vary from company to company, but regardless of the form it takes, it’s highly important that a competent procedure is in place. There is a long and growing list of technologies that might be used ranging from barcodes and RFIDs to GPS and a myriad of others, depending on scale and use-case.
As long as your 3PL service uses a reliable database that keeps track of where each item, master case, and pallet is in it’s journey, and an organized system for locating and reporting the status of each of the above, you should be in good hands tracking-wise. If you have particular needs or requirements when it comes to tracking your inventory, be sure to bring these up with your prospective 3PL.
Do you provide real-time inventory data?
When you run an e-commerce business, numbers and stats are crucial to staying on top of the trends and patterns that inform your next moves. The thing is, these numbers can often fluctuate hour-to-hour, so a 3PL needs to have the technology and know-how to keep them straight at all times. If you’re hoping for up-to-the-minute insights on your inventory, you’ll need to partner with a 3PL that has those capabilities.
To reiterate, 3PL is a complex business that requires commitment from both parties. Do your homework, get answers to the questions above, and any others that apply to your 3PL needs. At the end of the day, make certain that you partner with the 3PL that is right for your business.