How to choose a 3PL partner: 7 factors to consider
According to the Association for Psychological Science, in the first 7 seconds of meeting someone you will have a solid impression of who they are. When it comes to third-party logistics, the challenge for most brands is that there are many viable fulfillment partners for them.
In fact, there are over 10,000 fulfillment companies in the United States, and many could fit most brand’s profiles. But just like a target market for marriage might be wide, finding the right partner for you takes a lot of discovery.
While a key goal of Third Person is to dynamically match brands with fulfillment providers, achieving a high score using our proprietary matching technology doesn’t guarantee relationship success. It does, however, stack the deck in one’s favor by reviewing several dozen key requirements and presenting a score that measures the probability of success.
Third Person has distilled this universe down to a few select names, the magic becomes how to pick the right one for you. No, it’s not a trick question: anyone who scores highly against your profile is “qualified” to support you, but that doesn’t mean they are right for you.
Like dating, what matters to one person deep down, can inevitably be different than someone else. That’s why you generally take time to get to know your prospective partner—you don’t just agree to marriage after a first or second date!
So what components should you look for, seek out, vet, and determine to choose the right third-party logistics partner?
1. Communication
Besides performance, we see communication as the single most important factor in a solid relationship. Communication can be a combination of quality, speed, cadence, and types of communication (Slack, phone, email, text). While there is no “perfect” form, we encourage you to seek partners that communicate how you want.
2. Operational performance and service levels
Service Level Agreements (“SLAs”) are critical to the success of the partnership. Fundamentally, you need to find a partner that can service your needs effectively, efficiently, and accurately. There are several key SLAs that we encourage brands to seek:
Dock-to-stock time
This measures the length of time between taking the items into the warehouse dock and adding them to inventory storage. A fast dock-to-stock time increases product availability and helps avoid the need for order cancellation because items are out of stock.
Inventory accuracy
Inventory accuracy compares physical stock levels in warehouse storage with the expected stock levels in the 3PL's warehouse management system. Any difference between WMS and physical stock will negatively affect inventory accuracy.
Order accuracy
The percentage of orders that workers picked and packed correctly is an important KPI because customers will likely lose trust in a company over time if they receive the wrong item.
Shipping accuracy
This is the percentage of products and packages that are delivered to the correct destination.
On-time shipping and delivery
On-time shipping indicates the length of time between the 3PL provider receiving the order and the time when the product is dispatched to its destination, while on-time delivery typically indicates the amount of time it takes for the customer to receive their product. These service levels are crucial for meeting customer expectations.
Reverse logistics and return processing
Fulfillment companies often measure various service levels for returns processing, including the time it takes to process returns and return rates due to order fulfillment or delivery errors.
3. Customer referrals
We encourage brands to seek customer referrals from active and similar brands that your prospective partner works with. Often 3PLs list a few brands on their websites with testimonials or case studies. Review those and also it’s important to ask for referrals that aren’t publicly listed.
4. Pricing
There’s no doubt that price matters. Your fulfillment spend on warehousing and shipping will be a significant share of your brand’s spend—often 10-20% of your revenue per order—so this area should get deep consideration.
While pricing might be great, if your 3PL can’t maintain expected service standards, then you’ll be paying a high price with no delivery. If a fulfillment provider suggests that they ship everything for free, it will take 30 days to get out orders, and they may only be 50% accurate, I suspect that 3PL will not win much business. Similarly, some 3PLs actually credit back every order that ships out late or inaccurately. Set a framework for what you expect in service standards and be sure that your shortlist of providers can service that.
5. Scalability
Finding a warehouse that can service your brand and needs today is wonderful, but being able to grow or scale with them is just as important. Switching fulfillment providers is very cumbersome and you want to avoid having to do this frequently. Finding a partner that can support your needs today and for the next several years is important. This can also include supporting any new product categories or sales channels you may be planning on launching.
6. Cultural norms
While culture fit is unique to each brand and quite subjective, it is important to find a logistics partner that shares a similar outlook as you. We’ve seen this play out in several ways such as brands searching for B-Corp Certified 3PLs, or those who offset their carbon emissions or get energy through renewable sources. Or maybe it’s partners that meet certain diversity metrics.
7. Financial health
This factor has gained traction in the last few years as a result of the influx of new 3PLs that have come to market, many with fresh rounds of outside capital. Your fulfillment partner is a key link in the success of your brand. Ask about their financial health before locking into a many years-long relationship with them. While you don’t need to request their full financials, they should be able to provide a snapshot that peaks into the health of their business.
Visit the fulfillment facility and get to know your contacts
To truly get to know a 3PL, you should visit their location. This seems obvious but is often overlooked. A 3PL can have multiple buildings or facilities, and in our experience, every building is a little bit different. When you’re on-site, get to know your contacts, whether that’s the GM/Director or your account manager.
It’s critical to go beyond the 3PL’s sales team and meet the people at the facility (or facilities) you are considering. These individuals and operators will be important partners to you and your brand moving forward. You will likely interact with them on a day-to-day basis, rely on them to perform services, and work with them to solve problems when they arise. To that extent, we recommend approaching this step as if you were interviewing the team at the facility to join your own internal team, applying the same principles and values of your own hiring process.
Visiting the facility enables you to see first hand and answer these important questions:
Who else is in the facility—type of brands and sizes in terms of order and storage footprint?
How much space do you have for our brand to grow into? What are your expansion plans?
What are your typical operational Service Level Agreements (SLAs)? How often do you meet them? How do you track them?
What is your approach to staffing? What percentage of full-time, part-time, and contract employees work at the facility?
How do you scale up your workforce for unexpected demand (i.e. when actual orders exceed forecasted orders)?
What data, metrics, and KPIs do you monitor? How do you monitor them?
By carefully considering the above factors, you can create strategic 3PL partnerships that drive growth and optimize your supply chain. Remember, the right 3PL partner is a critical extension of your team.
