5 Things to Consider When Outsourcing Warehousing to a 3PL

Finding a 3PL to take over your warehousing and distribution is one of the most critical business decisions you will make, so it’s not one you should take lightly. When setting out to find a 3PL company that’s right for your unique business, there’s more to consider than simply price points. And most certainly, choosing a 3PL based upon the lowest pricing only is a recipe for disaster.

With 3PL satisfaction levels dropping to only 80% in recent surveys, it’s even more essential than ever to find a 3PL that will operate at the highest levels of quality and service. If possible, you want to avoid the extremely painful process of switching companies due to mismanagement or dissatisfaction. That means doing your due diligence the first time around to pick the very best 3PL company for your business.

Below are five key considerations you should consider when outsourcing your warehousing and distribution to a 3PL.

Location, Size, Product, and Technology Capabilities

You’ll have to do plenty of research to ensure the 3PL you choose can handle your business needs. The first level of due diligence will assist your company in both eliminating 3PL companies that are obviously not a fit, as well as streamlining a short list of partners that are worth additional exploration.

Making sure your chosen 3PL company is in an ideal location for your purposes is crucial. Access to ports and interstates, and international shipping capabilities will help determine if they are the right choice for you. The inbound and outbound shipping profile of your company will serve as a guide to pinpointing an optimal location to serve the delivery cost and timeline objectives of your organization. As an example, if you need a location on a vital east coast port, then choosing a 3PL in New Jersey, New York, Georgia, or Miami would be best. Alternatively, if you need a warehouse service on the west coast, located a 3PL in Los Angeles, Oakland, Portland, or even Reno would be best.

The size of the warehouse is something to consider as well. While a warehouse, by definition, is generally large, some organizations are built to be prepared for large scale order and shipping volumes, while others will have a smaller footprint and specialize in startup and small business fulfillment. You’ll want to make sure the 3PL warehouse can handle the size and scope of your business operation.

Depending on your product, you may be able to go with a general purpose 3PL. These companies offer generalized services to businesses that sell goods that do not require any special needs, usually at a cost-effective price. However, if you have a specialized niche or store and ship perishable goods, a general warehouse won’t be for you.

If that’s the case, a niche specific 3PL will be necessary. These warehouses may be temperature controlled with access to refrigerated trucks for perishable goods. Others may have necessary certifications if you ship products such as pharmaceuticals, medical devices, organic foods, or an assortment of other product types. Choosing a specialized 3PL will ensure that your products will be stored in shipped in the proper environment, with proper certifications, and using the necessary processes and procedures to ensure compliance with any applicable laws.

Technology integration is another important capability factor you should consider when vetting 3PL companies. In this case, you must ensure the company has efficient and up-to-date technology systems in place to streamline its processes and provide data transparency to you and your customers. Examples of technology integration requirements that may be a limiting factor include the ability to link with e-commerce fulfillment shopping cart software, business-to-business (B2B) and EDI software, financial and accounting software, and full-scale enterprise software.

Making sure your 3PL has the necessary location, size, certifications, technology, and other capabilities to handle your products helps set you up for a successful business relationship. You’ll be asking many questions as you vet 3PL companies, so ensure you plan and take notes as you have these conversations.

It’s also imperative to visit warehouses in person to see the operation and meet the company’s teams.

Relevant Industry Experience Backed by References

When researching and visiting different 3PL companies, you’ll want to investigate the industry experience they offer. One of the reasons using a 3PL can be such a positive move for a growing business is the expertise they provide. A great 3PL will have extensive industry experience relative to your business or niche. You will want to vet your 3PL company to be sure they can handle the demands of your business and have the personnel, systems, processes, and bandwidth in place to help with the fluctuating demands of your industry. This includes their ability to handle a surge in product demand, as well as lulls.

You should treat your 3PL vetting process like a hiring event – hire the best 3PL for the job. This means finding a 3PL with a track record to show their success and knowledge in the industry.

The 3PL you choose should have specific experience in your industry, and you should be able to look to them for their expert help in some of your decision-making. For example, your 3PL company should be able to help you assess the shipping options available to you and help you determine the best, most cost-effective choice for yourself and your customers. As you’re vetting companies, if they can’t demonstrate their industry knowledge to you, it’s probably best to move on to another option.

Going with a 3PL new to your industry might sound like a good idea if they offer a reduced price, but this is a risk you may regret. An expert 3PL company with a good reputation is an asset to your business. Look into how long they’ve been in business, their leaders, how they have handled supply chain issues, and ask for or look for referrals and reviews. Like when hiring a new employee, you’ll want to see social proof and evidence from your 3PL.

Specialized Services That Add Additional Value

The 3PL that is right for you will offer the services necessary to help your business succeed. Most 3PLs offer the same baseline services such as inventory control and warehouse storage, fulfillment services, and outbound shipping services. Furthermore, it’s not uncommon for most 3PL warehouses to offer reverse logistics services and kitting as well. What sets certain 3PL services apart from the rest is what they offer above and beyond these core offerings. Especially as business needs grow, more specialized services may be required to fully operate on an outsourced basis without additional oversight and intervention.

Examples of extremely impactful and uncommon “additional services” include full scale transportation management (optimization of outbound freight to minimize spend) and inbound freight brokerage management (facilitating the delivery of product from suppliers to the warehouse, including global inbound shipping, freight forwarding, and custom brokerage services).

It’s a good idea to choose a 3PL that offers a comprehensive list of services, even if you only need the basics. As your business grows, you may want to add more services. Doing so without choosing a new 3PL company will save you time and stress.

A 3PL that can provide a range of services under a single point of contact is advantageous to your business. It eliminates extra costs, time, and stress for you as you focus on other important aspects of your business.

Scalability to Meet Your Growth Goals

As your business grows, you must grow with it – that’s likely why you’re considering a 3PL company in the first place. When choosing a 3PL company, be sure that they can continue to scale with you should your business continue to grow.

If they can’t continue to grow with you, you’ll want to find a better option. Your 3PL of choice should be able to respond quickly to the demands of your business without skipping a beat. It’s a good idea to compare some of the other businesses that use each shortlisted 3PL. You can compare their size and product to yours and evaluate how their booms and lulls have been handled in the past. Furthermore, three key components must be present to adequately scale:

  • Management of significant warehouse space or access to additional warehouse space at a cost-effective rate. In this environment with extreme space scarcity, many 3PLs are busting at the seams or having to make difficult decisions to manage cyclical peaks and additional growth.
  • A ready labor force with ability to flex up and down to meet the needs of their clients. Hiring warehouse staff at 3PLs has become unthinkably challenging and at times frustrating. The use of timely technology can also serve to diversify the risk of labor challenges.

3PL flexibility is key. Even a small business can have an overnight spike in sales–will the 3PL company be able to handle that while maintaining customer satisfaction? Finding a 3PL company that handles both large and small businesses is often a good idea. This is a sign that they have the ability and experience to scale in different directions and that as your business grows, you will be able to add services and capacity as necessary.

When considering scalability, you’ll also want to research the financial stability of the 3PL. A great looking company with tons of services and experience won’t do you any good if it goes out of business any time soon. If the 3PL has mismanaged funds or a bad financial track record, steer clear. You can check to see if the 3PL has any history of late payments to their businesses as a starting indicator of financial stability.

A Winning Culture That Aligns with Your Business Environment

You want to partner with a company that offers a positive culture of communication, transparency, and reliability for you and the 3PL employees. A relationship with a 3PL company is ideally long-term, meaning it needs to be healthy, positive, and reliable.

As you vet different 3PLs, check their online ratings and reputation. Ask for referrals and interview staff members. An employee on the floor, in the trenches, will be able to offer an authentic perspective of the conditions of the warehouse – don’t simply take the word of management at face value. This doesn’t mean you should immediately distrust leadership, but a healthy skepticism will go a long way as you properly vet 3PL companies.

Look into the customer experience as well. Do they provide excellent customer service? This includes the customer service to YOU, the business they serve, as well as your customers who encounter them for ordering, shipping, returns, etc.

Adequate technological systems and processes are crucial to creating a positive work culture in a place like a 3PL company. Ensure that they have invested in technology that streamlines communication and allows you to see data throughout their processes. Proper technology also works to create healthy work conditions for employees of the 3PL. Are they investing in new, efficient technology or relying on old industry standards?

The relationship you have with your 3PL company of choice is crucial to the success of your business. Even if the 3PL offers the best, most cost-effective services with tons of industry experience, a hostile or toxic company culture will make it extremely difficult to foster a fruitful partnership. If they do not offer a positive work culture to you or their employees, find a 3PL company that does. Look for 3PLs that offer transparency regarding operations and that extend a personal touch in all communications.

The All-Important Walkthrough

As you consider different 3PL companies, a lot of the vetting can be done through research, email, and phone conversations. Still, it is crucial that you do a warehouse walkthrough of any of your 3PL contenders if possible. Prep your questions and checklist beforehand, and even if you have already asked about them before your visit, ask them again. The answers should be consistent and thorough.

A walkthrough can be especially insightful for things like quality control, workplace culture, and technology. Is the warehouse clean and organized? How does the morale of the workers feel? You can speak with employees from the 3PL across different teams to get a feel for their work conditions and any management issues. You can have the opportunity to see their technology systems in action and make sure they will integrate with your own to fit your business needs.

It may take more than one walk-through to vet a company thoroughly, and this may be after extensive research. So, as you set out to find the 3PL company that’s right for you, make sure you are prepared to be patient and thorough. Taking the time to vet 3PL companies properly will pay off in the long run when you find a great company to establish a long-term relationship with.

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