By Shipware’s Fulfillment Optimization Team: Steve Givens, Mark Pierce, and Majeed Peffley
Key Takeaways:
- If your Third Party Fulfillment (3PF) provider fails to deliver on cost, quality, value, scalability, or capacity – it’s time to find another provider.
- Most brands that complete a comprehensive financial analysis find that they have the potential to save up to 30% of their costs by renegotiating with their current providers or moving to a new partner that’s better suited to meet their support needs.
- Consider your five-to-seven-year growth trajectory, and make sure the partners you are with or are considering are in alignment with your growth plans and can continue to support your needs for the longer term.
Four out of five brands are working with third-party fulfillment (3PF) partners that are not the ideal fit for their business. Why? Because there are thousands of potential vendors from which to choose. It’s practically impossible for companies to compare complex pricing, contracts, and services between providers in any meaningful way, let alone evaluate and vet which one might be the best fit for their unique business needs.
In many cases, brands base a highly strategic business decision on the results of a Google search or possibly the recommendations of a 3PF broker that’s being paid by a handful of providers to help find them new business. Sometimes, brands following this approach luck into a good fit at first. But as both the brand and the logistics or fulfillment provider evolve over time, the relationship can stop working as well as it once did. Many brands will tolerate less-than-optimal service for a lot longer than they should simply because they don’t relish the time and effort involved in making a change or the disruption it will cause their business, especially when they aren’t confident that a new vendor will be any better than the one they already have.
However, when 3PFs can no longer deliver the cost, quality, value, scalability, or capacity your brand or business needs, it’s critical to find another provider that can. By following a few critical guidelines, you can find the right 3PF that can become a truly invaluable partner in your business.
Here are five keys to framing up your search for a new 3PF provider to ensure good results:
1. Start with better insight into what constitutes market competitive pricing.
Most companies do not have a solid understanding of their fulfillment costs or how those costs compare to best-in-market rates. This is because fulfillment costs are often lumped into the total cost of goods, and invoices rarely break down those costs in detail.
What’s more, there is little standardization in pricing methodologies from one provider to the next, so it’s difficult to compare apples to apples. Because most agreements are private per contract terms, even when companies understand their own costs, they don’t have knowledge of how they compare to what peers are paying for similar services.
Most organizations simply don’t have the internal expertise to invest in the financial analysis and benchmarking necessary to understand what “good” looks like in the 3PF world, what best-in-market pricing and services are, or even what their own ideal service contract should include. Those who do find ways to perform an analysis almost always find misalignment between what they are buying and what they really need.
For example, most 3PFs have standard processes for everything from how inbounds are managed to how outbounds are processed. Deviating from these processes even slightly, or adding any extra “touches” for the 3PF team, incurs extra charges that add up fast and that companies often don’t realize they are paying. Sometimes, companies can make minor modifications to their own processes to eliminate these fees. Other times, they may need to find a different partner with more flexible processes that better match their needs.
Ultimately, companies need an in-depth understanding of their own operating characteristics, spending, and how they compare to industry norms to identify where their vendors may be overcharging and where savings opportunities exist. Most brands that complete a comprehensive financial analysis find that they have the potential to save up to 30% of their costs by renegotiating with their current providers or leveraging a new 3PF partner.
2. Expect a service level agreement that meets your needs and your customers’ needs.
Service level agreements (SLAs) that align with key performance indicators (KPIs) such as same-day shipping percentages, fill rates, and inventory shrink levels are some of the most important tools companies have to ensure their fulfillment vendors are meeting their end customers’ quality and turn time expectations. However, many 3PFs don’t even put SLAs in place unless their customers specifically ask for and negotiate them. When and where SLAs do exist, they are not always monitored, reported against, or enforced. Many fail to define any remediations for the brand in the event of missed commitments by the provider.
A true fulfillment partner should be contractually obligated and incentivized to help you meet your customers’ expectations. Look for a provider willing to collaborate with your business to define acceptable SLAs and meet or even exceed the agreed-upon terms. The best fulfillment partners will provide you with the reporting to track SLA compliance and review their SLA performance at least quarterly, be open to accommodating new requests, and take action to address any deviations from the agreed-upon standards.
3. Look for partners that can deliver the greatest value for your fulfillment and transportation spend.
If you are looking to deliver a high-end experience for your customers, you will obviously pay your fulfillment providers more than you would for basic 3PL services. But some fulfillment providers are better suited than others to meet these types of requirements and deliver great value at the right price point.
Alternatively, if your brand and your customers value a no-frills, lowest-possible-cost experience, the best fulfillment partner will be one that shares these priorities and has processes in place to keep costs down. In general, the larger the 3PF, the more efficient its processes will be and the less flexible the provider will be at meeting special requests, while smaller providers are usually nimbler, more accommodating, and often more expensive as a result.
No matter what is most important to your brands, fully understanding requirements and framing up value in terms of how well-suited a particular provider is at meeting them is best practice. It’s also a good idea to consider the cultural fit between your brand, your customers, and your logistics and fulfillment providers. You will ultimately achieve the greatest value when you find 3PL and 3PF partners that share your brand standards and are equally committed to what matters most to your business and your customers.
4. Consider your peaks and how well a fulfillment provider can respond to them.
Since Covid, there’s no longer such a thing as just one peak season per year. Take the fashion industry, for example. Most retailers must manage the fast fashion “freight train” with multiple product releases throughout the year. Many companies have multiple, shorter peaks, and they need fulfillment providers that can go from zero to 60 very quickly and then stop on a dime to accommodate sales, new releases, or other surges in the business that may only last a few days at a time.
Many 3PFs are developing these capabilities, and some do much better than others. Ideally, brands will find logistics and fulfillment partners that serve other customers with alternating peaks from their own. Such arrangements result in extremely strong partnerships for all parties involved.
5. Factor in your longer-term growth projections.
If you’ve been with a logistics or fulfillment partner that’s not meeting your needs for a while now, you know what a challenging and lengthy process it can be to make a change. You definitely don’t want to switch providers again a few years down the road. Consider your five-to-seven-year growth trajectory, and make sure the partners you are considering are in alignment with your growth plans and continue to support your needs for the longer-term before signing on the dotted line.
Find your perfect fit faster.
A great logistics and fulfillment partner is critical to delivering the experience customers want and expect from your brand. However, finding a 3PF that can consistently deliver the right level of service at the right price is a challenging undertaking, and many companies don’t have the internal expertise to compare 3PF capabilities, options, and total cost effectively. Many searches take 12 months or longer. Most brands still fall short when it comes to understanding the value they’re receiving and how to optimize the relationship with their providers over time.
Shipware helps by delivering the support, industry insight, benchmarking data, and analytics you need to enhance and expedite the 3PL and 3PF evaluation process, cutting the time it takes to find a great partner by half or more. Contact us today to learn more about our process and how you can tap into our expertise and data to find the partners you need to help you deliver your brand like never before.
