Choosing a 3PL: Partnership Tips & Key Evaluations

By our partners Radicle

Do you know the easiest way to get hundreds of comments on any social media platform?  Just post “I’m looking for a 3PL.”  You’ll soon be inundated with 3PLs of all different shapes and sizes pitching their services.    

Finding the right 3PL (Third Party Logistics) provider can be a very overwhelming and opaque task, but that decision can have one of the largest impacts on the success and profitability of your company.  Picking the wrong 3PL could derail any momentum you’ve built, and picking the right one could lead to exponential growth.  At the end of the day, all the marketing and product development in the world doesn’t matter if you can’t efficiently get your products to your customers.  

But all 3PLs seem so similar with the same services, pricing and even names! How do you know if this is the right 3PL for your company?  

Here are some tips to decipher whether a 3PL is going to be a supportive partner for your business.

Communication and Transparency

Effective communication and transparency are essential for a successful partnership with a 3PL. Issues can arise when there is a lack of clear and timely communication between your company and the 3PL. This can lead to misunderstandings, delays, and customer dissatisfaction. A supportive 3PL will:

• Provide dedicated account managers (real humans) that are readily available through multiple communication channels such as phone calls, emails, or texts.
• Utilize a robust WMS (warehouses management system) with a modern API that provides real-time visibility into inventory, order status, and other key logistics metrics.
• Clearly define roles, responsibilities, and expectations from the beginning of the partnership.

Service Level Agreements (SLAs) and performance metrics

Defining appropriate SLAs and performance metrics is crucial to ensure the 3PL meets your company's requirements and expectations. Poorly defined SLAs will result in service disruptions, additional costs, and hours of frustration. An organized 3PL will:

• Develop comprehensive SLAs that clearly outline the desired service levels, including delivery times, order accuracy, and handling of returns.
• Implement a performance tracking system to monitor and measure key metrics, such as on-time delivery, order accuracy, and inventory accuracy.
• Include provisions for penalties or incentives within the SLA to ensure accountability and drive continuous improvement.

Scalability and flexibility

As businesses evolve, they require a logistics partner that can adapt to changing needs. Limited infrastructure or capacity to handle increased volume during peak seasons or sudden business surges can stall growth and erase the momentum gained from your marketing spend.  Additionally, not all shipments are created equal.  Maybe you want to send out sales samples from a specific production date or you want a hand-written note included in a shipment.  Attention to detail and personal touches show your customers that you care about them. A 3PL that also cares about your customers will:

• Have the infrastructure, technology, and capacity to handle fluctuations in volume.
• Quickly adapt and fulfill orders regardless of complexity or variability.
• Proactively provide recommendations and examples of best practices for unique or ad hoc requests.

Omnichannel fulfillment

Omnichannel fulfillment refers to the process of seamlessly fulfilling orders across multiple sales channels (i.e. e-commerce, wholesale, Amazon, etc.).  It enables a consistent and efficient customer experience regardless of the channel in which orders are received.  Some 3PLs will only handle e-commerce orders while others will only support full pallet wholesale orders.

Benefits of a comprehensive 3PL that provides omnichannel fulfillment include:

• All of your inventory lives in one place and can be used for multiple types of orders or sales channels.  Not only does this allow for faster fulfillment but it also reduces the need to transfer inventory from one 3PL to another, which can add unnecessary cost to your P&L.
• Ability to seamlessly add other sales channels or product variations (i.e. allocating palletized product to kit variety packs for sale on Amazon).
• Knowledge and experience of required technology and documentation as your company expands into new sales channels, allowing for quicker activations without having to overcome learning curves.

Cost and pricing structures

Pricing structures and cost transparency can be significant points of contention between a company and its 3PL. Hidden fees and unexpected cost increases can dramatically affect your company's bottom line.  Additionally, the myriad of variable costs imposed by 3PLs can impede the ability of a company to accurately forecast costs and control profit margins.  A truly transparent 3PL will: 

• Clearly define pricing structures and ensure all costs are accurately communicated upfront and before any work begins.
• Regularly review and negotiate pricing agreements to ensure they remain competitive and aligned with your company's needs.
• Investigate pricing inquiries or respond to quotes for new work in a timely manner.

Additionally, you should consider the geographic location of your 3PL.  Many companies think they should pick a 3PL that is within close proximity to the manufacturer.  This makes perfect sense if your customers are all regional.  However, if your customers are scattered across the country this can be an incredibly expensive mistake.  The optimal location for a 3PL (if you’re shipping nationwide) is in the center of the country as this provides the fastest transit time and lowest shipping cost to the end customer. 

For example, if you manufacture in New Jersey, it’s significantly cheaper to send a truckload of product to a 3PL in Chicago and then ship e-commerce orders from Chicago, than if you were to send a truckload to a 3PL in New Jersey and ship e-commerce orders from New Jersey.

Conclusion

While partnering with a 3PL offers numerous advantages, it is essential to proactively address the potential issues that may arise. By focusing on communication, SLAs, scalability, channel capabilities, and cost transparency, you can build a strong and successful relationship with your 3PL, leading to improved operations and customer satisfaction.  It’s important to regard your 3PL as an extension of your own operations team and not simply as a transactional service provider.  After all, they are the ones welding the last link in the chain that connects you to your customers.