3PL (Third Party Logistics): Select the Right Fulfillment Partner in a Pandemic

3PL (Third Party Logistics): Select the Right Fulfillment Partner in a Pandemic

Editor's Note: This post was originally published in February 2018 by Nathan Resnick of Sourcify and Maia Benson from Shopify, and has been updated for accuracy and comprehensiveness.

The COVID-19 pandemic is infecting ecommerce fulfillment worldwide. Nearly 40% of ecommerce brands say they’re experiencing virus-related shipping issues because of international border closures and lockdowns affecting warehouses. Delivery delays and replenishment disruptions are expected to result in significant sales declines. 

Amazon has frozen FBA shipments for non-essential products. Postal operations are being scaled back in Spain, France, and Italy. Businesses fortunate enough to have orders to fulfill and ship are facing emergency delivery surcharges.

Health-related concerns are also impacting fulfilment. Medical journals report the virus may be able to live on cardboard for 24 hours. Mail and packages delivered to certain zip codes in the U.S. are being disinfected. Contact-free delivery is now the norm.

The United States Postal Service (USPS) has confirmed dozens of COVID-19 cases but says it’s committed to maintaining normal operations. UPS has suspended its money back service guarantee. FedEx has temporarily suspended service in some areas and is warning of delays in others.

Likewise, third-party logistics (3PL) providers are also being negatively impacted by the pandemic due to social distancing, uncertain lockdowns, and closed borders. The global 3PL market, which was forecast to top $1.3 trillion USD by 2024, is being tested like never before. You can see a real-time interactive map illustrating the impact COVID-19 is having on 3PLs in the U.S.. 

Despite unprecedented challenges, industry analysts say many 3PLs qualify as essential critical businesses. And those that are open and operating are leading generously—they’re being urged to donate critical supplies, expedite delivery to those most in need, and help with disaster recovery

Selecting the right ecommerce logistics partner has never been more important. You may even be considering multiple 3PL partners to diversify and mitigate risk associated with single-source providers. Here, we outline everything you need to select the right 3PL.

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Don’t have time to read the full article?

We partnered with Orderbot and Stitch Labs—two leading 3PLs—to create a checklist of 20 questions every business should ask before selecting a 3PL.

Download the 3PL Checklist

What is a 3PL?

Despite recent furloughs at 3PLs that fulfill non-essential goods, 3PLs have become a key component in the supply chain of many brands. You take the orders. Your third-party logistics provider (3PL) fulfills them. It’s that simple and if it’s seamless, customers never think twice about the handoff between received orders and its fulfillment. A 3PL is a link in the supply chain brands use to outsource part or all of a business’ distribution and fulfillment services. 

The market for 3PLs providers exploded following the birth and exponential growth of ecommerce. Most Fortune 500 (86%) companies and 96% of the Fortune 100 use services like these.

3PLs receive new inventory from your manufacturers before shipping it to consumers. They can also handle retail distribution and returns. Ultimately, they deliver your orders with an out-of-box experience.

When should you enlist a 3PL?

With social distancing requirements forcing some 3PL employees to work remotely, look for a 3PL partner that is driving efficiency with automation and paperless warehousing. Those that began their digital transformations before the pandemic hit may be better positioned to service businesses and deliver the customer experience you desire.

Don’t wait until you’re overwhelmed by order growth. Breaking the fulfillment promises you make to customers can damage your brand. It also prevents you from being wholly focused on growing your business. 

Three key questions will help you determine whether you need a 3PL:

Are you fulfilling more than 10-20 orders per day?

If so, calculate the costs of partnering with a 3PL to keep your profit margins strong. Likewise, estimate the growth potential—opportunities you’re not currently able to pursue–by outsourcing fulfillment.

Are you running out of costly inventory storage space?

Brands often forget to include storage costs in their fulfillment expense calculations. Compare your current expenses with estimates from 3PLs. Determine if bundling storage costs with outsourced fulfillment is a better value. 

Can your infrastructure handle the demand?

If you’re expecting a sustained spike in order volume—not just one-off flash sales or marketing promotions—estimate the costs and headcount necessary to meet demand yourself. Compare with the costs of outsourcing fulfillment.

Types of third-party logistics providers

Investigate crucial capabilities when comparing 3PLs:

  • Full service, end-to-end solution
  • Warehousing
  • Transportation 
  • Distribution
  • Shipping and receiving

Size and specialization matter. Some 3PLs lack the native full-service capability and specialize in one or two areas. Larger established firms offer end-to-end execution and integrate seamlessly.

1. Full service 3PL solutions

The COVID-19 crisis has made clear the importance of having real-time, multi-location inventory visibility. The pandemic has also put operational efficiency in greater focus. Not only is knowing how much stock you have and where a key component of improving operational efficiency, so too is shipping inventory from the location closest to the customer which cuts shipping costs. Full service 3PLs help ecommerce brands become more efficient during and after crises.

Full service providers, like the Shopify Fulfillment Network (SFN), offer brands an end-to-end solution that gets orders to your customers easily and quickly. With a vast network of strategically located fulfillment centers nationwide, full service 3PLs like ours ensure you have the right merchandise at the right location so orders ship faster and cheaper.

Full service 3PLs like Shopify Fulfillment Network offer:

  • Inventory intelligence: Shopify recommends where inventory should be stored in order to be close to customers.
  • Brand the fulfillment experience: Decide how fast orders are delivered and stand out with marketing inserts. Packaging is included with the pick rate or supply your own branded packaging.
  • Easy integration: No technical integration required. Shopify will help set up the Shopify Fulfillment app for you. Most 3PLs require extensive integrations and ongoing maintenance.
  • Same-day fulfillment: Orders received by 4pm EST are shipped out the same day

With full service 3PLs like Shopify Fulfillment Network, world class fulfillment that was once reserved for only the largest and richest companies in the world is now accessible and affordable for every high-volume brand.

2. Warehouse- and distribution-based 3PLs

Especially with COVID-19’s impact on order volume, the best warehouses acted as trusted advisors to their customers by offering product fulfillment workflow best practices. Warehouses that distribute are the most common type of 3PL—they store, ship, and handle returns. Innovative warehouses can help you offer Amazon Prime-like shipping in two days. If you’re expanding globally, international warehouses can help build a global supply chain.

When considering a warehouse solution, evaluate the following criteria:

Warehouse network:

You’ll require a larger network of warehouses if you promise customers expedited delivery. Shipping speed hinges on warehouses being geographically close to your customers. You’ll also need to accurately forecast inventory levels to appropriately stock warehouses in your network.

Pricing:

Demand a transparent pricing model—and understand how that model changes as you grow. Identify what’s included and what costs extra—ask about returns management or fees with each service. Or how extra services like “kitting” (bundling several products in special packaging) impact pricing.

Shipping carrier rates:

You might have better shipping rates than the warehouse you’re evaluating. If so, ensure your warehouse partner will accept them. Conversely, larger warehouse networks can often use their heft to negotiate deeper discounts than lone businesses.

Insurance:

Determine whether you want packages fully insured while in storage and during delivery and return. Be precise when negotiating. For instance, you may only want to insure items up to $100 or beyond. Understand if what you’re getting is insurance or simply a carrier-included liability.

Daily cutoff time for fulfilling orders:

Identify the time at which your warehouse stops fulfilling the day’s orders. If orders are placed after the warehouse cut off time, they won’t go out until the next day. This impacts how you market fulfillment and the delivery dates consumers expect.

Delivery service levels:

Sweat the contract details before you commit. Decide whether you prefer a refund or credit if shipments aren’t fulfilled on time. Be sure you know whether you’ll be credited for broken or lost items—understand the service-level guarantees offered to gauge your liabilities.

Management tools:

Ensure 3PLs integrate with your existing inventory management system (IMS), order management system (OMS), order processing software, and/or warehouse management solution (WMS). Synchronizing systems ensures orders are automatically picked, packed, and shipped while simultaneously updating inventory levels.

3. Transportation-based 3PLs

The global pandemic is spotlighting how crucial it is to have a single dashboard from which you can track orders worldwide in real time and automate delivery notifications.

Transportation-based 3PLs shuttle goods between locations. For example, they might transport inventory between your factory and warehouse or you and your retail buyer. Consider the following when weighing a parcel transportation provider:

  1. Origin location
  2. Destination location
  3. Timeframes
  4. Shipping methods
  5. Service levels
  6. Pricing and discounts

Remember to consider import/export taxes and duties if you transport freight globally.

Traditional parcel transportation providers include DHL, FedEx, UPS, and the USPS. Same-day delivery is normally handled by local couriers like Postmates and UberRush. Transportation marketplaces like Flexport, Freightos, and GrandJunction connect buyers and sellers.

4. Financial- and information-based 3PLs

The virus is causing many brands to focus on unit economics which requires visibility into key warehouse processes like pick-to-pack to better understand and calculate the costs associated with each unit or item sold. You must have the financial information associated with fulfillment at your fingertips if you’re going to make rapid and accurate decisions during crises and thereafter.

After you’ve scaled revenue to eight or nine figures, you might want to consider a financial- or information-based third-party logistics company. These firms provide industry-specific insight and can optimize complex global supply chains. They also provide internal controls related to freight auditing, cost accounting, and inventory management. Leading consultancies include Chicago Consulting and St Onge. Apps like ShipperHQ can also add valuable insights.

Advantages of 3PLs

With COVID-19 requiring some 3PL employees to work from home, warehouse automation has been thrust into the spotlight as a key differentiator. Many 3PLs will automate fulfillment for you, so you can focus on the rest. Spend time growing your business, not on paper-based omnichannel retail fulfilment processes or moving packages. 

1. Work with the pros

Shipment and fulfillment optimization are standard 3PL specialties. You can build your own team but because you’re not focused full-time on fulfillment, you’ll likely achieve substandard results versus 3PLs.

2. Manage internationalization

Expanding internationally requires a global fulfillment network. Processing international orders requires documentation and accounting for customs and duties. Outsourcing these responsibilities can make cross-border selling easier. It can also expedite delivery times, improve customer satisfaction, and reduce shipping costs. 

3. Limit Overhead

Leasing warehouse space and hiring a fulfillment team increases your overhead. Maintaining fulfillment assets is costly. Working with a 3PL can minimize costs so capital can be directed toward return generating endeavors.

Disadvantages of 3PLs

The biggest risks are losing control over your inventory and trusting a third-party with your brand.

1. Hidden responsibility

Your 3PL won’t interact directly with your customers. When products are late, who will your customers turn to? You. (Regardless of whether it’s your fault.)

2. Steep set-up fees

Significant upfront costs include integrating a 3PL’s software with your ecommerce store, SKU upload, and account access. 

3. Out of your hands

Inventory stored in 3PL warehouses won’t be immediately accessible should you encounter quality control issues. 

How to choose your provider

If COVID-19 has taught us anything, it’s that selecting a 3PL partner is likely one of the biggest decisions you’ll make. Not only must you be sure your 3PL provider will remain solvent during the coming economic downturn, but you’ll also need to trust the provider you select to take care of your brand and deliver the customer experience you envision.  

The right partner can make or break your company’s logistics, customer service, and repeat purchase rate. Trusting someone with sales, inventory, and other sensitive information is a significant risk. Choosing the right partner is a balance between quantitative data and relationship building.

Basics (Them)

  1. Do they have an enforceable non-disclosure agreement (NDA)?
  2. Do they have at least a two-year track record of financial stability and are willing to share financial statements with you?
  3. What are their hours of operations (including weekends and holidays)?

Volume (You)

  1. How many shipments from your factory do you receive on a quarterly basis?
  2. How many orders do you ship each month (in the following categories: B2C, B2B, domestic, and international)?
  3. What is your maximum capacity?

Performance (Them)

  1. Has their capacity grown over time? Does its growth match your own history and projections?
  2. How many warehouses do they operate?
  3. Do their locations correlate to your high-volume areas?
  4. Do they have strong customer references?

Charles Michael, Manager of Strategic Partnerships at Stitch Labs

3Pl (Third Party Logistics): Everything You Need To Find The Right Shipping Provider

“Many of our customers have trouble finding credible reviews. One way to circumvent this problem is learning who a provider’s customers are and reading those companies’ reviews that pertain to shipping and fulfillment.”

“Look out for the quoted price and understand that it often won't include value add-ons like marketing inserts, gift wrapping, and special packaging. If you feel like you're getting too good a deal, you probably haven't asked all the right questions.”

“Picking the right partner can be thorny. That’s why we wrote a blog post with more advice on finding and leveraging them here.”

11. Have they worked with companies in your industry? What vertical do they specialize in?

12. How do they compensate for delays?

13. Do they provide custom packing slips and gift messages or gift cards?

14. How do they execute next day orders?

15. How do they handle unexpected spikes in order volume?

    Technology (Both)

    16. Do they integrate directly with your Shopify store through an API or approved app?

    17. Do they have a standalone platform you can integrate with through an EDI or via FTP file transfers?

    18. What communications types are available for orders, shipping notices, returns, inventory counts, incoming purchase orders, receiving, and adjustment notifications?

    19. How easy is their standalone platform to use?

      Costs (Them)

      Steve Izen, Co-Founder at Orderbot Software Inc.

      3Pl (Third Party Logistics): Everything You Need To Find The Right Shipping Provider

      “The big mistake everyone makes is to ask about price first. Price is one of the last things you ask. A good provider is worth its weight in gold. Reduction of errors and timely deliveries equal happy customers, and happy customers order more.”

      “An extra 25 cents per order is cheap if your customers’ expectations are met, or even better exceeded.”

      20. What costs are included in their quote?

        Costs will normally be broken into the following categories:

        Transportation costs: Shipping products from your factory to your warehouse.

        Receiving costs: Offloading products from your transportation provider to their warehouse.

        Warehousing fees: Usually a monthly fee based on the amount of space used and charged per pallet.

        Pick-and-pack fees: Picking units from shelves or bins and packing them for shipment and discounted for higher volumes.

        Shipping costs: Delivery of product to your end customer.

        Account set-up fees: Account creation and software integration.

        Minimums: Minimum monthly spend is generally required.

        For example, here’s a recent quote from a San Diego based 3PL Sourcify received:

        3Pl (Third Party Logistics): Everything You Need To Find The Right Shipping Provider

        Image via Nathan Resnick

        By comparison, FBA recently rolled out their own pricing approach:

        3Pl (Third Party Logistics): Everything You Need To Find The Right Shipping Provider

        Image via Amazon

        Fulfillment during a crisis

        Whether you operate your own warehouse or partner with a 3PL, be sure the workers who are fulfilling orders are protected. Implementing workplace safety precautions, or ensuring your 3PL is doing so, is both good for the world and business. 

        The COVID-19 pandemic is causing many to reassess their business partners. Urgent questions are being asked; will my vendors, suppliers, and partners survive? Who should I partner with? How can they help me? How can I be a helper?

        The answers aren’t always clear. Ecommerce brands can’t control the destiny of each of their business partners. What you can control is the due diligence you conduct before selecting business partners. If you’re considering a 3PL provider, be ultra-thorough in your appraisal of potential partners. The right 3PL can change your business for the better. It can also help you better navigate crises like the COVID-19 pandemic and the better days that lie ahead.

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        Want more on 3PL?

        Craig Morris—VP of Strategy and Domestic Product Management at DHL eCommerce—joined Maia Benson—Global Commercial Head of Shipping & Fulfillment at Shopify for a live event.

        Discover how to ...

        • Select the right third-party solution
        • Manage inventory and multiple locations
        • Optimize shipping to give your company a competitive advantage

        Watch the full event here