How to get started with third-party logistics
Most online businesses choose to fulfill their own orders in-house when they first start out. Much of the upfront workload of getting an ecommerce brand off the ground is in honing your product line, understanding your market, and marketing your brand. Indeed, in the third quarter of 2019, advertising and marketing spend accounted for 44% of ecommerce expenses.
Put up against these mission-critical areas of focus, fulfilling your orders yourself may seem like a good way to keep costs down and maintain control over your internal operations. There is certainly an argument for self-fulfillment, particularly if you’re working with a limited budget or if your product or packaging involves a high level of customization. But for up-and-coming ecommerce brands, working with a third-party logistics provider (3PL) can open up growth potential, create better experiences for customers, and reduce complexity across your supply chain.
One of the main benefits of working with a modern 3PL is that they offer tools that help you move beyond the traditional supply chain framework. A traditional supply chain looks like this:
This model does get the job done. Your products will eventually reach the customer. But in this framework, information never flows back upstream. Working with a 3PL provider that integrates data from across the process can streamline your supply chain management, saving you money and improving customer experience.
If, for instance, you work with a modern 3PL that allows you to look at data across the lifecycle of an order—or better yet, to forecast demand for a product line based on historical data—you can prevent build-up of inventory that just sits in the warehouse space, accruing fees.
How should I think about choosing a third-party logistics company?
Here are a few things to keep in mind when selecting a third-party logistics company that will help you build a more limber, reactive supply chain.
Make sure they offer opportunities to leverage your data.
Your 3PL should allow you to access and visualize data to help you identify sales trends, manage your orders and inventory, and communicate with support about specific orders or shipments. Companies such as Flexport offer dashboards for shipping, order management and inventory management. They also offer visibility into the shipping process that has traditionally been a black box for merchants, offering you real-time tracking on shipments throughout the supply chain.
Choose a 3PL that can integrate with your online storefront.
3PLs with ecommerce integrations will save you the effort of manually sending orders to your fulfillment provider each day, among other benefits. Look for 3PLs that offer direct ecommerce integrations with your online storefront, such as Magento, WooCommerce, BigCommerce, Shopify, Wix, or Square eCommerce.
ShipMonk, Ruby Has, ShipBob, and Deliverr all offer a variety of integration options. Some 3PLs that specialize in fulfillment for small businesses, like Postworks, only offer single integrations. As you shop for a 3PL, consider:
- Integration details. Make sure you understand the technology that the 3PL is using to connect to your online store. Have they already built the integrations, requiring only a few clicks to connect your store, or will you need to hire a developer? If you sell on multiple ecommerce platforms (say, on both Shopify and Magento), it’s important to understand how the 3PL facilitates multiple integrations and handles ordering, inventory tracking, and shipping across platforms.
- Shipping. The 3PL should be able to map shipping options from your shopping cart to the shipping options the 3PL offers. If you offer two-day shipping in your storefront, for instance, then the 3PL’s technology should automatically select the shipper and fulfillment center that can ship that order to the customer in the most efficient, cost-effective permutation. It should also automatically create a notification for the fulfillment center staff to start picking, packing, and shipping the appropriate items from your inventory.
- Customer communication. Does the 3PL’s integration allow you to forward tracking information to your customers? If customers ask questions about their orders, will you have the information you need to answer them quickly, with up-to-date information?
Understand how their fulfillment network is set up.
Many 3PLs use a hub-and-spoke fulfillment model called distributed inventory. In this setup, a merchant’s total inventory is divided amongst several fulfillment centers scattered throughout a given region, usually close to major population centers. This keeps your inventory closer to the end customer and reduces transit times and shipping costs.
In the age of Amazon Prime, this is a matter of no small import. Customers expect ecommerce delivery to be quick and without a high price tag, or even free.
Consider these factors as you vet a 3PL’s fulfillment framework:
- Match fulfillment centers to your customer footprint. Some 3PLs will offer tools to integrate all of your sales channels and help you visualize the geographic footprint of your clientele. If you already know where your customers are located, make sure the 3PL has fulfillment centers close to your customers. If centers are located on only one coast or in rural locations, you may struggle to keep shipping costs and delivery times down.
- Assess fulfillment services and associated fees. Each 3PL has its own process for receiving, storing, and packing your inventory, as well as fees associated with the weight and size of your products. The fee for a small product that can be stored on a shelf will be different than one that requires a pallet. If your product is fragile and requires specialized packing materials, that may increase your costs. Kitting is important to consider, as well; if your product requires custom assembly (e.g. a subscription service) or the gathering of multiple items into one container, the 3PL may charge an additional fee.
- International freight and international orders. If your inventory is manufactured overseas, you’ll need to consider how to forward freight to your 3PL’s fulfillment centers. Some 3PLs will help you book freight forwarding, though they may or may not charge you a fee for each freight shipment they receive at their centers. Not all 3PLs in the United States ship goods abroad, so make sure to verify that the company has the infrastructure to do so or that it partners with another logistics company who handles international orders.
- Returns. Who is responsible for processing returns, you or the 3PL? Where should customers send returned items and will there be a fee for receiving returns at the 3PL’s fulfillment center? Who is liable in the event of damaged items or lost orders?
Consider the 3PL’s shipping carrier partnerships.
3PLs usually partner with transportation logistics companies like DHL, FedEx, UPS, and USPS to execute the final shipment of the assembled, packed order to your customer. 3PLs often have a wide range of specialized partnerships with shippers: Shippo, for example, has multiple partners for regional, national, and international shipments, as well next-day delivery. They also offer discounted rates with certain carriers. Other 3PLs have specialized to work with specific carriers. Endicia has a variety of tools and systems to make shipping through USPS more efficient.
As with considering your 3PL’s fulfillment center network, it’s important to know where your customers are and what they expect from you. Have you already heard feedback from customers that they’d prefer free shipping? Or that your existing two-day shipping offering is too expensive? If same-day delivery is important to them, you may consider working with local couriers through services like UberRush or Postmates.