The Internet created a level playing field for product sellers. It has spawned millions of e-commerce companies which became merchandise category killers. By a category killer, we mean their assortment is narrow and deep, and it takes sales away from established retailers and other sellers because it offers the customer more choices.
Fulfillment By Amazon (FBA), Wayfair, Walmart, eBay, Target and others, have become platforms for selling product on their websites and in their stores. In turn, e-commerce companies have become multichannel in terms of systems and fulfillment capabilities.
Developing and selling unique product is king. But critical systems functionality and efficient fulfillment are at the heart of this multichannel strategy. In all cases, the product sellers must meet the compliance standards of the marketplaces and big box stores. Many third party logistics (3PL) businesses are ideally suited for bringing that functionality and cost effectiveness to e-commerce, manufacturers and other product sellers offerings. For more information on this, read our blog called, “How To Analyze If Third Party Fulfillment Is Right For Your e-Commerce Company.”
Time to market will often be considerably faster and at considerably lower costs too.
6 Requirements to Consider in a 3PL System
As you look at your business, what are the high-level business requirements that you need? Here are six examples to consider:
1. Vendor drop shipping
The major benefit of a 3PL system is to allow a product seller to show a widely expanded manufacturer’s assortment without purchasing slow moving or low demand inventory, such as fringe colors and sizes. Many e-commerce companies got into the business without inventory, fulfillment and systems by using 3PL facilities.
2. IT compliance support to marketplaces and big box retailers
Many 3PL businesses have been providing these services for years. To implement this strategy, the product seller must meet all of the compliance requirements for systems and fulfillment. These include Electronic Data Interchange (EDI) to transmit or receive purchase orders, advance ship notices (ASNs), invoices and other documents electronically.
Automated generation and matching of transactions and paperwork is a key compliance requirement. The e-commerce seller wants to give the 3PL one PO with multiple ship dates, quantities, retail DCs and stores. From the retailer’s perspective, they want to be able to match and reconcile PO, shipments, receiving and invoices electronically without manual intervention.
Fulfillment oriented compliance standards include product preparation for product protection with boxing, dunnage and shipping packages; box content information; product labeling standards for barcodes by label type and size; customer shipping and the carrier labels; pallet requirements for size, weight, labeling, stacking height; carrier requirements for small parcel delivery, less than truckload (LTL), or full truckload.
Examples of this compliance includes customized product packaging, picking by store and shipment packing for a single SKU. These may include retail packaging for shelving and end caps and retail pricing versus different requirements for direct. For shipping, the retailer may have different requirements by store shipment, mixed SKUs and quantity in a box.
All of these are not negotiable. If you do not have the internal systems functionality and fulfillment that this requirement mandates, then finding the right 3PL to provide this support is critical.
3. Support for unique brand and marketing strategies
For decades, 3PLs have specialized in marketing fulfillment such as DRTV and subscription campaigns and club plans (e.g. wine of the month). These are high volume transactions for a short duration. In club processing, not all customers may get the same product the same month.
Some e-commerce companies have implemented a marketing strategy where they launch advertising campaigns to generate pre-orders and then manufacturer to that demand, then fly in the product via air cargo. The products they advertise there may be limited availability and require four to six weeks lead time.
From a marketing perspective, what are the requirements that you need for your business?
4. Multi-warehouse processing
If you are operating in a multi-warehouse environment, what business rules will you control for filling customers’ orders and back order processing from multiple DCs in order to control shipping costs? What multi-DC historical sales and inventory planning support by DC do you need?
5. Order management systems functionality
Are you looking for the 3PL to provide customer order management systems functionality? What is the specific functionality required (e.g. call center, customer service, credit authorization)?
6. Interfaces and integration
What system interfaces do you require? With some 3PLs, there may be some interfaces and integrations which are standard or require minimal setup and fine tuning. Among the more time consuming can be EDI implementation if the provider does not have the specific platform or big box experience. Interfaces required may be in-house inventory planning and control systems, general ledger, accounting systems and marketing systems.
Three selection steps
1. Document user requirements
Define user requirements in your Request For Proposal (RFP) in terms of processes, high level files/data used, functionality, calculations, reporting or display examples. Your comparison between vendors needs to determine which 3PLs have the best systems functionality across all channels.
2. Don’t shortcut due diligence
A detailed RFP should request the required system functions and what the provider can provide today. At the requirement level, ask the 3PL, “Do you provide this systems functionality today?” It’s important to establish whether this is their existing mainline business today, versus something they could develop. Don’t shortcut getting extensive demonstrations from multiple bidders; making site visits; and calling multiple clients for reference checks, including for those that use specialized functionality you require.
3. Total proposal costs
Remember to include all IT costs into your planned cost per order and budget. Our blog “How to Compare Internal Fulfillment Costs to Third Party Fulfillment” shows you how to get an “apples-to-apples” cost comparison.
These include projected implementation costs with modifications and the operational charges for managing servers and communications.
Third party fulfillment isn’t for every company. However, as selling product via the Internet becomes more complex from a systems and fulfillment perspective, 3PL can bring significant cost-effective benefits to your business.