The Perfect Match: How to Evaluate a Strong Fit with a 3PL

Choosing the right 3PL (Third Party Logistics) company can make or break your ecommerce business. Finding a great mutual fit with a 3PL vendor can help streamline operations, save costs, and boost customer satisfaction. However, a poor mutual fit can lead to operational hiccups and a damaged brand reputation. 

Price comparisons are critical, of course, but you’ll likely find most 3PLs price their services similarly. While finding the low cost leader may be very important for your business, especially if you are operating on relatively slim margins, any pennies saved on paper will quickly be lost if your 3PL is not the best fit for your business. 

So, in this post, we will outline the key subjective criteria to evaluate when seeking a potential 3PL partner, highlighting successful and unsuccessful examples to help you make the best decision for your ecommerce brand.

5 Key Criteria for Evaluating a Mutual Fit with a Potential 3PL Vendor

1) Rightsize the Relationship for Scalability and Flexibility

A great 3PL partner should grow with your business, accommodating fluctuations in order volume and offering flexible solutions or workarounds when needed. Look for a 3PL provider that can handle your current needs and adapt to your future growth, both in terms of order volume, as well as the specific capabilities you may need. 

When it comes to scalability, consider the possibility of rapid growth in your business and the 3PL’s ability to meet the demand, as well as the possibility that your growth may not live up to the hype, or at least not initially.

Regarding the latter scenario, most startups in particular don’t like hearing this, but it’s also possible your brand won’t become “the next big thing”. That’s OK, as you may still end up with a successful business anyway. Be sure you either A) have the right partner for nearly any future scenario, or, B) start the partnership with eyes wide open that, if things don’t materialize as you planned, you may need to prepare yourself to for a painful transition to a different (maybe smaller) provider.

Example of a Great Fit #1: An early stage hardware product startup is moving forward with its first production run and hiring its first 3PL. The 3PL specializes in growing startups from zero volume to significant scale. Sure enough, the startup grows and, as advertised, the 3PL provider seamlessly expands the scope and geographic footprint of its services, supporting the brand's larger customer base and order volume.

Example of a Great Fit #2: A seasonal ecommerce business partners with a 3PL vendor that specializes in handling peak demand periods. The 3PL efficiently manages the brand's fluctuating order volumes during high and low seasons, ensuring timely delivery and maintaining customer satisfaction throughout the year. This partnership allows the brand to focus on marketing and product development, while the 3PL expertly handles the logistics side of the business.

Example of a Poor Fit #1: A rapidly growing ecommerce brand selects a 3PL provider that struggles to keep up with the brand’s growth. The consensus internally within the brand was “This 3PL will serve our needs for now and we’ll figure out what comes next at a later date.” Everything is fine until the 3PL's inability to scale suddenly leads to order processing delays and frustrated customers. The transition to another 3PL takes months to complete, leaving frustrated customers and internal distractions in its wake.

Example of a Poor Fit #2: A startup ecommerce brand with ambitious growth projections partners with a relatively large 3PL vendor that specializes in high-volume operations. However, the brand's actual order volumes do not live up to the hype, leading to underutilization of the 3PL's resources, a lack of personalized attention from the 3PL’s account management team, and higher-than-expected costs for the brand. This mismatch in expectations results in a financial strain on the ecommerce brand, which struggles to justify the costs and “poor service” when partnering with a high-capacity 3PL provider.

2) Technology Integration

In most instances, the ideal 3PL vendor should have contemporary technology systems that easily integrate with your existing ecommerce platform and with your current / future ERP system. This ensures a seamless flow of information, reduced errors, and better overall efficiency.

Example of a Great Fit: A hardware product brand partners with a 3PL provider that offers a robust, well-documented API and integrates smoothly with their Shopify store. The brand is also considering NetSuite for its ERP system next year and the 3PL has a demonstrable track record (and live customer references) of integrating with NetSuite. These integration capabilities allow for real-time inventory tracking, order updates, and an enhanced customer experience. The onboarding process with the 3PL also goes much more quickly and smoothly than others may have. 

Example of a Poor Fit: A brand chooses a 3PL vendor without verifying actual integration compatibility. As a result, the brand starts by manually sending the 3PL a daily CSV order file. This is fine to start but as order volumes grow and new products are offered, the brand must invest additional time and resources into manual workarounds, leading to operational inefficiencies and several cringe-worthy shipping errors.

3) Operational Process Fit

It's crucial that your 3PL partner understands and aligns with your specific operational requirements (and vice versa), such as product packaging, product labeling, and order processing logic. 

Ensuring a seamless fit between your brand's products and processes with the 3PL's capabilities can significantly impact your business's efficiency and customer satisfaction. 

Example of a Great Fit #1: An ecommerce brand collaborates with a 3PL that requires products to be properly barcoded with a legitimate UPC (Universal Product Code). The brand follows the 3PL's written guidelines (provided and evaluated by the brand in advance of signing a contract), ensuring their products arrive at the 3PL's warehouse ready for efficient processing and shipping. This smooth operational integration results in faster order fulfillment and a better customer experience.

Example of a Great Fit #2: An ecommerce brand selling fragile products partners with a 3PL vendor experienced in handling delicate items. The 3PL has a proven process for securely packaging and shipping fragile goods, ensuring that the brand's products arrive at their destination in perfect condition. This strong operational alignment results in reduced product damage claims, increased customer satisfaction, and a positive brand image. Plenty of analogous scenarios like this exist in other product categories such as climate control needs and/or specific handling instructions.

Example of a Poor Fit #1: An ecommerce company partners with a 3PL without paying attention to the 3PL's labeling requirements. As a result, the brand's products arrive at the warehouse improperly labeled, thus causing the 3PL to delay outbound shipments and charge additional fees for relabeling. This oversight leads to increased costs for the brand and frustrated customers due to shipping delays. Worse yet, the entire relationship is now off to a rough start, needlessly damaging the brand’s perception of the 3PL and vice versa.  

Example of a Poor Fit #2: An ecommerce brand with a large product catalog and complex order assembly requirements partners with a 3PL vendor that primarily handles simple, single-item shipments. The 3PL struggles to manage the brand's diverse product range and intricate order processing needs, resulting in frequent errors and delayed shipments. This mismatch in capabilities ultimately leads to a negative customer experience and a tarnished brand reputation.

4) Cost and Value

Assess the 3PL's pricing structure and the value it delivers. Consider not only the immediate costs, but also the long-term savings potential in areas such as shipping, warehousing, and labor. 3PLs generally price similarly, but they do take different “philosophical” approaches to their pricing. Do you value simplicity in the 3PL’s pricing or maybe the transparency and granular control they offer? 

Example of a Great Fit: An ecommerce brand partners with a 3PL that offers competitive overall pricing and value-added services that will enable the brand’s unique product kitting needs. The 3PL quotes, in advance, each of the likely kit configurations the brand will deploy. This results in well-set expectations on all sides and the ability for the brand to reliably budget kitting costs and lead times. 

Example of a Poor Fit: A brand selects a 3PL based on low upfront fees, direct to consumer (DTC) pick & pack fees, and small parcel shipping costs. For reasons beyond the operations team’s control, the brand shifts to primarily selling on Amazon instead of DTC from its own website. This requires the 3PL to perform palletized FBA inventory prep and LTL shipping as its primary function, instead of small item DTC pick & pack via USPS or FedEx. The brand is sticker shocked by the per-pallet FBA prep expenses and LTL shipping expenses. The lesson learned here is to look holistically at the 3PL’s pricing. Wherever your business is today, it will likely need to navigate pivots in strategy and the resulting pricing the 3PL charges to accommodate those needs.

5) Expertise and Industry Experience

Your 3PL partner should have a proven track record and expertise in your specific industry or product niche. This ensures they understand the unique challenges your business faces and can offer tailored solutions.

Example of a Great Fit #1: A fashion ecommerce brand partners with a 3PL provider with extensive experience in the apparel industry. The 3PL offers specialized services such as garment handling, cleaning, and returns management, thus ensuring optimal performance.

Example of a Great Fit #2: A high-tech hardware product company partners with a 3PL vendor with extensive experience in handling advanced electronics. The 3PL not only offers specialized services for the safe storage and handling of high-tech devices, but also has the expertise to flash firmware on the devices before shipping, as well as keeping the brand in compliance with shipping lithium batteries. This operational alignment ensures the brand's customers receive up-to-date products, enhancing their user experience and contributing to a strong brand reputation. This well-aligned partnership also ensures compliance with DOT and FAA / IATA battery shipping regulations, for which the penalties for violating can be very steep. 

Example of a Poor Fit #1: An ecommerce brand selects a 3PL with no experience in temperature-sensitive products such as a cosmetic accessory the brand sells. The 3PL didn’t ask and the brand didn’t proactively mention the requirement for this accessory to be stored below 80 degrees fahrenheit and not shipped to customers in warmer locales during the summer, as the item will melt in the back of the shipping carrier’s truck.  This leads to inadequate storage conditions, product spoilage, and dissatisfied customers.

Example of a Poor Fit: #2 An ecommerce brand offering customizable products partners with a 3PL vendor that lacks experience in handling personalized orders. The 3PL imagines it can’t be that difficult to match up the correct custom-engraved item with the correct box and shipping label. The 3PL struggles to manage the unique variations and customization options, leading to incorrect items being shipped and an increase in returns. This misalignment in capabilities massively frustrates customers and strains the brand's resources and reputation.

Should I even hire a 3PL?

To end on a positive note, it should be said that most 3PLs run growing, profitable businesses. This is generally because 3PLs are good at what they do. 

Most 3PLs value their client relationships, take pride in providing high quality services to end customers, and generally retain upwards of 80% - 90% of their clients each year. B2B retention rates like these are also the product of a strong sales process that actively seeks out areas where potential misalignment exists and addressing those potential issues before they become real problems. Most 3PLs would rather pass on business that could be a bad fit, versus onboarding a client that is destined to be unhappy. 

In Rush Order’s experience, conversations with prospective clients are usually focused on which 3PL is the right fit, not whether it makes sense to outsource. However, if all else fails, it may be time for a brand to spin up its own warehouse. This decision often comes with significant trade-offs. First, spinning up your own warehouse requires a commitment to significant fixed overhead costs, namely in the form of a lease. Also keep in mind that commercial building landlords may or may not require the brand’s CEO / Founder / Owner to sign personally for the lease. You’re also committing to the promise of reliable employment for your warehouse staff, regardless of variability in sales volumes. 

There is a myriad of other object and subjective decision points as well, but the equation is usually made as such: Do the above commitments to run my own warehouse give me the ability to successfully run my business that 3PLs are simply ill-equipped to handle? Your level of conviction about the answer to this question, in either direction, better be very high. If not, your research probably isn’t complete.

Parting Thoughts

When evaluating a potential 3PL partner, keep these key criteria in mind: scalability and flexibility, technology integration, operational fit, cost and value, and industry expertise. By doing so, you can find the perfect match for your ecommerce brand and pave the way for a successful partnership, ultimately resulting in operational efficiency, cost savings, and delighted customers.

When choosing whether or not to outsource at all, consider your confidence level in answering the question, “Do the serious long term commitments required to run my own warehouse give me the ability to successfully manage a critical portion of my business that 3PLs are simply ill-equipped to handle?”.

To learn more about Rush Order and explore a mutual fit with our solutions, contact us to schedule a free consultation.