Probably the worst nightmare for an ecommerce business owner is when an order doesn’t arrive when it’s supposed to. Inevitably comes the angry phone calls and emails from a customer, reminding you that the product they ordered which was supposed to come in yesterday still hasn’t shown up and now everything is ruined. All hell then breaks loose.
There are so many possibilities for complications when you have physical inventory constantly arriving, getting sorted, and leaving. And while having the best possible software will help convert leads and increase sales, how to handle supply chain management makes all the difference at your bottom line.
It might be best to go it alone, or if your business has grown enough, it could be time to find a Third Party Logistics (3PL) provider to do the heavy lifting — literally. Making your decision should be a thorough process -the final transfer of value between your business and your customers is nothing to take lightly! Here are ten do’s and don’ts to get you started.
The first thing you need to do is know how to measure success. You need to set up Key Performance Indicators (KPIs) which will help you evaluate the level of service you’re looking for.
What percentage of goods are delivered on-time? How often are products shipped to the wrong address, or are incorrectly labeled? What percentage of your customer base can be reached within 2 business days from your fulfillment warehouse? These are just a few of the questions you should ask.
By collecting data through time logs, barcode/RFID scans, and any other computerized metrics, you can establish KPIs to help you measure the effectiveness of your own company’s fulfillment efforts or any 3PL you might be considering. If you’re getting serious about outsourcing fulfillment to a third party, create a checklist of KPIs you expect to be given real-time data on. There’s absolutely no reason for them to refuse transparency, but if you get any answers to the contrary you should probably look elsewhere for your shipping needs.
Before you sign any papers, visit the warehouse where your inventory will be stored. Again, there’s no good reason to be refused entry; after all, this is where the lifeblood of your company is held.
If you’re not a logistics guru, bring a neutral consultant or advisor along with you. Expect to see robots — both low- and high-tech — doing all sorts of jobs. At this point, every major logistics center employs AI technology to increase efficiencies and decrease costs; their software might not be proprietary but it will blow your mind when you see how they can locate a single unit in a massive warehouse with a simple search. Or at least, that’s the sort of environment you should hope to see!
Beyond shipping and storing goods more efficiently, there is also the matter of security. Your fulfillment center should vet each one of its employees and provide adequate failsafes against theft, damage, power outages, and even natural disasters (more on this later). Find out how employees are compensated, and pay attention to their body language. If people seem happy at their jobs, they’re more likely to add to your bottom line by taking better care of your inventory.
A good sign to fulfill the needs should be how you feel when you leave the center. Are you excited for the future of your company? Do you feel confident about leaving your inventory in their hands? Great! If not, keep shopping around.
While it’s unlikely, sometimes the worst can happen. A major winter storm during the Christmas holiday period could easily delay time-sensitive shipments days, if not weeks. A power outage in the region where your fulfillment warehouse is could back things up by 24 hours or more.
Having a Plan B is essential to keeping your business afloat; you no doubt having contingency plans in place for things like server crashes or a data breach, and ecommerce fulfillment is no different. There should be backup servers, wireless networks, power generators, replacement parts, and other elements vital to keeping service uninterrupted for all but the most catastrophic events.
Hopefully you won’t have to worry about natural disasters or other major events disrupting service. In actuality, the most common “bad” thing that could happen is probably a return. What sort of hardware and software is employed by your fulfillment provider to make this process as smooth as possible? Can they handle 100 returns at a time? It’s good to know what their limits are.
Right now you might sell 100,000 widgets per year, which is great. But what if your branding catches fire and you start selling that amount per month? You wouldn’t work with a supplier who couldn’t keep up with demand; you certainly shouldn’t work with a 3PL that can’t keep up, either.
Talk about scalability with fulfillment providers and get a breakdown on everything from storage capacity to discounted shipping. If you sign up with them, they’re the vital arm of your company’s success, so it’s only sensible to include them in your plans for expansion and eventual world domination (or whatever your goals are).
Ask them about their SKU management strategies, their employee shifts, and their available storage space, to name a few conversation starters. If they have experience managing SKU changes, have multiple shifts including overnight, and have plenty of available space in their warehouse for you, they should be a good fit for your goals.
There are so many variables to the back-end communication between your inventory management software and theirs. Schedule an initial test audit with your team and theirs (assuming they have an in-house IT team, which is a major plus) to run through everything from test sales to emergency scenarios.
Knowing how your company will integrate your APIs with your fulfillment provider should give you confidence for the first orders that trickle in. And whoever is in charge on your side of the fulfillment chain will appreciate the chance to coordinate a challenging and necessary part of the process with his or her peers at your fulfillment partner.
This one makes sense when you think about it for a second; while it’s nice to be near your inventory, it’s nicer for your inventory to be closer to customers. When shopping around for a 3PL provider, consider where the bulk of the people/companies who buy your products are based. If the West Coast of the USA makes up 60% of your sales, it makes sense to base your inventory in Oakland or some other major city in California. Likewise, if the majority of your buyers are overseas, you shouldn’t choose a warehouse in Chicago.
If you have a balance of customers spread out evenly, then it may benefit for you to choose multiple locations to maximize the cost of transportation. In that case, any 3PL that is limited to a single location probably won’t cut it.
For some e-commerce businesses, Fulfillment by Amazon (FBA) is the golden ticket to success. Especially for high-margin products such as iPhone cases, deciding to store your inventory with Amazon so your product qualifies for Prime Shipping — and priority in Amazon’s search algorithm — is a no-brainer.
But if you sell a specialized product that requires extensive kitting before it’s shipped, or if your products are especially fragile and need specialized packaging beyond a simple cardboard box and a few layers of bubblewrap, FBA isn’t going to be the best fit. There are so many factors to consider: storage prices for Amazon may be higher, they may not have the capacity to properly pack your product to your specifications, etc.
It would be crazy not to check out FBA and see if their services and pricing match what you’re looking for. But don’t assume that it’s the best fulfillment provider for your business.
They could be offering you two months free if you sign a long-term contract, or a cargo container full of cute puppies. It doesn’t matter. If you want to outsource your fulfillment to a company that insists on an annual or some other long-term contract, don’t.
This isn’t because you should be wary of getting scammed by a 3PL; it’s about encouraging them to earn your business from the get-go. While you should be extremely confident in a company if you’re about to sign up for their service, considering how complicated fulfillment gets it makes sense to give yourself an easy exit. As they are effectively becoming an extension of your business, you should never be forced to accept sub-par service.
Here’s a great saying to remember: just because it’s a great price, doesn’t mean it’s a great deal. Like any service, if the prices seem much lower than what anyone else is offering, there must be a catch.
There could be a ton of hidden additional fees that add up, making it more expensive than advertised. Maybe costs are less expensive because they aren’t paying for the latest product-tracking software, or they skimp on hiring qualified full-time employees and rely on cheaper but less-effective temp staff.
Hopefully you can have an honest conversation with a fulfillment provider that offers aggressive pricing, and they can give you a straightforward explanation for their price structure. But if things don’t quite add up, ask yourself if your customers will get the best possible experience with this company. If you’re not sure, don’t feel bad about paying a little bit more to work with a more reassuring 3PL.
If everything seems to check out, you still have a ton of leverage. Ask a fulfillment provider if you can start on a trial period. If they can stand behind their service it will only help them in the long run to give you a trial before you sign a contract (even if it’s just month-to-month).
By the end of the trial you should have a solid set of KPIs to ensure you are getting the best value moving forward. If you can, do a limited trial with multiple companies at the same time and compare them head-to-head. The time you sacrifice in the short term will pay off when you don’t have to worry about horrible customer experiences after making the right 3PL choice.
Red Stag Fulfillment generated an extensive list of interview questions to ask the potential fulfillment companies. If you found this article helpful, let us know in the comment section below.
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