To succeed in today’s ecommerce world, your business has to do a lot of things right. You have to be able to:
- Develop or source the right products to satisfy demand.
- Execute the right sales and marketing strategy to attract and convert shoppers.
- Implement the right order fulfillment process to ensure your products are delivered to your customers’ doorsteps on time, every time.
Getting the latter area, order fulfillment, right is particularly challenging for ecommerce businesses today – as, in many cases, it’s not their core competency. And that’s why many merchants outsource their order fulfillment to third-party logistics (3PL) providers, who can help drive improved operational efficiency, on-time delivery performance, and customer satisfaction.
Today’s global 3PL market is booming – it grew to around 1.1 trillion in 2023, marking a compound annual growth rate (CAGR) of 10.2%. This growth is being propelled by ecommerce businesses, which currently account for 53% of 3PL revenue globally. In fact, around 60% all of ecommerce shipments are handled by 3PLs.
With the expansion of the 3PL industry, we’ve seen an increase in the number of 3PL providers in the market. Indeed, trying to choose which 3PL to work with can be difficult, as there are so many providers – from small niche players to global giants – out there.
If you are searching for a new 3PL, you will probably start by researching various 3PLs online and reaching out to your business connections to see if they have any recommendations. Once you’ve put together a shortlist of prospective 3PLs, you should to arrange to speak with their representatives – to learn more about what they have to offer and see if they would be a good fit for your business.
When you have those conversations, there are a handful of critical questions that you need to ask to get the information you need to make an educated decision.
In this blog, we highlight the 7 key questions that you should ask the 3PLs you are evaluating.
1) What is the size and scale of your global network?
It’s critical that the 3PL that you select has a connected network of logistics facilities (including fulfillment centers and warehouses) and a footprint in those geographic locations where your business operates and your customers are based.
Partnering with a 3PL that has a physical presence in the locations that matter most to your business will allow you to strategically distribute your inventory – so that you can deliver your products to customers as quickly and inexpensively as possible.
One 3PL provider that has an extensive network is Amazon Multi-Channel Fulfillment (MCF), which uses Amazon’s global fulfilment network with more than 2,000 facilities (including over 200 fulfillment centers), 120,000 trucks, vans, and planes, and 1,275,000 associates and partners. By working with MCF, you get access to this fulfillment network and can leverage it to rapidly and reliably deliver your customer orders around the world and across all your sales channels and scale your business, now and in the future.
2) How is your suite of 3PL solutions unique?
Typically, 3PLs offer a standard selection of solutions including order fulfillment, inventory management, warehousing, expedited shipping, and reverse logistics (which is also known as returns management).
You will not only want to make sure that the 3PLs you are considering can provide the solutions your business needs, but you should also ask them about what makes their solutions different from other providers out there.
There are many areas in which 3PLs can distinguish themselves. MCF, for example, is a 3PL provider whose solution set is unique in many ways such as: it utilizes the world’s largest fulfillment network, cutting-edge warehouse robotics and transportation technologies, and state-of-the art integrations that automate your order fulfillment process, and supports ecommerce solutions like Buy with Prime (which uses MCF to fulfill orders).
3) Which key metrics do you track and what’s your performance against your service-level agreements (SLAs)?
You should take the time to find out which key metrics the 3PLs you are evaluating use to measure their performance. Some of the common metrics that 3PLs use include:
- Dock-to-stock times: The amount of time it takes for your 3PL to receive your inbound inventory, process it, and put it in a pickable or storage location in the fulfillment center or warehouse – so that customers can place orders against it.
- Cut-off times: The time of day when 3PLs stop taking orders that will be processed and shipped that same day. Most 3PLs determine their cut-off times based on their order processing times as well as the pick-up times set by the carriers they use. Some 3PLs, like MCF, are carriers themselves and consequently don’t have cut-off times and can receive orders any time of the day or night.
- On-time shipping: The percentage of orders that were scheduled to be sent out from a fulfillment center or warehouse on a given day that actually ship on that day.
- Order accuracy: The percentage of orders that are sent to customers without errors, like including the wrong type or quantity of products. Order accuracy issues can throw your inventory count off – and can have a major downstream impact on your business.
- Inventory accuracy: A rate that measures the difference between the amount of stock you have recorded in your inventory management system and the actual inventory you have in your 3PL’s facilities. A low inventory accuracy rate can indicate that your 3PL may be making picking, shipping, or other order processing errors – and this can lead to stockouts and customer dissatisfaction.
- On-time delivery performance: The rate of orders that are delivered on time to customers’ doorsteps. It should be noted that this metric is only relevant for 3PLs that are carriers themselves, like MCF. MCF – which delivers orders 7 days a week – has an on-time delivery rate of >97%.
Check with the 3PLs you are evaluating to make sure they are tracking these and other important metrics, find out what their SLAs are in these areas, and determine if they are meeting or exceeding their SLA targets.
4) How do you manage supply chain volatility?
Supply chain volatility – due to spikes and dips in demand, seasonal fluctuations, supply shortages, production delays and disruptions, and other factors – is part and parcel of today’s ecommerce industry landscape.
You should check with the 3PLs you are assessing to ensure they offer flexible logistics solutions and have the network and resource capacity you will need to handle spikes in demand.
5) How is your pricing system structured?
Before engaging a 3PL, it’s imperative that you have a good understanding of how their pricing system is structured.
When you are evaluating various 3PLs’ pricing models, there are a few key differences to keep in mind:
- Some 3PL providers require you to commit to long-term contracts (which can include costs for investment in infrastructure and systems needed to support your business), while others – like MCF – offer more flexible, pay-as-you-go pricing for storage and order fulfillment.
- Some 3PLs use a “per-service pricing” model, where they charge for services like picking, packing, and shipping separately, while other 3PLs use an all-in-one “per-unit pricing” where you pay one bundled fee for services. MCF utilizes a simple, unit-based pricing model – where you only pay one fee for fulfillment (inclusive of picking, packing, and shipping services) and storage.
Make sure you have a solid grasp of each prospective 3PL’s pricing system and rate card – which can include hidden fees and surcharges – before entering into a business relationship with them.
6) What is your customer support system like?
Ideally, your 3PL provider will be like a partner – always there to provide assistance, support, and guidance whenever you need it.
Every 3PL has a different support structure, but you will probably want to find a 3PL that offers support on two levels:
- Day-to-day issue resolution: Providing support for any order fulfillment or inventory management issues that may arise. Ask the 3PLs you are evaluating about how their support system functions (and if they use automated tools along with support representatives to handle issues) and what their response times are.
- Strategic planning: Consulting with key stakeholders in your business to learn about your long-term plans and goals, and working with you to unlock opportunities to optimize your logistics operations and drive business growth.
7) What kinds of clients have you worked with?
Perhaps the best way of determining if a prospective 3PL would be a good fit for your ecommerce business is to research and learn about their client base.
Ideally, the 3PL you select would have experience working with businesses that are similar to yours (i.e. of the same size, offering similar products, operating in the same locations) and would have success stories from these clients to share with you.
Conclusion
Choosing a 3PL is a complex and critical decision, which will have a lasting impact on your business.
You should invest the time to really get to know the 3PLs you are considering – to learn about their global network, solution suite, SLAs, pricing and support systems, client base, and other areas – so that you can determine which provider would be right for you.
