Future of Commerce Blog

How to Choose the Right 3PL for Your Growing Business

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Your business is rapidly growing, and you’re struggling to meet demand. That’s when it’s time to look to outsourcing to help you sustain long-term growth. One of the first external partners scaling retail businesses can enlist to aid their expansion is a third-party logistics, or 3PL, company.

But not all 3PLs are the same, and what makes the perfect 3PL partner really depends on your unique business needs. Some 3PLs specialize in specific niches, offer advantages to help you cut costs, and can alleviate your particular pain points.

When determining which 3PL to work with, it’s important to get it right the first time around, and to find a partner that can scale with you. That’s why we chatted with experts on the topic, Charles Michael, Manager of Strategic Partnerships here at Stitch Labs, and Ruby Has Fulfillment President Rafael Zakinov and Director of Partner Development Matt Carpentieri.

Read below to find out how to find the right 3PL for your biz.

The Importance of Finding the Right 3PL

Just like choosing the right inventory management software is critical to your business, embarking on new 3PL relationships is too. “We hear a lot of horror stories,” says Zakinov. “They can completely shut down and ruin the post-purchase experience, whether that’s not shipping orders for two weeks or not shipping correct items.”

Beyond that, maintaining accurate stock levels requires effective 3PL partners. If they’re not doing their job well, you may run into instances where inventory goes unaccounted for (shrink), or you disappoint customers with frequent out-of-stocks.

Carpentieri shares the experience of a retailer he recently visited. They were working with a 3PL that didn’t process orders or track inventory. They’d claim an item was out-of-stock, when in fact it was sitting in the warehouse, for example. The 3PL couldn’t explain the discrepancies to the retailer, so the retailer had to find another solution — starting back at square one.

Related: 3 tips for managing your 3PL relationship for retail success >

“3PLs are the catalyst to you succeeding, and if you’re not able to trust them in managing those orders and getting them out on time and ensuring that your inventory is safe, then you’re not growing your business in an appropriate way,” says Michael. For busy, growing brands, leveraging 3PLs is the difference in being a fulfillment brand and a lifestyle brand. If you’re spending too much time fulfilling orders, your brand could suffer.

How to Choose the Right 3PL

Getting Started With Your 3PL Search

“It starts with your pain points,” says Zakinov. Essentially, you want to start out with understanding why you want a 3PL and how they will help your business. If you have inventory- or fulfillment-related pain points, then a 3PL might be a solution.

“You really have to determine the reasons why you’re looking into a 3PL,” says Michael. He recommends creating goals for your 3PL relationship. Here are some examples to get you going:

  • Are you looking into a 3PL because you want a decrease in shipping costs?
  • Do you need additional services, like return management or special packaging?
  • Do you want a better spread of warehouses that are across the country or even global, so that you can have a decrease in shipping costs and an increase in shipping processing speeds?
  • Do you want a 3PL that has 24 hour or same day processing?

 

Once you know what you want to accomplish and how a 3PL fits into that, you can start identifying options to look into further.

What to Look for in a 3PL

First thing’s first: If you can find 3PLs that specialize in your niche, start there. “There are many 3PLs that are specific to a particular industry or type of business,” says Carpentieri. “If you’re selling heavier products, then you’d need a 3PL that has multiple locations, because ideally you’d be working with one 3PL instead of not many 3PLs.”

Beyond that, here are six key areas to focus on:

  1. Shipping expenses and options: Zakinov stresses the importance of analyzing potential 3PLs through this lens, and it’s an often-overlooked area. He recommends looking at which carriers the 3PL uses, pickup times, weekend and holiday hours, expedited shipping options, postage rates and shipping discounts.
  1. Warehouses: When a 3PL has multiple locations, they have more shipping flexibility. Inclement weather becomes less of a threat, and there’s usually a greater likelihood of faster and more favorable shipping rates. “Evaluate where those warehouses are located in conjunction with where your customers are located,” Michael advises.

 

“Amazon doesn’t enable two-day free shipping by paying more for freight or postage. They enable two-day shipping by having multiple warehouses throughout the country.” – Rafael Zakinov, president, Ruby Has Fulfillment

  1. Multi-channel capabilities: “It’s imperative that retailers choose a fulfillment center [that] knows how to handle a multi-channel business,” says Zakinov. Especially for scaling retailers that test new revenue streams, you’ll need a 3PL that can keep up.
  1. Experience with growth: “If you’re trying to scale quickly, you’d want to go with a partner that has already done that,” says Zakinov. “Find a partner that has experience with 1,000 or 2,000% growth. And partners that have volume discounts.”
  1. Add-on services: Many 3PLs have add-on services, such as return management, providing custom packaging, streamlined garments sorting or adding tissue paper to the boxes. If some of these services are necessary to your operations, you could incur high unexpected expenses if this isn’t part of your 3PL search process.
  1. Cost: “Don’t let the cheapness sway your decision, and always put an emphasis on service as well. Lean on your 3PLs that you’re evaluating to put together a return on investments calculator,” Michael recommends. “Based on their prices, they can put together a cost analysis. Use that as a way for them to prove to why they’re the better option for you based on what you’re currently doing today, and then you can us that cost analysis as a benchmark.”

 

In addition to the above, here are some other questions to go through with your 3PL options:

  • How do you receive new inventory?
  • Do you have a receiving section?
  • What is the receiving section look like?
  • Do you have a line where employees monitor the inventory that’s coming in? Or is it just that the truck drops it off and then you sift through it? What does that process look like?
  • What type of automation do you have implemented?
  • How is this automation helping to spare efficiency and processing times and pick, pack and ship’s speeds?
  • Do you have security cameras?
  • What is the security system look like?
  • Is every door monitored?
  • Does every door have a security camera?
  • Do you have a security staff?
  • Are people employed just to ensure security of the building?
  • Are there employees or contractors? What percentage of the staff is temp labor?
  • What other clients do you work with?
  • What are the special requests that you’ve been able to execute from other clients?
  • What are you most known for?
  • Is the warehouse clean?
  • Is the warehouse organized? Do you have an organization system?
  • How do you organize between the various aisles and bins and silos? Do you have a color coding system? Do you have a number system?
  • What are your peaks, how do you handle peak volumes? What kind of delays should I expect during peak times, if any?
  • What are the postage rates?

 

Where to Look for 3PLs

There are two main sources for starting your list of 3PL candidates:

  1. Google
  2. Referrals

 

First, let’s start with Google. It’s the less-reliable and potentially more time-consuming way to find potential 3PL partners. “Google is very challenging because not all the 3PLs advertise on Google,” says Carpentieri.

If you do decide to go the Google route, Michael has some words of wisdom: “I suggest searching for 3PLs that focus on your type of products. You’re not going to find a lot of information on 3PLs; their websites are usually old, they’re not high in SEO rankings, and they just don’t have a good presence online.”

And that leads us to the second, more recommended approach to finding a 3PL: referrals. “Ask for referrals within your network, ask the consultants you worked with or companies that are also brands that you’re friends with,” Michael says. Use the tools you already have in place to find a 3PL. “A lot of the technologies that you’re currently using today have relationships with 3PLs in some capacity or another,” says Michael.

“At Stitch, we have a 3PL program where we work with over 20 3PLs,” he says. “Some are better at servicing apparel-based brands than others. And some are better at working with electronic-based brands, and some have additional services such as return management and special packaging, etc. that differentiates themselves.”

This approach makes sense not only because you’re leveraging someone else’s expertise, who already knows your business, but it’s also logistical. “You want to have your 3PL integrate with your tools, so it can be under one ecosystem.”

Red Flags for 3PLs

While we’ve thoroughly covered the items you want to see in a 3PL, there are also some warning signs you’ll want to note. For scaling businesses especially, if a 3PL isn’t innovating or improving, they’re likely not going to be able to keep up with your increasingly diverse needs.

“Learn what the 3PL’s strategy is, if they’re growing and trying to acquire more clients, if they’re scaling their team and implementing new technologies,” Michael says. “If they’re happy with the amount of clients they have, and they’re not putting any resources into innovating their tech stack, that’d be a red flag.”

Make sure you hear from the 3PL’s point-of-view on where their business is headed, and that they’re not just giving you lip service and telling you what you want to hear. Their integrations and approach to growth should work seamlessly with yours.

“You wouldn’t want your 3PL to reinvent itself to integrate with you,” says Zakinov. “That usually never really works out all too well.” Finding a 3PL that has experience in the platforms and tools you use will increase the likelihood of a seamless transition, and systems that “talk” to each other.

Beyond that, here are two additional key areas to consider:

  • Shipping labels: “If the 3PL is utilizing a small business solution to print shipping labels and doesn’t have an enterprise-type software to facilitate postage acquisition, that would be a major red flag,” says Zakinov. He says it’s important to find out during your vetting process about how they print labels and whether they batch print. “If they batch shipping labels, that’s definitely a red flag.”
  • Employees: When analyzing the employees of your potential 3PL partner, you’ll want to look at how many workers are temp vs. full-time/permanent. “If temp labor is greater than 10% of the overall payroll, that’s a red flag.” Zakinov says. “You have a very high turn, first of all, and it [could] take so much longer for them to pack that because they have such a high turn rate.”

Find the Right 3PL for Your Business

For every scaling retail business, there comes a point where it makes sense to outsource various tasks. And if you do so strategically, those new relationships can help take your brand to new heights.

Find out when it’s time to find a 3PL partner for your growing business >

Ellie Kulick

Ellie is an experienced Marketing Communications and Content Specialist based out of San Francisco, CA. Passionate about technology and health, she is constantly looking for new challenges in effective communication and creative content development to help businesses grow and engage with current and prospective customers.

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