For growing businesses, a 3PL (third-party logistics warehouse) is a convenient partner as they step in to handle the logistics and supply chain process that can be such a drain on your time and money if you choose to go it alone.
These days, post-COVID, companies have increasingly taken to selling online, therefore the role of a 3PL has increased in importance for many vendors. So, how do you pick the right 3PL for your needs?
Why use a third-party logistics company?
A dedicated 3PL logistics company brings the following to the table:
- Order and receive new inventory from your manufacturers as and when required.
- Storage in their warehousing facilities and supply chain management infrastructure you can piggyback.
- In-house logistics experts to optimize shipping pricing, pick the right incoterms, manage import/export paperwork, etc.
- They may have the ability to provide packaging (may include sourcing and design).
- Expertise in dealing with dropshipping and FBA, including complying with specific labeling and shipping requirements.
- They may handle returns and customer service, too.
In short, when your customers place orders with your business, your 3PL fulfills those orders.
This frees up time and money that would be spent on renting warehousing space, hiring staff, etc, for you to devote to growing your business instead.
Larger companies may have the budget to set up their own fulfillment operations, but for many SMEs and growing eCommerce businesses, it’s just too large of an investment of funds and time. Enter 3PLs.
How to select your 3PL provider?
When outsourcing to a 3PL logistics company, let’s explore some points you’ll need to consider when making your selection:
What are YOUR key needs from a 3PL?
Before starting a relationship with a 3PL, make a list of your must-haves, and anything that’s not critical but could be considered.
For instance, these could be any of:
- Are within my budget
- Are in the right location/s (this could be China, for instance, if all of your products are made there)
- Provide the basic services needed, such as warehousing, pick and pack, etc
- Can continuously fulfill to my customers based on a subscription model
- Have the expertise to handle my FBA fulfillment and packaging
- Understand my customers’ regions’ shipping and packaging compliance regulations
- Are able to link to my eCommerce systems, for example, Shopify
- Have the flexibility to grow with me and also handle one-off promotions such as flash sales, etc
- Can reach my minimum delivery expectations on cost and time
- Great communication and follow-up with an account manager
These are just some examples, but your business probably has similar requirements.
Do they sign an enforceable NDA to protect your IP and business?
Your 3PL has an enormous amount of access to your business, product, supply chain, and customer data. Therefore you need to be satisfied that they take it seriously and are willing to sign an NDA which is enforceable in the region they’re based. This would hopefully be a part of their service agreement, in any case.
👉 Related: Learn about the importance of enforceable agreements to protect product IP when manufacturing in this episode of our podcast.
Are they willing to work with smaller businesses?
Most companies using 3PLs will be SMEs as large companies will usually build their own fulfillment infrastructure. One shared feature of SMEs is that their order volumes may be lower or inconsistent, so finding a 3PL who will be committed to working with you even if you don’t bring high volumes to the relationship is required.
Client testimonials could give you an indication about whether they work with similar size companies to yours.
Is the 3PL a stable business?
This is a relevant question when sourcing any partner. It would be useful to know if they’ve been operating successfully for a number of years and are not in financial difficulty by performing due diligence on them. Requesting client testimonials and reviews will also be helpful here, and if they serve a number of similar clients to your business this will speak for their suitability.
Is their physical location suitable?
As made clear in this blog post about freight forwarders, the location of the company is important and it’s the same principle for a 3PL logistics company, too.
Working with a domestic 3PL who can act as a local distribution center for you, an example of which is our partner, Ship it Done, who is a US East-Coast specialist, may provide the convenience and control that gives you peace of mind as you’re speaking the same language and in the same (or similar) time zone, but costs may be higher and it’s a more lengthy and complex situation for them to communicate with, say, Chinese suppliers in order to get inventory from China to your country.
On the other hand, using China as an example again due to so much being made there, a local Chinese 3PL will likely be more affordable than a domestic one and will react to your needs and have a dialogue with suppliers faster due to being local to them and not needing to communicate with them from abroad across multiple time zones.
Do they have the expertise with eCommerce and FBA you need?
FBA sellers and other eCommerce vendors are reliant on good customer reviews and experiences. In the case of FBA specifically, regulatory compliance and quality standards are now enforced more than before in order to protect Amazon’s brand and vendors are bound by strict FBA performance standards. If these standards, which are definitely influenced by your 3PL, aren’t maintained, you risk your products being pulled from the platform which would probably damage your business (or kill it if you’re solely on FBA, for example).
Let’s look at the FBA performance targets:
- Order defect rate: < 1%
- Pre-fulfillment cancel rate: < 2.5%
- Late shipment rate: < 4%
A 3PL can potentially check incoming quality to avoid defective products reaching consumers, assure that you have the inventory in place so that orders don’t get cancelled, and assure that orders go out on time and reach consumers in time. So you can see how choosing one who is an expert in dealing with FBA and other eCommerce sites like eBay, etc, is critical if you’re a vendor where these are major platforms for you.
What’s included in their business offering that YOU need?
If they can reach your defined needs, they probably need to provide certain services and all 3PLs are a little different. Typically they offer a number of the following you’ll need to take note of when sourcing:
- Adequate storage size
- Correct location
- Incoming inspections
- Packaging (standard/custom)
- RMA facility to accept and handle returns
- National/global shipping
- Compatibility of their inventory management software with your eCommerce systems
- Operating times that suit your needs (for instance, it may be that they provide a 24/7/365 service, or perhaps they only work during working days)
- An account manager to handle your project (English-speaking if based in China)
If you have a basic product that has a track record of good quality, maybe incoming inspections aren’t critical right now, but a 3PL that provides more expertise than you currently require can support you if decide to scale your product offering and/or start omnichannel or international sales, so don’t necessarily discount one that seems to over deliver automatically.
Going through the sourcing process again in a year or so would be a large burden.
Do they have global expertise?
If you’re an American vendor with solely American customers then a domestic 3PL will be adequate, but let’s say you’re selling globally, what then?
Your 3PL partner needs to have the expertise to process international orders from their location, including preparing the correct cross-border documentation and handling customs and duties.
This will have an impact on delivery times, and, therefore, customer satisfaction.
What evidence is there of this expertise?
What to include in your RFQ?
After researching possible 3PLs and considering the points above, such as how well their facilities and expertise align with your business needs, it’s time to send an RFQ to your shortlist.
The 3PLs will need to know:
- An introduction to your business, products, and the scope of the cooperation with them.
- An idea of the types of order volumes you require them to fulfill.
- Your basic needs from them, such as warehousing, incoming inspection, pick and pack, shipping, etc.
- Your expectations on the minimum performance levels they need to reach, for instance, for delivery times.
Can Sofeast help?
Yes, we provide a comprehensive service as a 3PL in China with 2 warehousing facilities over 8,000 square meters and 200+ staff, including:
- Supplier management
- Logistics management
- Free trade zone 3PL fulfillment center
- Kitting & assembly
- And more…
What advice do you have for SMEs who’re choosing a 3PL? Please add your tips in the comments.
Let us know if you have any questions about selecting the right 3PL logistics company either in China or abroad, we’ll gladly give you some guidance if possible.