10 Tips for Retailers Considering a Third-Party Logistics Provider

A famous strategic imperative, expanding e-businesses will often work with a third-party logistics (3PL) provider to overcome barriers to growth. Also known as eCommerce, order fulfillment involves a specialist warehousing and technology company managing the picking, packing, and distribution of business operations. In the last decade, the proliferation of 3PLs, thanks to the surge in online retail, has expanded into other business process outsourcing elements, including customs clearance, returns, order reworking, garment ironing, frozen goods storage, and outsourced customer service. In this article, we cover the things you should consider before signing that 3PL contract.

1. Define your need

Consider why you are looking to outsource to a fulfillment center in the first place. If you already have your pick-and-pack staff and premises, you can better optimize your operations, which might buy you more time. Are you looking to outsource fulfillment to increase international sales or to accelerate order processing? For some retailers, working with a 3PL is purely a cost-saving exercise. In contrast, for others, it may accelerate order processing so that leadership can focus on strategy and vision better.

2. Evaluate the 3PLs’ expertise

Some order fulfilment centers will be based in one country, whereas others will have premises overseas or at least partnerships with other 3PLs in other countries. Some 3PLs specialize in one type of integration, such as Shopify, whereas others focus on particular product verticals, such as sporting goods, homewares, and health and wellness.

3. Assess technological suitability

Your current sales channels are a sound starting point. You might have your website built on a platform like WooCommerce. You might also sell via marketplaces like eBay, Etsy, and Amazon. If this is the case, you must work with a 3PL experienced in helping multi-channel retailers deliver a consistent, omnichannel customer experience.

4. Check their customer testimonials

Not only their client success stories but also on third-party review platforms such as Trustpilot, Google My Business / Google Maps, G2Crowd, and even GlassDoor. At the same time, this website won’t show their client reviews; it will show staff reviews of leadership and the company, which can indicate the service they offer clients and provide insights into how they run their organization. Consider reaching out to their publicly visible clients and relevant agencies directly. For example, if your website is based on the Magento eCommerce platform, contact Magento development agencies with experience helping similar online retailers.

5. Consider their scalability and flexibility

3PLs will vary in terms of their available warehousing space and the direction in which their business is heading. They could be on track to expand their premises. Hopefully, they will continue investing in best-in-class technology, such as inventory analysis tools. As your business grows, will it grow with you? Will they offer preferential pricing based on your order volumes? 

6. 3PL’s partnerships

These are another way of verifying that it is trustworthy. For example, it might work directly with major eCommerce platforms, order management systems, and cross-border growth consultants. A partnerships-focused 3PL typically offers a more consultative, long-term approach to client account management.

7. Compliance and security

Consider how and where your customer data will be stored and which security processes the fulfillment house has in place for your products. What would be the outcome if a product were to get lost or damaged? Establishing no blurred lines is critical, so it is clear who is responsible if something goes wrong. This could be when your supplier delivers your goods in bulk to the fulfillment warehouse, during the storage, picking, and packing, or after the parcel carrier has collected an order from the 3PL.

8. Establish service level agreements

IKPIs (key performance indicators) and OKRs (objectives and key results). KPIs will establish metrics such as order processing and delivery speed, success rate, and WISMOs (Where is my order? queries). At the same time, OKRs will provide periodical goals to work towards, such as average customer repeat order rate, customer defection rate, and customer lifetime value (CLTV). Minimum order volumes fit into this category, too. While some fulfillment centers will help start-ups and growing SMEs shipping 10 to 30 parcels per day, others work solely with mid-market and established retailers, shipping more than 300 average daily packets, parcels, and mail.

9. Ensure clear lines of communication

During onboarding, you will be introduced to your technical support specialist, who ensures a seamless integration with your sales channels and technical infrastructure. While it will vary for each 3PL, you will typically also interact with different representatives from sales, account management, and customer experience. You will be best placed to demand transparency of order processing activity, and you will benefit from receiving timely inventory notifications to ensure you avoid understocking (and missing out on sales) and overstocking (which can lead to capital tied up in product inventory, which is particularly disastrous for perishable items.

10. Check for hidden fees and ensure cost transparency

Your contract must cover all elements of eCommerce fulfillment pricing, including minimum monthly spend, order cut-off time, and whether the 3PL offers weekend order dispatching. You must establish payment terms, shipping fees, goods-in, picking, packing, and returns pricing. Fulfillment houses will also typically charge for storage space pallet spaces (per week) and face storage (when your products are bundled with other items). 3PLs will normally offer shipping fees based on order volume and the fulfillment center’s client base’s shared, collaborative buying power. These shipping fees can include fuel surcharge, oversized handling fees, and additional charges for optional extras based on many in-flight delivery options.

Some final 3PL thoughts

The fulfillment warehouse market is predicted to outgrow eCommerce between now and 2030. This means greater popularity of 3PL services and deeper market penetration. Consumers will increasingly demand greater personalization and fast and free delivery. Meanwhile, the same online shoppers will demand sustainability from retail decision-makers. This places pressure on eCommerce logistics companies to become their clients’ core competitors, which is, literally, their competitive advantage.