Outsourcing warehousing responsibilities to third-party providers comes with countless benefits for eCommerce vendors. Traditionally, warehousing has always been seen as a challenging task for small-scale businesses. Merchants with limited financial resources cannot afford to –
- Carry out day to day warehousing-related operational tasks
- Set up a warehousing department by hiring workers
- Maintain warehousing equipment
- Pay rent for the warehousing space.
- Set up a logistics department to keep track of orders
That’s why these businesses are constantly looking for largest warehouse companies. Thankfully, for these businesses, modern-day warehousing companies carry out way more tasks in addition to warehousing. These companies are known as ‘3PLs’ or third-party logistics companies.
Not only do these providers own massive warehousing spaces, but they also take care of logistics, inventory management, order fulfillment, packing, etc. Hence, businesses don’t need to invest in storage, transportation, or product handling separately. 3PLs address all of these basic online business requirements on behalf of their clients.
The level of sophistication these companies bring to the logistical processes keeps improving every year. By 2023, the global market value of 3PL companies is set to exceed $12 trillion. If we add extra costs like transportation, warehousing infrastructure, etc. the valuation is close to $15 trillion.
So, smaller businesses should sign up with the first 3PL company they find, right? Wrong! Committing to a business relationship with a 3PL company is risky. Businesses must think long-term and assess whether the 3PL company is fit to tackle its long-term commercial goals.
Trust, market reputation, costs, etc. are all important factors to consider while making this decision. More importantly, the 3PL company should realize the business’s fulfillment requirements and work cooperatively.
Here’s a list of factors and qualities businesses must consider before teaming up with a 3PL company.
Most modern-day 3PLs directly respond to customer requests. To do so, they ask for access to the business’s customer database. Hence, the 3PL company must have sufficient technical prowess to –
- Integrate their automation system with their clients
- Offer direct order routing so that customer orders can be directly sent to the warehouse.
- Provide inventory management tools (software tools).
- Address all CRM requirements.
3PLs have to evolve with the ongoing changes in the technology sector rapidly. Hence, businesses must ask about the 3PL’s IT strategy and assess how much they invest in technology.
Future Business Goals
Top 3PL providers are able to modify their services to support client growth. So, selecting a 3P provider simply based on their ability to meet current requirements isn’t enough. These providers need to offer future plans for their clients. Some qualities that indicate a 3PL provider’s dedication to the client’s future include –
- The ability to immediately handle extra inventory or orders.
- Help their clients access untapped markets.
- Offer detailed expansion plans.
- Communicate closely with clients to get a grip on how they plan inventory, forecast potential orders, and respond to emergency services
- Guaranteed increments in the labor force to support the clients’ growth.
Business goals not only change on a yearly basis. For instance, some eCommerce vendors experienced increased traffic and order volumes during holiday seasons. The 3PL company must guarantee precise and timely deliveries during this season. The supply chain should also be scaled down once the peak season is over.
Minor disruptions in supply chains can result in millions of dollars’ worth of losses for eCommerce vendors. Logistically and in terms of workforce, the 3PL company must guarantee that such situations never arise.
Even if these supply chain disruptions occur, the 3PL company needs to have enough funds and internal planning capabilities to address these emergencies. Some common emergencies that eCommerce vendors and 3PL providers often face are –
- Labor shortage
- Technological failures
- Weather-triggered disruptions in transportation
- Product damage
There must be recovery and emergency management plans put in place by the 3PL company to address such risks.
A recent survey shows that over 90% of the leading 3PL providers, warehousing experts, and shippers prefer data-driven decision-making, as it promotes efficient supply chain management. To ensure optimal quality and high-performance standards, 3PL companies need to invest in data assessment tools. These data assessment processes must objectively consider all the metrics that matter most to the clients. To determine whether or not a 3PL company is ‘data-efficient,’ businesses must probe them on these topics –
- Ask them to provide data-based insights on 3PL trends.
- Can they facilitate data-exchange with other 3PL companies to improve performances?
- How flexible are these companies when it comes to modifying stock limitations? Often, warehousing companies set strict limitations on how many items they can stock per day. If these limitations aren’t flexible, it can be a problem for businesses that receive unexpected orders.
- Their process of addressing product recalls. The packages need to be tagged with the customer’s location and identification so that recalls can be carried out efficiently.
By assessing these factors, small businesses will realize whether the 3PL company has the necessary experience and adjustability to handle their business requirements.