Running an e-commerce business is a complex undertaking. There are a lot of moving parts that demand your attention, and you have to be cognizant to know what is best to keep in-house and what is worth outsourcing.
There comes a point in many businesses’ growth when the sheer amount of things that require their attention is more than they can feasibly handle alone.
This is the time to consider the benefits of partnering with a third-party logistics (3PL) provider that can manage your supply chain including order fulfillment, inventory management, transportation, and more. By investing in a good 3PL for e-commerce fulfillment, you’re taking advantage of the expertise and resources of a company that knows how to navigate the complexity and meet customer expectations. This frees up more time to spend growing your brand.
When it comes to choosing a 3PL, it can be hard to know where to start. How do you gauge the quality of a specialist’s work when it’s not your specialty?
Here are 21 questions to ask a potential 3PL logistics company to decide if they are a good fit for your needs
Many 3PLs don’t specialize in any specific industry or sales channels. When the need for speedy delivery times and value-added experiences is paramount, you need to be certain that your 3PL partner can meet your business needs and maintain quality standards as your business scales.
Even when a third-party logistics partner specializes in e-commerce fulfillment, it goes without saying that you’ll need to dig deeper into their warehouse operations and the different services. A 3PL may specialize in parts of the e-commerce world that aren’t relevant to your unique needs. Remember—e-commerce businesses come in all shapes and sizes, so you need to be certain that the logistics provider you choose is equipped to cater to whatever logistics process you require.
“A major advantage for us from the outset was that Ryder is very experienced at working with major fashion retailers, both online and offline. Their in-depth understanding of the industry gave us confidence that they understood both our needs and desire to offer clients an enhanced level of service.” Nikhil Soares, e-commerce supply chain and operations executive for Moda Operandi.
Consider the types of products that potential partners have experience in handling. Do you see any similarities or overlap with your own SKU base?
This may seem trivial at first, but inventory management is far more than just moving a product into the warehouse.
When it comes to warehousing and shipping products, there are a lot of factors for a third-party logistics provider to consider. Logistics operations need a high level of knowledge about SKU counts and characteristics to create an efficient order fulfillment strategy. For example, what is the size, shape, and weight of each SKU, and how many can they securely stack on a shelf or pallet? How many square feet of space will be required inside a fulfillment center? Will any specialized equipment or processes be required to store, ship, and fulfill orders?
Even in an industry as specialized as e-commerce fulfillment, there’s a lot of room for further specialization. Everything from footwear to cosmetics fulfillment requires highly tailored workflows and storage strategies to stay compliant with regulations. If a 3PL regularly works with products in your category, you’ll know that you’re choosing a 3PL that’s equipped to handle your needs.“
With Ryder, we’re able to be much more responsive to consumer demand. Their advanced automation and inventory management mean that retailers can now place orders as small as six units to augment their stock in real-time, rather than trying to predict which SKUs will prove popular. Ryder has made navigating these relationships so much more seamless.” Ted Feindt, VP of operations at Outerstuff.
If you prefer to work with specific parcel carriers or freight forwarders, it’s important to check whether a prospective third-party logistic partner can work with your shipping partners of choice. Some 3PL companies will only work with specific carriers that meet their required service levels or operate within certain regions.
It’s important to be aware that fewer shipping options reduce your flexibility. If you can’t shop around as easily for competitive rates, this may result in higher shipping costs for your ecommerce business. As your business scales and your customers become dispersed across multiple regions or even cross border, you want a 3PL partner that can obtain the best possible cost savings in your shipping strategy. The more carriers that a prospective provider has relationships with, the more ways there are to save money.
The key to any long-term partnership is knowing that a 3PL can accommodate your growth and is dedicated to continuous improvement.
As you undergo your selection process to choose a 3PL provider, you can’t just think about your fulfillment needs over the next six months; the right partner can scale and support your operation for years to come.
Many 3PL partnerships come to an end not because a business is unhappy, but because their logistics provider simply isn’t able to support their future business growth and order fulfillment needs.
For example, if you’re working with a small 3PL and they’re expecting your order volumes to remain consistent, you may be put in a difficult situation when consumer demand grows. If a third-party logistics partner can’t scale operations efficiently, such as handling a sudden escalation or drop in orders, you could miss out on valuable cost savings and opportunities to grow your business.
To choose a 3PL that can grow and adapt to your needs, you need to know whether a potential long-term partner has enough warehousing space, labor, and resources to accommodate your products, should your needs change in the future.
The location of fulfillment centers is an important consideration to choosing a 3PL provider that can lower last-mile delivery times and shipping costs. There are big advantages to being within a short drive of your 3PL partner or using a facility that is centrally located for easier access to customers.
Keep in mind some 3PLs may operate a single warehouse or fulfillment center, while others have a larger network of multiple locations nationwide. These have a mixture of pros and cons for ecommerce businesses, and one may be a cheaper option than the other. Check out our guide on centralized vs. decentralized fulfillment to figure out which is the best strategy for you.
“When the pandemic took hold back in March-April 2020, we were faced with our online order volumes surging beyond what we would normally handle even during peak season. Ryder was able to scale up fulfillment activities at our West Coast location ten-fold within just two weeks, and then scale down just as efficiently when normal patterns resumed in May. Their capacity to meet our newfound needs so quickly has made them an invaluable partner during such a challenging time.” Robert Hedwall, manager of supply chain and logistics at SodaStream.
Kitting is when multiple products are grouped, packaged, and sold together as a single offering, such as a subscription box or gift set. You can also provide an option for customers to purchase two or more products in a bundled deal. This way, you earn more revenue and your customer gets better value.
Value-added services are customization capabilities that are separate from regular e-commerce fulfillment services. For example, package inserts are an easy but tangible way to garner goodwill from your customers. By including a thank you note, a coupon, or product instructions with your orders, you can create a customer-centered experience for a comparatively small additional price.
So, if your business requires kitting, inserts, customized embroidery, or custom packaging, be sure to determine customization capabilities for different partners. Ask your prospective 3PL if they can perform these services, and consolidate yet another step in your order fulfillment process.
“When we started to look seriously at scaling our ecommerce fulfillment operation with Ryder, it was their embroidery capabilities that won us over. The ability, experience, and willingness to adapt that Ryder has shown via their value-added services has made them the ideal 3PL for us. We bought in the hardware, while they bought in the operators who we trained. It really is a true partnership.” Steven Feczko, senior director of operations at Hedley & Bennett.
Pricing can be difficult to quantify in a 3PL. Considerations such as the amount of warehouse space needed, SKU counts, and the value-added services required all have a bearing on the cost of fulfillment per order.
The high price tag of outsourcing fulfillment can be off-putting for many businesses. However, a good 3PL provider will allow you to increase efficiency and scale upwards with less disruption, creating more revenue than you could have independently.
While some lower-level 3PLs will offer a standard pricing model, many providers will not be able to give you a detailed quote for their e-commerce fulfillment services without knowing a considerable amount about your products and the volume you hope to sell. See what considerations a prospective 3PL partner requires to calculate their pricing to get a better idea of what you do and don’t have to pay for.
It’s important to note that if the type of services you need is specialized and complex, it will be priced accordingly. Though it can be a big investment upfront, it pays huge dividends in opportunity costs and increased business in the future.
As with any partnership or legal arrangement, you should know exactly what it is you’re getting into. Every business has its own needs, and these will likely change over time. You’ll want to make sure that a 3PL provider can meet, and continue to meet your needs for the foreseeable future, and that the intention to meet those needs is explicitly provided in the contract. Be sure that you don’t get trapped in something that is ultimately not the best option for your business.
Shrinkage accounts for any items that end up missing, stolen, or broken while in storage or a fulfillment center and therefore never make it to the end customer.
Because these kinds of errors are bound to happen, 3PLs will usually include a ‘shrinkage allowance’ or the number of your items that can legally go missing before your partner needs to repay you for the lost profits. If possible, try to choose a 3PL whose shrinkage allowance is as low as possible. This will ensure that they give your SKUs the respect they deserve.
Many 3PLs will set a MOQ (Minimum Order Quantity) for the number of orders that current clients must receive every month.
This is because third-party logistics requires a lot of thinking ahead and allotting the proper amount of warehouse space, labor hours, and storage configurations. A 3PL provider needs a prospective client account that will be worth the valuable space and time they’re allocating to it.
If you’re an emerging brand with smaller order volumes, this may mean that some of the larger 3PLs will not be willing to work with you. Estimate your inventory turnover as accurately as possible – as well as projections for the next twelve months – to see if a 3PL provider you’re considering can accommodate.
Many products have seasonal appeal in somewhat predictable ways, as different times of year precipitate the demand for certain goods and lower the demand for others. For instance, you can probably guess the month range when the vast majority of swimsuits will be sold, and likewise for snow shovels.
However, you don’t always know when some unforeseen occurrence will pop up that could disturb typical market forces and cause demand for your product to spike. When this happens, it can be a fantastic opportunity to get your brand on the map – but only if you have a 3PL that’s able to meet an unexpected surge in demand.
It’s important to ask your 3PL about their capacity and request case studies to determine if they are flexible enough to handle a sudden increase in your product.
“Rad Power Bikes has seen massive growth every year since the company was founded, and as demand and interest for ebikes has surged, we needed the ability to scale quickly. With a Seattle presence and a nationwide operation, Ryder was a clear choice for a fulfillment partner that allows us to deliver an unrivaled customer experience.” Mike McBreen, chief operating officer at Rad Power Bikes.
Because of the nature of today’s interconnected world, consumers expect things to happen at a fast pace. Your customers are no different. Two-day delivery has rapidly become a standard expectation in e-commerce, thanks to the likes of Amazon getting consumers accustomed to free and fast delivery. Your business can achieve these delivery times too – if you choose a third-party logistics provider that can reach your customers quickly.
You should assess each prospective 3PL’s delivery capabilities. What percentage of your packages can you expect to reach customers within 2-3 business days? What can your partner do to speed up this process? In doing so, you can find out which partners are capable of unlocking advanced delivery capabilities, such as next-day and even same-day delivery.
A major bottleneck in e-commerce fulfillment is order processing. If there’s a lag between customers placing orders and the order being routed to fulfillment centers, this is precious time ticking away that will delay home delivery. It might not sound like a lot, but most 3PLs will have a cutoff time in place for shipping orders. If processing delays an order shipment until the next business day, this can translate into a lot of late deliveries.
The faster a 3PL can receive and process your orders, the sooner your customers will receive them. If quick delivery is important to your customers, make sure you understand a 3PL’s capability to meet your needs in this area.
“Faster turnaround has enabled us to scale up how many orders we can ship per day. Our biggest day so far with Ryder saw us ship between 19,000 to 20,000 orders during our January sample sale—a volume that would have taken around 14 days with our old 3PL. Despite the complexity of the implementation, the results were totally worth it.” Jon-Mark Craddock, director of logistics at Tuckernuck.
Return management is part and parcel of being an ecommerce business, and how you handle them has a big influence on the quality of the post-purchase experience. It should come as no surprise, then, that the way your 3PL partner handles returns on your behalf will reflect on you as a business.
The reverse logistics process doesn’t always get the attention it deserves when outsourcing, with many 3PLs focused on outbound orders rather than those that come back to the warehouse. But with returns culture now firmly embedded in the e-commerce customer experience, seamless and cost-effective return management is essential to maximize resale opportunities and boost customer loyalty.
Does your 3PL move through the return process efficiently and accurately? Do they offer integrations with external return management tools? Are they careful to assess damaged items and put good items back into circulation promptly? The answers to these questions will tell you whether or not a prospective partner has a reliable returns workflow.
Accuracy is one of the most important qualities of a 3PL. A commitment to accuracy in all aspects of your logistics operation, whether that’s for order contents, inventory levels, or delivery dates, is vital to keep your customers happy and your supply chains healthy.
But accuracy doesn’t just “happen”—it’s something that needs to be planned for, and a 3PL should have solid answers, based on specific procedures and protocols, that they can point to when asked this question. The perfect order rate of a good 3PL should be as close to 100% as possible, usually above 99%, as fulfillment automation will minimize as much as possible the number of botched orders.
“To err is human,” as the old proverb goes. Though a good 3PL can minimize their frequency, there’s bound to be a minor error every once in a while. What matters is how the 3PL service goes about resolving such errors. Does a prospective 3PL logistics company have procedures in place for certain types of errors, or do they just shrug their shoulders and say that they’ll do better next time? A 3PL needs to be organized – especially when things go wrong.
It’s important to hear from a 3PL’s current clients to understand what they are like to do business with. Pay attention to what types of clients tend to have the best experiences with this 3PL. If you can find a reliable online review forum, take a look at the pros and cons of the company, and note the industries that worked particularly well or poorly with this 3PL. You should also review any case studies that a 3PL has produced; approaching those businesses directly to get their take is a great way to verify that their experiences were positive.
The quality of your 3PL’s onsite security at its facilities is important to you because it affects your products. Lax security means a higher shrinkage rate and less accountability, which costs you money. Knowing the capabilities of a 3PL’s security system will give you peace of mind and allow you to trust that they will keep your inventory safe, therefore protecting your bottom line.
It’s also good to know how seriously your 3PL partner takes your privacy – and the privacy of your customers. Because of the nature of the services they provide, they have to be trusted with personal information about you and your customers. Gain an understanding of your 3PL’s data practices, and make sure that every precaution is being taken to prevent data breaches.
A good 3PL in the age of e-commerce isn’t just an operations manager. Behind every brand is a complex ecosystem of selling platforms, business management systems, return portals and more. If your logistics partner cannot offer seamless integrations with widely-used systems, your business will have to put in a lot of legwork to get everything connected. Choosing a 3PL with a range of built-in integrations means a smoother onboarding process and less time being taken up by technical concerns.
“We are Shopify-based, so the technical integration with Ryder was seamless and straightforward. The onboarding process was very professional, and we saw how much of management’s attention went into it.” Zvika Alon, COO of Edikted.
The exact methodology of inventory tracking in a 3PL environment will vary from company to company, but a comprehensive system must be in place. Your 3PL should be able to filter and monitor individual SKUs with up-to-the-minute accuracy by integrating their inventory management system with your selling channels.
If you have particular needs or requirements when it comes to tracking your inventory, be sure to bring these up with your prospective 3PL to see whether they can give you this visibility with their systems.
When you run an e-commerce business, numbers and stats are crucial to staying on top of the trends and patterns that inform strategic decisions. These numbers can fluctuate hour to hour, so 3PL companies need to have the technology and the know-how to keep data accurate. If you’re hoping for real-time insights on your inventory, order status, and more, you’ll need to partner with a 3PL that offers those capabilities.
“Before partnering with Ryder there were some services we weren’t able to offer, such as in-store returns. This added a lot of friction to the customer experience. Integrated inventory management has been a real game-changer for the Calzedonia brand – and our ability to meet consumer expectations.” Marcello Veronesi, CEO of Calzedonia USA.
Partnering with a 3PL logistics company is a complex undertaking that requires commitment from both parties. Do your homework, and get answers to the questions above, and any others that apply to your 3PL needs. This will allow you to build an accurate picture of prospective 3PL partners and pick the appropriate provider for your needs.
