Third Party Warehousing - How to Get the Most Out of Your Relationship


In assisting multichannel companies with deciding on whether to use third party warehousing, third party logistics (3PL) or contact center solutions, we have found that many companies have been able to grow their businesses profitably by outsourcing.  Our blog post, 10 Ways Companies Can Profit from Ecommerce Fulfillment Services, shows how many of our clients use third party warehousing advantageously. 

Outsourcing is not for every company, as many clients feel they want total control of the customer service and that they can have a lower cost per order by providing fulfillment services through internal operations.

For those that use third party warehousing, here are five ways we have seen a number of clients get the most out of the outsourcing relationship.  These points apply to outsourcing contact center as well.  Some of these points need to become part of the negotiation process and setting expectations from the beginning.

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  • Creating a “win/win” for both parties. I was talking with a very large 3PL recently about a prospective client.   One of the points they made was their average client has been with them 11 years. They have dozens of facilities and millions of square feet of warehouse space in the US and off-shore.  Think about that for a minute – that says a lot about finding the right partners in a time when quality, service and low cost are key to your business and being able to make a respectable profit and return on investment for their stakeholders. 

Admittedly, the word partnership has become an overused word.  But are you truly looking for a long term partnership and a platform to grow your business on?  Or, are you simply looking for a low cost per transaction service?    Here are just a couple thoughts about this:

  • Many 3PLs can only take on a certain number of clients; process a given number of orders, etc. You need to understand the drivers for their business and how they make money.  Here is an example - in fulfillment, don’t turn their DC into a parking lot for slow moving product.  There may be higher costs for doing so but most third party warehousing want to process order volume not store.  Timely liquidation of overstock will be best for your business to have lean inventories.
  • From your perspective, what are the near term and long term services you need to grow your business? As examples, these include changes in merchandising and forecasting systems, business intelligence applications, etc.  Are there future systems and services that they want to invest in and provide services to your company?

Partnership and win/win - what do both parties anticipate and desire?

  • Measuring performance. One thing we often see companies failing to do is not making quality and performance standards part of the contract.  For sure they are discussed in the sales process, however they need to be formalized as part of the agreement. 

For sure you’ll be discussing daily how the service provider is getting the work out.  However, senior management most likely delegates the day-to-day to someone who is the company liaison.  It’s often easy to lose touch with the big picture performance against the standards.  As part of the negotiation specify the benchmarks, how they are defined and how they will be monitored.  What will you get in terms of a dashboard or summarized operational reports? 

In contact center these may include call abandonment rate, service levels, cost components, etc. 

In fulfillment this includes freight cost plan to actual, error rates, service levels against the standard (e.g. times for receiving to put away, order turnaround and percent of orders shipped same day, returns processing, etc.), cost per order, etc. 

As part of the negotiation process, establish a scorecard approach to reviewing performance monthly or quarterly by month.  Have a 30 minute telephone review meeting involving management monthly. Each team should review the scorecard and keep each other updated. 

  • Regular on-site visits. You can’t always get the total picture from the data.  We have found that many users of 3PL services don’t make on site visits to providers frequent enough.  We have seen smaller users get more attention for their account by getting to know the people personally working on their accounts. 

On-site visits may also make it more effective to discuss major changes your company wants to make to procedures and policies. 

Another aspect to consider is how to continually keep the service provider up-to-date as your merchandise assortment changes.  In the contact center this includes training for contact center reps.  For fulfillment this includes any changes in packing and shipping for new categories of products, how to protect from damage without excessive dim/weight charges, etc.

  • Provide short term planning and forecasting. Many 3PLs require on-going forecasts (i.e. receipt arrival, orders, shipments, etc.) a couple months forward and within agreed upon tolerances.  For companies that have not done this well in the past this might be thought of as restrictive but it’s the only way the 3PL can have the right number of people are available for your account.  Better planning will also help your business too.
  • Participate in long range planning. Involve the outsource provider in your long-range planning.  Early involvement in an acquisition being considered, new brands to be launched, changes in volumes, major changes in marketing, changes in merchandise assortment that may affect dim/weight, changes in analysis that may mean changes in IT, etc. 

These five activities will greatly enhance your use of outsource providing the quality, customer service and at your anticipated costs.  They will move both your company and the 3PL to an improved partnership.

For help in researching, evaluating and selecting third party warehousing, reach out to us today to schedule an appointment to discuss your needs with one of our partners. 

Let us help with 3PL vendor selection