Jake is the Vice President of Marketing for Red Stag Fulfillment , an order fulfillment company for ecommerce businesses.
Many of today’s e-commerce leaders are focused on getting consumers to hit the buy button, but their uncertainty around that success is making operational leaders consider the value of hitting pause. It’s time to shore up your operations so you can survive a supply chain swinging too wildly for predictions to be completely reliable.
It’s possible to build resilience and reliability by adding new partners that are experts in supply chain management and order fulfillment. A third-party logistics (3PL) company may be the right outsourcing partner for you to understand and adapt to the current market. (Full disclosure: My company is a third-party logistics provider.) It can be difficult to select these partners, especially if your entire operation depends on their success.
To improve your selection criteria, here are five questions to ask that can help you understand if a 3PL has both the practical knowledge and the ability to look forward and prepare for black swan events.
What Wall Have You Hit?
Typically, companies outsource to a 3PL to alleviate a concern in their own warehouse or fix an issue they’re facing with a different fulfillment partner. Be as precise as possible when defining this wall or barrier. If your concern is shrinkage, for example, then high-quality security at the site, proper inventory stacking procedures and using secure packaging can be top selection criteria. However, if you’re struggling to meet a volume demand, the right 3PL is more likely one with numerous locations and storage space available for any immediate growth need.
Ask your 3PL for a specific plan to address your concern. Remember, they are an enablement tool to help you run operations more efficiently and should work with you to improve even elements outside of pure fulfillment work.
What Customer Pain Are You Facing?
Customer pains drive 3PL decisions, but they’re different from the wall a company faces internally. Think of those barriers as the 50,000-foot view while reviewing customer pain is like getting out the microscope. Look at areas where customers complain, review when customers do and don’t become repeat shoppers, and check your competition to see if your volume is behind the norm for your area.
Get clear support on how the 3PL will address your issue, such as:
• Creating returns practices that speed up resolution.
• Offering multiple locations and carrier partners for faster, more affordable delivery.
• Reducing error rates.
• Enabling advanced sales options such as kitting and new subscriptions to reach a wider audience.
Can They Scale Quickly?
In the e-commerce space, it’s not unheard of for an average but fast-growing company to achieve 15% to 25% growth in a single year. Such scale may be easy to adapt to by scaling internal processes or external partnerships to avoid disruption. But I’ve heard that for some companies, the pandemic introduced momentum fast outpacing average organic growth. How can a company respond when its sales double in size but the infrastructure supporting fulfillment falters and struggles to meet even standard demand?
Outsourcing partners like 3PLs should have a clear plan to address both your scaling needs (up or down) and those of its other clients. That might mean securing or building additional warehouse space in multiple locations near your customers. Multiple locations are important because these help you avoid scaling becoming a bottleneck if carriers can’t offer expanded capacity in that specific region.
Your company’s growth should be enabled if it spikes tomorrow and again in the next few months.
Is Their Approach To Inventory Beneficial?
While the e-commerce market overall has been scaling significantly, current inventory holdings are presenting a challenge for some companies. You’ll want to ask a 3PL how they handle excess inventory and slowdowns, whether that includes inventory balancing, sending goods back to you or introducing long-term storage fees.
Excess inventory is a significant threat, especially with rising inflation and the threat of a recession. It may soon become easier to accidentally hold too much inventory. One of the most prominent examples of the threat of uncertain inventory and sales is Peloton. The company let 2,800 people go in February, specifically citing that it “invested heavily in near-term capacity, inventories, and logistics to protect our Member experience. However, as our post-COVID demand picture looks different than anticipated, these investments no longer align with how we intend to operate our business going forward.” Outside reports note that the company has thousands of bikes and treadmills sitting in inventory. Trends exemplified in news from businesses like Kohl’s and Lorna Jane are other important places to look when thinking about the threat of inventory in a shifting market.
No 3PL or e-commerce company has found the magic wand to wave and fix SKU counts or predict demand during a pandemic. So, you shouldn’t look for a single answer to this question. Plan for a detailed conversation about the 3PL’s approach with clients who struggled and those that succeeded during 2020 and 2021.
Are They Looking At The Big Picture?
E-commerce brands face an uncertain future. Consumer demand has the potential to drop off as gas prices and inflation rise, but other shifts could make consumers feel more ready to buy. An uncertain supply chain means the logistics space is still oscillating between capacity availability and crunch. In this case, I believe it’s best to look to your partners for help and guidance.
Ask potential 3PLs what they are reading and watching:
• What metrics do they use to judge the strength of the market and to plan for their growth?
• Are they tracking freight rates and fuel surcharges?
• What importance do they predict the rising price of diesel and international conflicts will have as far as creating pressure on energy production and supply?
• Can they help you understand long-term spot rate trends and if 2022 is diverting from these?
A 3PL, like any valuable partner, should support your growth and protect your revenue. That includes helping you overcome barriers around sales and fulfillment as well as improving operations to optimize inventory use. The gold standard is a 3PL that helps in the way you need it today and plans to help you with what comes next.
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