If you’re a retailer, it’s more important than ever to make sure you’re working with the right 3PL warehouse management systems and partners.
With a market valuation of over $1 trillion in 2022, it’s clear that the demand for 3PL is nothing short of massive.
Due to e-commerce consumer demand, there are more warehouse and storage needs than there have ever been. Retailers are managing higher volumes of inventory than ever and shipping in less time, all while consumer expectations continue to rise every day with each delivery.
There are a lot of things that can get in the way of meeting these expectations. For example, rising demand can make it hard for retailers who sell perishable inventory to forecast accurately, leading to increased costs from spoilage and inventory write-offs. Large parcel retailers deal with more damage to in-transit inventory, a cost they need to factor in, but that they would also like to avoid.
A key way to mitigate fluctuations in your supply chain costs, is to work closely with 3PL partners that are best for your inventory needs. Choosing the right 3PL systems and companies can make all the difference in terms of cost savings and customer satisfaction.
Here, we’ll look at what a 3PL is, how to know if it’s right for you, and how to manage and get the most out of your 3PL partners.
What is a 3PL?
A third-party logistics provider, typically referred to as a 3PL, is a company that retailers outsource to for warehouse management and supply chain management.
3PL services typically include warehousing and storage, inventory management, picking and packing, shipping and receiving, transportation, and software management.
Working with a 3PL partner can benefit you in many ways — it can help reduce costs, improve storage and shipping efficiency, and help you scale your business more seamlessly.
For retailers with specialized needs, it’s essential to choose the right 3PL partner, because many 3PLs are logistical experts, and they can help you build the customized processes and systems you need to have a competitive advantage over other brands in your industry.
Is a 3PL right for you?
There are a couple of considerations when determining whether or not third-party logistics are right for your business.
You’ll need to determine your specific warehouse management needs
If you have more specialized inventory or very disparate needs across your inventory, then you’ll have much more complicated logistical needs. Those needs can be hard to meet at a reasonable cost and ease of management.
Take perishable inventory as an example:
Perishable inventory requires extra urgency given the shorter shelf life of products. Storage needs to be close to manufacturers and packers to ensure inventory is moved quickly enough. Products also need to be produced and delivered in due time to avoid spoilage.
Without third-party help, it can be very difficult, and very expensive, to set up your perishable inventory logistically, not to mention the lack of flexibility as you scale.
Given their existing vendor relationships, locations, and expertise, 3PLs can tap into their network more flexibly to help you set up your ideal logistic infrastructure.
You could, for example, find a 3PL with access to multi-temperature storage and shipping, and built-in safety and inspection clearances you might take more time to get (for example, USDA clearance).
There are 3PLs built like this for virtually any specialized inventory storage or handling need. Take large parcel inventory as another example.
Large parcel shipping tends to be costly. Given the size and weight of large parcels, they’re handled by more people in transit, and they’re more likely to get damaged in transit, which can have significant cost implications.
These cost implications extend beyond just the cost of production and lost sales. You’re also looking at time spent in freight claims, the cost of return shipments, as well as customer dissatisfaction due to delays or receiving damaged goods — so the shipping mode and route can make or break a sale, given consumers’ growing expectations for delivery.
To avoid hefty cost implications and lowered customer experiences, you can work with a 3PL that specializes in large parcel warehouse management and shipping, perishable inventory, or any other specific type of inventory.
Determine whether you have the bandwidth to manage your own inventory
Managing your own inventory can take quite a bit of work, especially as your inventory becomes more specialized, as previously mentioned. Warehouse management, storage, and shipping all require you to be hyper-aware of the present while forecasting and building analyses for the future of your business.
Across all types of inventory, there are seemingly endless tasks to manage: you need to procure goods, establish manufacturer and vendor relationships, track inventory in real time, replenish and rotate inventory, pick, pack, ship, receive, handle returns, and manage software, data, and analytics.
Workflow tools like Parabola can make inventory management easier and can be used for better inventory visibility, demand forecasting, invoice parsing, KPI reporting, and more.
Without a deep understanding and expertise across all of these areas of fulfillment, trying to manage everything yourself can become a time and money drain that only gets worse as you scale. 3PLs can serve a major benefit to your business by offloading the specialized responsibilities of inventory management.
Realize you will need to relinquish some level of control
As it goes with any third-party relationship, working with a 3PL means your warehouse and inventory may not be managed exactly how you would manage them on your own. 3PLs all operate under different procedural guidelines. They have their own culture and communication styles which may shift how your team needs to operate internally.
Ultimately, trusting the expertise of 3PLs is in your best interest, but you need to be aligned with their brand, order of operations, and even their security protocols: you need to trust that your 3PL partner is going to keep sensitive business or customer data safe.
Be sure to reach out to 3PLs to ask explicit questions about their practices, communication styles, security, and so on.
3PL examples
Say you’ve found the perfect warehouse management system and know that you’d like to work with a 3PL, but you just haven’t found the right partner yet.
Some examples of 3PLs that cover most modern omnichannel ecommerce needs include:
How to get the most out of your 3PL partnership
Once you’ve decided on a 3PL partner, or if you already have one, there’s still a lot that you need to stay on top of to make sure the relationship is benefitting you the way it can and should. This is largely about keeping track of inventory, communicating, and tracking the performance of your 3PL partner or partners.
Keep track of inventory
Since you’re not directly managing inventory, it’s important that you stay aware and informed.
To do this, you should always have an inventory management dashboard that gives you an idea of inventory levels and accuracy.
With Parabola, you can consolidate across multiple warehouses and 3PLs to build reporting dashboards that provide more visibility into your inventory and warehouse logistics.
You can pull in data from virtually any source — PDFs, Shopify, spreadsheets, emails, and so on — to build workflows and data visualizations for inventory on hand, demand forecasting, backorder reporting and alerting, and more.
Of course, you can always track inventory manually, but this is much a more frustrating, time-consuming, and imprecise process.
Communicate often
Plain and simply, whenever you’re working with a third party, you should never assume that they know what is happening internally at your business, nor that you know everything that is happening within their business.
Don’t assume that they know what you need, even if they are the logistical experts.
You might have specific on-hand inventory requirements, replenishment expectations, or shipping and delivery preferences. Always communicate your needs to your 3PL and be sure to keep your 3PL partner updated with news on your end as well.
Give them some insight into your demand forecasting and reporting. Let them know when you anticipate fluctuations or disruptions in order volume. Keep them up to date with any technology upgrades or potential new warehouse management integrations coming down the line.
At least in the beginning of any 3PL partnership, it’s always better to err on the side of overcommunication.
Track their performance
Keeping close tabs on 3PL performance is perhaps the most important factor for you to actually impact efficiency and operate at your greatest potential, and this is especially true if you’re using multiple 3PLs.
If you’re not using 3PL data meaningfully to optimize processes, you’re going to have a hard time making improvements and scaling operations.
To track the performance of your 3PLs, you should set clear KPIs, set up and automate scorecarding, and even visit your warehouses from time to time.
Set KPIs
As you would for your own internal teams, you should define specific KPIs for each of your 3PLs.
By setting KPIs around inventory accuracy, shipping and order accuracy, manufacturer lead time, and fulfillment costs, you can set benchmarks for success, and specifically track performance back to overall company growth goals.
Build and automate 3PL scorecarding with Parabola
Based on key logistics KPIs and other performance indicators, you can build out and automate 3PL scorecards within Parabola.
Across different warehouses and geographies, you can track back to your KPIs and grade 3PL partners based on defined benchmarks for inventory performance, shipping and order accuracy, and cost efficiency.
You’ll be able to bake in and answer questions such as:
- What is the rate of stockouts, delays, or canceled orders?
- How many replacement orders have there been?
- How many expensive, last minute shipments have been made?
- What is the rate of product spoilage?
- What reviews have we been receiving from consumers/customers?
Answers to these questions allow you to see if and where performance is lacking, while also giving you something tangible to show your 3PL when discussing ways to improve.
Physically visit your warehouses
If only from time to time, it’s also helpful to physically visit your warehouse locations to track performance and get a better feel for why things might be going positively or negatively.
A quick in-person audit might be a bit more time consuming, but could still give great insight into inventory accuracy, order accuracy, shipping performance, and so on.
Overall, with the right combination of 3PLs, warehouse management systems, and workflow tools, you’ll be able to grow your business more effectively, and spend more time on strategic initiatives instead of attending to errors, cleaning data, and trying to repair relationships with vendors and consumers that should not have been fractured to begin with.