As companies grow and expand, ecommerce fulfillment services is an option that more of our clients are evaluating. This is a case study of how one client made its decision to implement and ecommerce fulfillment solution rather than manage their own operation. It is a small apparel company with 125,000 orders with 50%+ ecommerce orders. Product offering is 24,000 active SKUs and 75,000 calls annually. They needed to replace an outdated, ineffective, non-PCI/DSS compliant order management system, and they had no space for expansion. “People were sitting on top of each other” and the company had a huge assortment of core product to offer.

I fully understand and mostly agree that many multichannel companies want to control and provide internal fulfillment to their customers.  However, I am increasingly impressed with the way companies are objectively evaluating how to use third party logistics (3PL) vendors to serve their fulfillment needs.  

More and more companies today are using third party logistics providers to avoid making investments in that non-core area, or in technology necessary for it. We’ve also seen hundreds of start up eCommerce companies that simply don’t want to be in the fulfillment business. All of these companies are turning to third party logistics providers. With so much riding on it, it is very important that as a third party logistics provider, your order management system (call center, customer service, and marketing) and warehouse management system (warehousing, order management, and fulfillment) and technology give you a continuing competitive advantage. The systems you select will have significant ramifications for your personnel’s productivity, as well as how effectively you serve your customers and help them grow their businesses—and the management information these systems provide can help you grow your business. No matter what type of system you’re considering, the purchase is a long-term investment. In short, selecting the right order management system and warehouse management system for your third party logistics business is a major undertaking.

 

Whether you have been considering the decision to outsource your order  fulfillmentfor the first time or are looking for a new provider, don’t let this  choice be a daunting task.  There are hundreds of order fulfillment services providers. The key is for you is to find the right vendor that can become an extension of your business. You need a vendor that you can trust and that is easy to work with as well as have the best interest of your business in mind. Be methodical and follow a consistent set of steps to get you to the desired result.

The first order of business is to develop a viable list of vendors that fulfill the same type of products and for businesses similar to yours – i.e. hard goods, apparel, continuity, literature/collateral, etc. All product categories are different in how they are fulfilled and the operations and systems needed to support your business. You want a vendor that has the experience and knowledge already established.

Once a list of vendors is identified you must focus on the formal Request For Proposal (RFP) to be developed. In order for an order fulfillment services company to accurately bid on your business you have to provide them with accurate information about your business.  Not only do you need to provide annual statistics (orders, shipments, average lines per order, average units per order, purchase orders, etc.), but you also need to detail these volumes out by month to highlight any seasonal peaks you may have.  If you do not stipulate these details,  an order fulfillment services  provider may assume that it is a relatively flat business and they can handle the increased business on a monthly basis with no problem.  Along with these annual statistics, you need to provide your projected growth for the next two to three years.

Also, specify in the RFP what your performance level standards are, such as all receipts processed same day, all in-stock orders fulfilled in 24 hours, etc.  One of the goals with outsourced order fulfillment services, is to have your business run as efficiently as or better than it is being done currently.  If an order fulfillment services vendor cannot perform to the standards you have or questions the standards set, it may not be the right vendor for your business.

Order fulfillment vendors do not all price for their services in the same way, which will make comparing their bids to ensure you have accounted for all the costs. We have found that developing a cost per order analysis is the best way to get a common thread amongst the vendors. A cost per order analysis not only allows you to compare the vendors against one another,  but also compare them to your internal costs.

In addition to evaluating the RFP responses from the cost perspective, you want to evaluate the 3PL vendors with regard to systems and reporting. You will need to see that each vendor’s system will give you all the functionality that your are requiring to support your business and customers. You need to be certain that the system can be integrated with your internal business systems currently used at your company. In the case of reporting, make certain  the reports that the vendor provides are adequate and will help in the daily management of your business and customers.

Perform additional due diligence by speaking with some of the vendor’s clients.  Prepare a list of questions in advance to be consistent and document the responses during your call, so you can have another item for comparison.  You will want to get a mix of clients that have just recently started utilizing a vendor’s services; for six months up to a year, and some clients who have been with their current provider for three years or more.  This will give you a recent experience as well as long term perspectives from the vendor’s clients.

Once you are down to the two or three finalists,  you will want to make a visit to these vendors' facilities. Again, make a list of items to discuss/review with each vendor and observe the facility - is it clean, organized, seem to be efficient with the different processes observed, etc. You will also want to meet and “interview” the account manager that will be handling your business.  Document your observations for yet another set of comparison items to review after all of the visits are completed to narrow the final decision-making process.

Following these steps will provide consistency in the evaluation process and  aid in your decision regarding the best order fulfillment services provider you can find for your business at a cost that you can afford. We work with all different sized businesses that are looking to evaluate 3PL vendors as either a primary fulfillment house, or as a second warehouse location.