Why Word of Mouth is a Dangerous Way to Find a 3PL

3PLs
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July 13, 2020

Why Word of Mouth is a Dangerous Way to Find a 3PL

 

A major milestone in the life of an eCommerce company is when they outgrow their garage and seek out a 3rd Party Logistics company (3PL) to manage their fulfillment. The most common way early stage eCommerce companies find their first 3PL partner is through word of mouth. While this approach may seem quick and logical, especially if the referral is coming from a trusted source, it is not an effective way of performing the due diligence necessary for a decision as large as outsourcing your fulfillment operations. We know from experience that the eCommerce industry is littered with companies who were referred via word of mouth to the wrong 3PL for their unique requirements and suffered for it.

 

NOT ALL 3PLS ARE THE SAME

Unless you’re an eCommerce veteran you might not be aware that there are thousands of 3PLs of varying size, services, industry specialization, and price points just in the United States. The sheer amount of companies and services is overwhelming, and if this is your first time building out a downstream supply chain, it may be tempting to think that all 3PLs that offer eCommerce fulfillment services are essentially the same. You might think “My friend who runs a company in the same industry as mine recommended 3PL X – it should work for me too, right?” Wrong – this is why so many early eCommerce companies fall into the 3PL referral trap.

Clearly defining your business’s goals and fulfillment requirements, and then conducting a targeted 3PL evaluation exercise, is essential. The cost, hassle, and business risk associated with changing 3PLs and moving inventory to the wrong warehouse can be catastrophic for a young business. Put another way even my youngest audience can relate to – would you marry someone based purely on a Tinder profile? You might get lucky, but a successful 3PL relationship will likely last longer than the average marriage and divorcing your 3PL can be every bit as painful as the real thing. At least a 3PL will let you keep the dog...

 

The first thing to consider when evaluating 3PLs is to view the process through the lens of a long-term strategic partnership. It is imperative that you have and can communicate your business plan and goals for at least the next three years so you can select a 3PL that can support and help you achieve them. Some significant factors in your business plan that will be relevant to your 3PL partner are:

  1. Growth & Volume: how many orders per month do you ship now and how many do you expect to in the future? Is the 3PL able to meet that kind of volume at the speed you expect?
  2. Distribution Channels: Today you only sell through your website, but are you planning selling through Amazon? If so,your 3PL will may need FBA prep services. Are you planning on selling through retail partnerships? If so, your 3PL will need retail replenishment capabilities, etc.
  3. Pricing: Fully understand pricing for each 3PL you evaluate. The most common 3PL fees are for picking, packing,storage, and returns, but there are others like kitting and assembly may apply to your business.
  4. Geography & Fulfillment Efficiency: Do you have plans to expand internationally? Are you bent on competing with Amazon Prime’s 2-day delivery to anywhere in the US? You should know where your 3PL has warehouses and what kind of efficiency guarantees they can make.
  5. Industry Specialization: Does your product require constant refrigeration or some other unique need?

 

SUPPLY CHAIN & LOGISTICS IS A PEOPLE BUSINESS

A final aspect to keep in mind when selecting a 3PL is that you will likely be interacting with people at your 3PL almost every day. There will be order changes, inventory questions, packing instructions, and more, all of which combined will result in regular contact and discussion. Make sure you are comfortable with how the 3PL organizes and manages their Customer Support. Understanding whether you have one or multiple points of contact and how you can communicate with them (call, email, slack, etc.) can help you forecast how the partnership will work and feel day-to-day.

Lastly, client references can be another useful tool for gauging how your customer experience will be if you decide to partner. The ideal approach would be to do some research online and identify one or two of their current clients that they haven't provided to you as official references. I've found that most brands are more than happy to have a casual conversation with you about their personal experience with a particular 3PL. Reaching out via LinkedIn is an easy way to break the ice and line up a quick call. Often times talking to these "unofficial references" can paint the clearest picture of what you can expect from a 3PL's experience.

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Diego Sanz
COO & Co-Founder @Proxii