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. 

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Using 3PL Solutions for a Successful Peak Season

Getting the most from your third party logistics (3PL) provider this peak season starts with your forecasting accuracy. In order for you to get the most from 3PL solutions, you need to have established measurable service levels that are agreed to by both parties as part of your agreement. Establishing these service levels, and having the 3PL vendor meet them requires that you supply realistic forecasts for calls and order volumes by day, by week a month in advance so that the vendor can plan staffing accordingly.

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10 Ways Companies Can Profit from Ecommerce Fulfillment Services

Quite frequently, we assist clients in comparing third-party logistics and fulfillment (3PL) services and costs to the cost of expanding a company’s internal fulfillment operations. These have included ecommerce, wholesale and retail companies.  In the late 1990s or so, we saw 3PL operations which were not always cost-competitive or stable. But in the past several years, some medium and large companies have entered the market with extremely competitive services and costs.

To help in the decision process, here are 10 ways multichannel businesses we’ve worked with have used and benefited from 3PLs:

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Is Third Party Warehousing Right for My Company?

Problems:

  • You’re a start-up company with limited financial resources; or a company where fulfillment is not a core competency, but you have the need to upgrade your infrastructure (website, order management system, call center and or fulfillment operations) means an increase in expenses or requires new capital.
  • You have seasonal spikes that run 10:1 or higher (peak vs. average sales week) and wish you could service these peaks in another way.
  • You’re trying to build your business, and know fulfillment and customer service are critical to getting and growing sales—but fulfillment is not your core competency.
  • Internal fulfillment costs continue to increase, impacting the bottom line.

In all of these situations,third party logistics might be the answer.

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Ecommerce Fulfillment: How One Client Evaluated Options

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.

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How Our Clients Use 3rd Party Warehousing

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.  

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Get the Best Holiday Service from your Third Party Logistics Provider

Getting the best service from your third party logistics (3PL) provider this holiday season starts with your volume forecasting accuracy. You need to have established measureable service levels that are agreed to by both parties, as part of your contract.  Establishing these service levels and having the 3PL vendor meet them requires that you supply realistic volume forecasts for the call center (orders, calls, emails, mail, etc.) and the warehouse (orders, receipts, returns, etc.) by day and by week a month in advance so that the 3PL vendor can plan their labor accordingly.

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When is 3rd Party Fulfillment the Right Outsource Option for You

Many multichannel merchants focus on how they can lower operating costs of their supply chain logistics when they consider outsourcing certain tasks. When you use third party fulfillment partners to outsource your operations, you also outsource the investment. Sounds obvious, but the magnitude isn't always clear until you're faced with replacing an order management system, moving into a new fulfillment space or upgrading your website and platform.

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Selecting the Right Systems for Your Third Party Logistics Business

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.
 
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Exploring Third Party Logistics Call Centers To Reduce Costs

Every company today is looking for ways to save money without hurting sales and customer service. As the pressure on businesses to dramatically reduce costs continues, you need to explore whether third party logistics call centers is the right solution for your business. Does it make sense to outsource some or all call center and data entry functions as a way to improve your bottom line? Companies are also outsourcing these call center functions to avoid using capital to install a new order management system and telephone system.

We are not pushing domestic versus off-shore, but instead the analysis of what using a third party call center can do for your business. One of our clients outsourced 300,000 phone calls off shore, resulting in a substantial reduction in costs. How substantial? This client’s fully loaded internal cost per minute was $0.72, while a fully loaded off-shore cost per minute for this client was$0.42—and most of the customer service remains in-house. Additionally, the client’s 90,000 mail/fax orders cost was only $0.15 per order: scanned, transmitted to Asia, keyed overnight and available on-line for picking and customer service the next morning.

Clearly, you need to look at the potential savings of outsourcing. How should you approach doing this type of study?

Know your internal costs. In order to compare your internal costs versus third party outsourcing, you need to identify your fully loaded internal costs. “Fully loaded” includes direct and indirect labor, occupancy and telecom costs. This needs to be converted to a cost-per-minute basis, which is how outsourcing will generally be proposed and invoiced. You may say that you can’t control occupancy costs, however, there may be other uses for that space, if call center is outsourced.

Competitively bid out to multiple vendors. It goes without saying that you need to competitively bid the call center functions in question to a short list of qualified bidders; both domestic and off-shore. This is the only way to get the lowest costs.

Formalize an RFP (Request For Proposal). This should include:
    • A pro forma for your business, meaning the types and volumes of transactions (actual and multi-year forward projections)
    • Required services and functions
    • Service level standards for total call length, abandonment rate, and average call service level standards
    • Request references, boilerplate contract, and reports available
    • Details about order management systems needs and systems integrations including eCommerce site, etc.

Decide what to keep in-house. You should keep your call center customer service internal. This gives you a way to monitor the service levels of the outsource company. It also gives you the opportunity to have control and be the "front line" for resolving customer issues.

Ask other critical questions. Among the things you’ll want to know:
    • How will training be conducted about your product(s) and company policies?
    • Is the third party provider PCI compliant and certified? To what level?
    • How will you monitor your customers’ calls coming into the third party call center?
    • Who are the company’s references? Come up with standardized questions to ask each of the references so you can compare their responses.

Domestic outsourcing has some advantages over off shore. Here are a few that I think are important:
    • There may be an advantage in the area of English speech. However, I am greatly impressed with how well the Philippines has performed for some of our clients.
    • Shorter travel distance means you can visit call centers more often.
    • Understands US culture.
    • Keeps jobs in the USA. This may or may not be as much of a factor for you.

Of course, domestic outsource providers’ costs may be higher than some off-shore solutions, but that is not necessarily a dead end. We have one client, a major non-profit with a high average order, that outsourced 100% of its direct orders domestically while keeping customer service in house. They were able to successfully renegotiate with their domestic outsource provider so that the costs were not so widely different.
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