Great products and effective marketing are essential to an eCommerce brand’s overall success. However, they serve no purpose if brands are unable to ship those products quickly. Fulfillment is key. Few brands can handle the entire operation by themselves. That is why savvy brands turn to third-party logistics providers (3PLs) for help.
What is a Third-Party Logistics Provider?
A third-party logistics provider is a specialist provider of fulfillment services that any brand can partner with to fulfill orders and manage inventory and warehousing needs
3PLs offer a range of services writes the team at Ship My Orders. These include:
- Inventory management
- Customer service
Crucially, 3PLs do not take ownership over the items they ship, writes Steven Ciemcioch, President at Warehouse Anywhere. Instead, these companies act as intermediaries.
How Can 3PL Providers Add Value to eCommerce Brands?
Third-party logistics providers are in high demand due to the significant benefits they bring to businesses of all sizes. “More than 95% of all Fortune 100 companies use some form of 3PL,” according to The Fulfillment Lab.
Fulfillment costs are one of the largest expenses for eCommerce brands, but they can be reduced with 3PL partners. Third-party providers eliminate the cost of warehouse space and the overheads that come with them. They typically have preferential rates with carriers, too.
Ability to Scale Operations
While every eCommerce brand wants to scale their operations, this rarely happens gradually. Sharp fluctuations in demand are more common. These demand spikes can make running an in-house fulfillment operation incredibly difficult.
With a 3PL partner, brands can scale their fulfillment operations with ease, writes DCL Logistics’ Hadleigh Reid. “Usually, a 3PL service provider will allow you to scale space, labor, and transportation according to your current inventory,” he explains. “Thus, you can rent out more warehouse space in their fulfillment centers during the holiday season and less during off-seasons.”
Access to Industry Experts
eCommerce founders are rarely as experienced in logistics as they are in entrepreneurship and business management. 3PLs allow product-focused teams to focus on what they do best, while industry experts handle logistics, writes Max Freedman at Business News Daily. A good 3PL is capable of elevating a brand’s product delivery operations to its maximum potential.
How to Choose a 3PL Partner
The first step for brands looking to scale fulfillment operations and reduce costs is to find the right 3PL provider.
Find a Carrier That Ticks All the Boxes
Different 3PL carriers provide various services. Brands need to find the right one for them, says Darren DeMatas, Co-Founder of eCommerce CEO.
“If you want to sell products in more than one location, it’s best to go with a global 3PL company that will be able to handle the logistics for all of your sales,” he writes. “Also, you may want to deal with a third-party provider that is well-versed in your product niche. For example, if you mainly sell electronics in your eCommerce store, you may want to choose a third-party logistics company that handles electronic products often (it doesn’t have to be exclusively).”
Think About Returns
Returns are part of doing business as an eCommerce retailer. So much so that brands need to account for them during fulfillment. “The good news is that some 3PL providers also offer returns management as part of their fulfillment center services,” writes Kaleigh Moore at online business incubator A Better Lemonade Stand. “This stops you from being inundated with returns, while also guaranteeing your customers’ needs will be addressed in a timely manner.”
Meet 3PL Partners
Brands should take the time to meet each prospective partner and tour their facilities.
“It’s important that you not only understand how everything works, but how the company manages itself and its workers,” says Jake Rheude, Vice President of Marketing at Red Stag Fulfillment. He recommends considering the following points when touring facilities:
- How are employees compensated and incentivized?
- Are employees rewarded for picking quickly and accurately?
- Do they care about customer service?
Analyzing the Proposals
Brands must make sure the benefits of each 3PL match their business needs when assessing proposals, writes Daisy Cabral, CEO of vitamin store chain Bella All Natural. Brands will ideally want to partner with 3PLs who specialize in an area they wish to improve. Any logistics metric is fair game here, from delivery speed and customer service to geographic reach and accurate order fulfillment.
Running the costs is a requirement. “With the data provided to you on rates and fees, run sample calculations,” Cabral writes. “How much would it cost you to use this center over what you’re currently using, for the previous month of sales? How much will it cost if you continue to grow, and at what point do the fees increase? Are there thresholds you want to stay above (or below) in terms of sales volume to keep the best pricing?”
Finally, brands must ensure their chosen 3PL can integrate with the company’s existing order management systems. A partner that can provide more efficient alternatives and assist with systems migration is another option.
How to Foster a Positive Relationship with 3PL Partners
The relationship between eCommerce brands and fulfillment providers is not like other B2B relationships, says Rafael Zakinov, Founder and CEO at fulfillment company Ruby Has. The more each party integrates and collaborates, the more likely both are to succeed. Here is how brands can improve their relationship with 3PLs.
Communication is Key
The secret to a great brand-carrier relationship is setting “clear expectations on both sides,” writes Ellie Kulick at operations management platform Stitch Labs. Brands should:
- Be clear on the services they expect carriers to provide including deadlines and milestones
- Establish KPIs to track the carrier’s performance
- Clarify what happens when a mistake occurs
- Appoint a single point of contact
Work With Carriers to Improve the Delivery Experience
According to a recent report by Supply Chain Dive, 36% of customers have a carrier preference. 31% of those surveyed claim they would avoid purchasing from brands that use carriers of poor performance or reputation.
Jennifer McKevitt, Supply Chain Dive Contributing Editor, recommends brands familiarize themselves with their chosen carrier’s delivery process. By making test orders and soliciting feedback, brands can improve their customer’s shopping experience and regain their loyalty.
Get Ahead of Popular Products
Even the best 3PL providers cannot react instantly to sudden shifts in demand. That is why brands must forecast for hot products and stock them accordingly.
This is the exact strategy Overstock took during the 2019 holiday season, says Vince Atkin, former Overstock Vice President of Supply Chain, now CEO at Kable Product Services. The brand planned which products would be going on sale during the Black Friday-Cyber Monday period and shipped them to three 3LP warehouses across the country. This meant products were located as close to as many customers as possible, allowing carriers to deliver items more quickly.
Seek Out Their Expertise
3PL providers are experts at what they do. Their work allows brands to scale operations as needed while keeping costs under control. Brands that recognize this advantage will get the most out of their 3PL partnerships.