Expanding a successful online business often requires outsourcing order fulfillment, which can be a big step for startup business owners who have built a company through hands-on management. A third-party fulfillment center, or 3PL, can eliminate the burdens and risks of costly operational overhead. However, finding the right order fulfillment partner is a challenging business decision that can make or break a company’s future. According to a recent study by the Georgia Institute of Technology, fewer than 30 percent of the warehouses in the United States operate efficiently.
Four key factors can help online entrepreneurs decide if a 3PL will be a good fit for the next chapter in their company’s success.
The 3PL process starts long before actual order fulfillment. The warehouse will need to receive goods from the manufacturer, store the merchandise and prepare it for delivery to customers. Is the warehouse capable of handling the work the business model entails? Does it do similar processing for other companies? Business owners should discuss the entire order fulfillment cycle — from receiving through shipping — with the 3PL management.
Ask if the warehouse can handle split pallets and smaller shipments. According to a 2017 Supply Chain Warehouse & Distribution Center Operations Survey, more than half of all U.S. distribution centers cannot handle a mixture of pallets, cases and split cases. Asking the 3PL for examples of how the order fulfillment process works with similar retailers can provide keen insight into whether the warehouse will provide the right level of service desired.
Beyond order fulfillment and shipping, consider returns. A 2017 Statista report found nearly 28 percent of businesses take approximately two weeks to add a returned item back into inventory. (Not a great statistic considering that around 30 percent of e-commerce purchases are returned, and 81 percent of shoppers want simple, fast and easy returns, according to ComScore research.) Entrepreneurs should have the 3PL do a walk-through of the return process, including how it handles customer errors like missing shipping labels, merchandise tags or packing slips.
A little homework can go a long way. In addition to checking references, business owners might want to consider purchasing a product from one of the 3PL’s current clients to test the buying and delivery experience firsthand.
In today’s e-commerce environment, every process is dependent on seamless data flow and a solid IT infrastructure. Learning whether a 3PL can easily adapt with a company as it evolves and grows is important.
A recent Statista survey found that only 55 percent of businesses were satisfied with their 3PLs' IT capabilities. Businesses should find a warehouse that's operating on the latest technology, and then make sure that technology supports the company’s required workflow.
Find out if the IT is outsourced through a third-party-warehouse management system (WMS). Fulfillment warehouses that operate on old platforms or outsourced technology are risky. Older technology might be hard to adapt to new e-commerce platforms and to integrate with third-party marketplaces down the road. Outsourced technology can mean higher costs for integrations, and the adaptations often are passed on to the retailer and can cause longer lead times to launch initiatives.
Trust and Chemistry
Even in the most competent and sophisticated warehouses with advanced IT or high-tech automation, success is dependent on the people who operate it. Entrepreneurs should consider whether they trust the warehouse team to do everything needed on a daily basis and to be responsive to unexpected problems.
A UPS survey reports that more than 65 percent of returned products are the result of incorrect order fulfillment. Accurate order fulfillment can save retailers unnecessary expenses.
Looking for a 3PL with the lowest rate might cost a business more money in the long run. Entrepreneurs should make sure prospective 3PLs have security systems and a protocol for checking in their staff and temporary employees. Cargo theft alone costs retailers up to $30 billion each year in the United States, according to conservative estimates. Business owners should think about the big picture relationship with a 3PL and look for a facility that seems to be led by a group of reasonable and competent people.
While cost is an important factor, the price is moot if the warehouse falls short on any of the aforementioned points. For example, if a warehouse isn’t keeping accurate track of your inventory, any perceived savings will be lost in missing merchandise. On average, retail inventory is accurate only 63 percent of the time, according to recent GS1 Standards data.
Competent fulfillment warehouses will ask a laundry list of questions to identify all the potential costs in servicing your business. Understanding your business and effectively communicating all the variables is critical, including how products will come into the warehouse, how much the retailer will store, and how the retailer wants the presentation to go out the door.
Order fulfillment warehouses also need to make money. If a fulfillment partner didn’t properly price expenses and is losing money by servicing a retailer, it will likely be less focused on service. A menu-based pricing model can give expanding retailers more knowledge of what to expect as business grows. Startups and businesses with unknown profiles should expect to pay more until they get data that can be properly analyzed. If requirements change, expect the price to change as well.
Choosing the right order fulfillment center is never an easy decision. Entrepreneurs who do some background research and ask the right questions can alleviate costly expenses and setbacks down the road.
Written by Brendan Heegan.