You may have heard of something called a 3PL. It stands for Third Party Logistics which is basically a warehouse that will store your product and pick and pack your orders on your behalf. You effectively get all the benefits of a big warehouse while only having to pay based on your actual usage.
Choosing the right 3PL is crucial. They play an important role in your relationship with your customers. When it goes right, you’ll see repeat purchases and very happy customers. Unfortunately if you choose the wrong 3PL, it can be disastrous for your business and cost a lot of time and energy. Before we delve into what to look for, let’s review the standard charges for using a 3PL:
INBOUND
The is the cost of receiving your product into the warehouse. You will often see terms like Receiving, Count & Putaway in reference to this activity.
STORAGE
There are lots of areas within a warehouse that your product may be located. You will generally need to pay for a pick face location (where the pickers pick from), and bulk storage for any leftover product that doesn’t fit in the pickface.
There are a few exceptions to this, for example, if you have fast moving bulky goods they will usually be picked from pallets, or where you don’t have much stock and so all of your product can fit in a pickface, you won’t need bulk storage.
PICKING
Usually the 3PL will charge an order fee for each order, and then a fee for every item picked. There will usually be different rates for units vs full cartons vs pallets, as well as heavy or oversized products versus standard sized products.
PACKING
Unless you want the 3PL to giftwrap your product or use custom boxes, the fee for packing is usually included in the picking fees. The only exception is that 3PLs will charge for cartons or satchels (usually at a cost + 10% rate).
FREIGHT
Some 3PLs give you the option of bringing your own freight carrier rates or using theirs. It is generally cheaper to use theirs due to their bulk volume discounts that they pass on. In addition, if you do BYO your own rates, you may have to pay a small fee per order to cover the cost of organizing shipping with your carrier.
For a more detailed description of 3PL rates as well as how to save money, feel free to use our free calculator or alternatively contact us to arrange for us to find you a 3PL .
So here are the 7 things to look for when comparing 3PLs:
1. COMPETITIVE COMMERCIALS
Knowing the above, the #1 things to look for are the commercials. The challenge with this is that every 3PL has a different way of charging, they use different terms and some will be more expensive on inbound but cheaper on outbound. Do not fall for a single fee. The only way to truly compare 3PLs is to model the costs across 12 months based on a set of assumptions for your business.
2. EXCELLENT SERVICE LEVELS
There are 4 main Service Level indicators:
i) Pick/pack accuracy
This is the % of orders that are packed correctly. It is hard to measure as it relies on recipients reporting the error to the seller. (If the warehouse knew they picked in error they wouldn’t send it out) It should be at least 99%.
ii) Dispatch on time
As mentioned above, the 3PL warehouses will set an order cut-off time for your orders. This measures what percentage of your orders are dispatched within this cut-off. It should be at least 97.5%
iii) Inventory accuracy
This is how accurate the inventory number is given incoming goods and outgoing orders. It can be impacted by warehouse accuracy as well as your manufacturers’ accuracy. It should be at least 99%.
iv) Inbound turnaround time
This is the time it takes from your stock arriving to the warehouse and being available to sell (dock to stock). It’s usually 48 hours however 24 hours is best practice.
3. GREAT CUSTOMER SERVICE
Things can and do go wrong. Whether it is your manufacturer who makes a mistake or the 3PL, at some stage you will encounter an issue. The key to a good 3PL is how they handle these issues. Many a poor 3PL have caused sellers grey hairs through a lack of communication or desire to resolve issues.
4. COMPREHENSIVE REPORTING
You should be able to view your inventory levels and the status of all of your orders in the warehouse. The best 3PLs provide this via a customer portal. Worst case you should receive regularly via email. OmniGrowth's technology provides an advanced reporting and business intelligence suite which can assist you in understanding and optimizing your supply chain.
5. ABILITY TO SUPPORT YOUR BUSINESS’ GROWTH
There’s no point moving to a 3PL that can’t support your growing business. There are two key things to look for:
i) The physical space to support your growth
ii) Strict processes – this is a good sign they can scale to support peak Sales’ periods
6. EXTENSIVE INTEGRATIONS
A 3PL should save you time. You don’t want to be messing around with uploading .csv files if you can avoid it. The best 3PLs should integrate directly with your shopping cart so that orders flow directly to the warehouse for fulfilling. This includes marketplaces like eBay, although many sellers use an integration platform like Neto or Shopify to manage marketplace orders as they allow for centralized inventory control.
The best warehouses will also integrate with the major ERPs and inventory management software such as TradeGecko. In addition, the warehouse should feed your parcel tracking numbers back to your website for communicating to your customers. While some charge for these integrations, it will save you so much time in the mid-long term.
7. GREAT REVIEWS
I’ve put this last as it’s an imperfect measure. Unfortunately, when it comes to 3PLs, the retailers/sellers who have a great experience rarely provide a review. Alternatively, the people who have a bad experience (be it their fault, the 3PLs or a combination) are usually extremely active when it comes to writing reviews.
The better measure is to ask for the contact details of businesses who are a similar size or in a similar industry to you so that you can probe for their experience.
Using a 3PL can be a great move for a business, however before you sign up with one, make sure you evaluate them against the above 7 criteria to ensure they’re the right partner for your business.
Andrew Carroll is the owner of OmniGrowth, an independent service that retailers can use to find a 3PL. Finding a reliable 3PL and comparing costs can be complicated….OmniGrowth make it simple. Let us find you the right 3PL with our free 3PL cost calculators or 3PL Search services.