Choosing the right 3PL fulfillment partner can be the difference between the success and failure of your growing business. 3PL companies support shipping operations by providing one or more services, depending on what functions you want to outsource.
These functions include: warehousing, transportation, fulfillment, and logistics. The right partner will take a heavy load off you, allowing you to focus on other crucial aspects of the business.
However, the wrong partner will cause you significant loss and stress. So, how do you know if a 3PL company is the right one for you? Check out seven 3PL warning signs to look for when choosing a fulfillment partner:
1. Lack of Experience in Your Industry
For industries such as clothing, food & beverage, and health products, it’s crucial for your fulfillment company to have ‘tried and tested’ experience in warehousing and fulfilling these types of products. Even fairly young 3PL companies are worth a shot as long as they have some industry-specific experience with references to back them up.
Clothing brands, for example, can have unique inventory management challenges due to high SKU counts and low inventory on hand for each SKU. They could also require customized returns handling. Every industry or product category can have distinct requirements that make a fulfillment company’s prior experience a huge plus. And if you can draw on your fulfillment partner’s experience when you run into obstacles, you’ll have an advantage.
Recommendation: Ask your fulfillment partner what industries they specialize in, and ask for client references in those industries. Check these references and get in touch with them for further information.
2. Poor Inventory Management
Inventory management can be a complex process for fulfillment companies. Too much inventory means dead stock. It also means that you’re spending more money on warehouse floor space. Too little inventory means you’ll run out of stock and disappoint your customers. The problem is, it’s difficult to assess inventory management practices just by looking at your fulfillment partner’s website.
Recommendation 1: Ask 3PL’s what their inventory accuracy Key Performance Indicators (KPIs) are, and what they consider to be best practices for maintaining them.
Recommendation 2: Once you’ve narrowed down the list of potential partners, go and visit each one before making a final decision. Take notes on how organized the warehouse floor is. Ask how their replenishment process works, how receiving inventory works (scan based or manual, how is it verified, are ASNs required, etc.), how often they do cycle counts, and what their procedure is for issue investigation.
3. Order Inaccuracy
Your products may look similar to others or have similar SKUs. Some products may require specific packaging rules such as stickering items for wholesalers. In such cases, inaccuracy can lead to confusion and your customers will be disappointed when they receive the wrong products.
Recommendation: Ask your 3PL what quality control measures they take on outgoing orders. Do they scan all items visually with a pack list? What steps do they take to reduce miss picks (e.g. do they separate like items into different locations in the warehouse)?
Do they have an error investigation protocol when a mistake happens? What are their accuracy rates? What is their policy on reimbursing you for errors made in the fulfillment process? A 3PL that is confident in its operations is more likely to have a clear policy for investigation and reimbursement.
4. Seasonality Management
In Q4, a typical 3PL’s order volume can grow 3x – 5x. How do they prepare for this spike? Most 3PLs bring in temporary labor to help. Even if your business is not seasonal, by working with a 3PL, you’ll suffer from the seasonality spikes of other clients.
Recommendation: Ask your potential new 3PL how far backed up they got during last year’s cyber weekend crunch. Did they manage to keep up with demand and hit their normal turn around SLA’s? How did it affect other businesses that aren’t seasonal? What is their training process to ensure quality and accuracy don’t suffer? Some 3PL’s can get 2+ weeks behind schedule during this time of year.
5. Cost Transparency
Unfortunately, hidden costs are common amongst 3PLs. That’s because it can be difficult to estimate the true cost of operations with diverse client bases. And shipping costs, which are typically much higher than fulfillment costs, are also a factor if you choose to use your 3PL’s accounts for purchasing postage.
For both fulfillment and shipping costs, take caution if your 3PL is not forthright and transparent with all their costs. Be sure to press them for more details on any areas that seem vague, such as hourly pricing.
When you have problems and need fast answers, a 3PL partner with excellent customer service is a must. You’ll get a good picture of this during your information gathering stage. Take note of how responsive their sales team is to you. How quickly are they getting the answers and details you’re seeking? Are you satisfied with their responses or do they give you vague answers?
Recommendation: It’s a good idea to talk to references before making a final decision – when doing so, ask them the 3PL’s typical response time on issues, and how well they handle problems that arise.
7. Technology and Integration Capabilities
The success of your business and partnership with a 3PL company will depend on reliable technology and integration. And in the ecommerce world today, technology drives some of the most important fulfillment processes. Just look at the newest trend: micro fulfillment centers. These warehouses use the latest tech to streamline fulfillment and create a better experience for customers and merchants.
Similarly, operations will not run smoothly if you can’t access vital data and reports via the 3PL’s portal. Having an integrated platform allows your back-end applications (like accounting and inventory) to have an automatic conversation with your ecommerce site. You won’t need to enter information in the system manually.
For example, while keeping track of inventory, the product count in the ERP system must change after a sale. Without integration, you will have to change the product count individually on each system. But with the integration, it will change automatically. See if you’re ready to implement a new integration by evaluating your fulfillment system.
Integration reduces errors, saves costs, shortens order cycle time, and improves customer care experiences.
Check which platforms your 3PL integrates with. The ability to integrate with ecommerce platforms such as Shopify, or inventory management tools such as Ecomdash, is crucial. You can also check if your potential 3PL partner has an open API. How stable and functional is their web portal? Ask for a demo of the portal, and make sure you can access order data, shipping data, and view billing reports, and run inventory reports.
The point of partnering with a fulfillment company is to help scale your business. The wrong partner will cause significant losses to your bottom line and hamper your growth. Knowing the red flags that indicate a poorly-run fulfillment company will help you avoid that headache. Since this is meant to be a long-term relationship, it’s crucial that you take the time to rule out these warning signs before you sign that dotted line. And when you’re ready to work with a 3PL, check out our post on outsourcing fulfillment cost and find out how to budget for this investment.
About the Author: Chris is the Technology Lead at Excelsior Integrated, a 3PL Fulfillment company serving high growth ecommerce clients from warehouse locations in Massachusetts and California. Chris has been with Excelsior for 7 years, through an exciting period of evolution. He now lives in New York City.