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Outsourcing logistics services to 3PLs has been a helpful alternative for many businesses looking to improve their supply chain capabilities and efficiently scale up to support business growth. Demand for these services has increased due to the growth of ecommerce in both retail and B2B, as companies of all types are fulfilling orders in new ways. As a result, more shippers are looking for third-party logistics providers that can take on all or part of their fulfillment. Here’s how to find the right 3PL for your requirements.

A custom report for Essendant from the editors of

Executive Summary: The changing landscape of fulfillment

Before ecommerce, most companies shipped in straightforward ways. Manufacturers shipped large quantities to distributors and wholesalers, who then shipped smaller quantities to retailers or business customers. Retailers mainly shipped merchandise in pallets from their distribution centers to their stores.

It’s a lot more complicated today.

With the advent of the internet, retailers began shipping small parcels directly to consumers’ homes, a very different process from moving pallets to stores. Consumer goods manufacturers increasingly got into the act, selling their goods directly to online shoppers, creating a need for new direct-to-consumer fulfillment capabilities.

Wholesalers and distributors, too, have launched their own ecommerce sites, selling directly to consumers, small businesses and sometimes larger organizations outside their traditional sales areas. They, too, now have to fulfill in different ways.

While business-to-business ecommerce was slower to develop, it’s now the fastest-growing B2B sales channel. In a recent survey by Digital Commerce 360 and Forrester Research, nearly three in five business buyers said they make more than 25% of their purchases online.

Further complicating the job of fulfillment managers, while opening up new opportunities for sales and marketing teams, has been the rise of online marketplaces.

Those multi-seller online portals now account for over 40% of U.S. online retail sales. In B2B, their share of ecommerce sales has shot up dramatically in recent years, to 12% of U.S. B2B ecommerce sales in 2022, versus 1.8% in 2020.

Marketplace operators often impose strict delivery and information-reporting requirements, which many sellers are not equipped to handle. 3PLs with marketplace experience can fill that need.

Outsourcing Logistics

The COVID-19 pandemic further roiled fulfillment, as suppliers struggled to produce and ship goods, and labor shortages meant there often weren’t enough warehouse workers or truck drivers to move merchandise along.

Not surprisingly, that’s led more companies to outsource some or all of their warehousing and delivery work to third-party logistic providers. In 2022, 55% of logistics managers surveyed by the Council of Supply Chain Management Professionals said they were increasing their use of 3PLs, in line with the 56% who said so in 2021.

But that survey also revealed growing shipper dissatisfaction with their logistics partners. Only
83% said they were satisfied with the work of their 3PLs, a sharp drop from the 90%-plus satisfaction rate consistently reported in prior surveys.

That statistic makes one thing clear: If there is any misalignment between a shipper’s needs and the capabilities of its 3PL, they’re more obvious than ever.

What that means is that companies evaluating logistics partners have to do a good job of ensuring that the 3PLs they work with can meet the increasingly complex and varied requirements
of handling in-bound freight, storing goods and fulfilling orders to customers.

Even with a good understanding of your needs and a well-crafted RFP, selecting the 3PL best positioned to help you grow your business is not an easy task. For starters, there are a lot of them. And they’re not created equal. Not by a long shot.

Some serve certain regions. Others may be specialized in handling a certain kind of product, such as apparel, but might not be well suited to store and transport heavy equipment, perishable goods or hazardous materials. Some 3PLs mainly serve smaller companies and could be overwhelmed by the requirements of a large shipper; others have mainly larger clients and may not pay much attention to a smaller company.

Getting this decision right is a big deal because the right fulfillment partner can be a very valuable asset. In the CSCMP survey, 71% of shippers said their 3PLs helped them improve customer service and the same percentage said logistics partners provided new and innovative ways to improve logistics effectiveness.

With the many opportunities companies have to grow their business these days, getting a partner with the right kind of expertise and capabilities can play a big role in accelerating expansion into new markets while minimizing investment costs.

This report is designed as a guide for vetting potential logistics partners and will lay out the three key steps that will help any company find a suitable fulfillment partner. Those steps are:

  • Understanding your needs: What do you sell? Who do you sell to? Do you have sharp seasonal peaks that can strain warehousing and delivery resources? Do you face regulations or need specialized equipment to handle your goods?
  • Aligning your needs with those of a fulfillment partner: Does the partner have experience serving companies of your size and in your industry? Do they have a warehouse network suitable to meeting your customers’ demands for fast delivery? Do they have relationships with many carriers so they can offer the lowest shipping rates? Do they take the time to understand your business or just offer you a pricing sheet?
  • Creating a bid document or RFP that will get you the information you need: It’s crucial you craft a detailed document so that you can make apples-to-apples comparisons of responses from 3PLs. Make sure you provide details of in-bound freight characteristics and frequency, warehousing needs, and delivery requirements. Provide detail on your communication requirements and the technology you use to interface with suppliers and service providers.

A 3-Part Strategy for Finding the Right Fulfillment Partner

If your company is evaluating potential fulfillment partners, break down your search process into the following three parts:

Look at your business and define what your goals are in improving fulfillment

Examine your requirements so you can determine whether a potential partner is a good match

Put together a detailed RFP or other bid document and gather the same information from all potential partners so you can make a valid comparison

Let’s look at each of those steps.

Part 1: Understanding Your Needs

Before you look outward, look inward. What are you trying to achieve that you believe a third-party logistics provider could help with? That will help you focus on the capabilities your company needs from a 3PL.

Most companies considering a 3PL are focused on one of the following three goals:

  • Increasing revenue
  • Cutting costs
  • Improving service

Let’s look at each of these goals and how a 3PL could help.

Increasing Revenue

To take advantage of the new sales channels opened up by ecommerce often requires new fulfillment capabilities. Many companies face the choice of building those capabilities themselves or buying them by partnering with a logistics company.

Some of the potential revenue opportunities are obvious.

Manufacturers that previously sold in bulk to retailers and distributors may want to sell directly to consumers. That means picking, packing and shipping small orders, something their distribution centers are not designed to do.

Wholesalers and distributors that previously serviced a particular region with their own trucks now find that their ecommerce sites are bringing in orders from across the country and from other countries. That requires new fulfillment capabilities.

Retailers and brands increasingly are selling on online marketplaces that have strict requirements for delivery times and customer service. A 3PL may already have developed those capabilities.

Some of the revenue opportunities are less obvious.

For example, some manufacturers and distributors may have order minimums, such as at least $10,000 per order, because their warehouses are not set up to handle smaller shipments. That likely deters new clients who may not be prepared to place a large order and even keep current clients from placing more, small orders.

Competitors will swoop in to seize these opportunities. A 3PL may be equipped to handle smaller orders, enabling a client company to reduce or eliminate its minimum order requirement.

Consumer goods manufacturers can gain additional revenue if they can offer drop-ship services to retailers. Many retailers have cut back on the inventory they stock in stores because of the shift in shopping to websites, but they still want to offer a broad selection, both in-store and online.

Instead of stocking less-popular sizes and colors, they can take orders for those products and have manufacturers drop-ship them to consumers. But that requires a manufacturer to have the capability to ship individual products to consumers. It may be more economical for the brand to outsource that
part of its fulfillment operation to a partner, rather than making the investments necessary to handle drop-shipping.

Bottom line: Improved fulfillment capability can lead to higher sales.

Cutting Costs

As companies take advantage of new sales opportunities opened up by ecommerce, they quickly find themselves having to store and ship merchandise differently than they have in the past. In order to meet customer demand for fast and low-cost shipping, they may need several warehouses across the country instead of one or a few distribution centers.

Adding new fulfillment capabilities brings significant costs. Each new distribution center requires labor, material-handling equipment and storage racks. Building a warehouse is expensive and leasing one may tie a company up in a long-term contract that will be a burden if projected sales don’t materialize.

As those costs add up, companies frequently begin searching for fulfillment partners that already have the capacity to handle those storage and delivery requirements.

In addition, well-established 3PLs frequently can negotiate lower rates with delivery services, as the combined volume of their clients makes them big customers. Some also have relationships with delivery companies beyond UPS, FedEx and the U.S. Postal Service, such as LTL carriers and local couriers. Having a range of options, and sophisticated software for selecting the best option for each delivery, can enable a 3PL to lower a shipper’s delivery costs.

There are other ways a capable fulfillment partner can cut costs. Many companies bring in container loads of merchandise from Asia into West Coast ports, ship that product to their central distribution centers, then ship it back to 3PLs to fulfill certain orders. By establishing good communication with a 3PL, the fulfillment partner can pick up some of those products from the West Coast port and move it to its own nearby warehouse, reducing unnecessary cross-country shipping costs.

One more cost that can be contained is the expense of managing multiple fulfillment partners. As their business expands into new channels, some companies engage one 3PL to handle a particular type of order, such as direct-to-consumer deliveries, and others for other tasks, such as bulk deliveries to retail stores.

Managing multiple fulfillment partners takes management time and may mean duplicating the inventory stored with various fulfillment partners. It’s no surprise that 71% of shippers in the 2022 CSCMP survey said they hoped to consolidate multiple 3PLs.

Finding a single fulfillment partner that can handle all requirements—including in-bound freight, storage and delivery—is another way to reduce fulfillment costs.

Improving Service

A 3PL with a national warehouse network can get orders to customers faster than a shipper with only one or a few distribution centers. Some fulfillment providers also have invested in the technology needed to keep buyers apprised of when their deliveries will arrive, and to give them the option to reroute or delay shipments. Those capabilities are particularly appreciated by business customers.

Fulfillment companies may also be better prepared to drop-ship individual items to consumers than brand manufacturers whose distribution facilities are geared to shipping large orders. That allows the manufacturers to offer drop-ship options to retailer clients that don’t want to carry every size and color in their stores, but want to offer customers a broad selection.

Some 3PLs can offer value-added services, such as bundling or kitting products together. A hardware brand’s fulfillment partner, for example, could put in a saw blade with each order of a power saw, allowing the brand to offer a packaged deal that may be attractive to do-it-yourselfers.

In short, 3PLs are specialists in storing and shipping goods in ways that meet the needs of shipper clients and their customers. In many cases, they can offer services that would be expensive for retailers, manufacturers, distributors or wholesalers to duplicate on their own.

Part 2: Finding a Good Match for Your Needs

Every business is different. The right fulfillment partner will be one that can meet the specific needs of your company. The first step is to assemble a detailed picture of your product, customers, sales patterns and the services your business needs. Then you can determine if a fulfillment provider is a good match. Here is a checklist of common requirements:

  • Fulfillment capabilities: How does your business ship product to customers? One item at a time, in cartons, on pallets, in containers? The ideal fulfillment provider will be able to handle all your requirements. That’s particularly important for manufacturers and distributors that may be shipping large quantities to business customers while also shipping individual items directly to online shoppers.
  • Location of distribution centers: How geographically dispersed is the fulfillment provider’s warehouse network. Can it get products to customers quickly in all the areas you serve?
  • Can they handle your product?: If you sell heavy machinery, does the 3PL have the material-handling equipment adequate to move your products? Does it have rackspace strong enough to hold that equipment or adequate floor space to store it? For sellers of bulky items, such as furniture and appliances, can the service provider handle products of that size? If you sell hazardous materials, does the provider have the trained personnel and equipment capable of handling such materials. Sellers of consumables will want to determine if a 3PL is registered with the Food and Drug Administration and has experience in passing FDA audits.
  • Value-added services: Does the 3PL have the capability to provide services you need, such as bundling products together? Can it add your logo to cartons and parcels it’s shipping on your behalf and insert your packing slips, so that it looks to the customer as though the delivery is coming from your company? Some business customers require labels that are formatted to their specifications: Does the 3PL have the capability to meet those demands?
  • Returns: Companies that frequently get returns will want to find a fulfillment partner that has experience in handling returned items and getting them back into stock quickly so that merchandise can be sold before it’s out of date.
  • Seasonality: Many companies have peak seasons when sales can be 30-50% higher than normal. Can the fulfillment provider scale up to provide the storage space and pick, pack and ship services you will require during those peaks?
  • Carrier options: Does the fulfillment provider have established relationships with many national carriers as well as LTL and courier services? Many big companies only accept deliveries from approved carriers, making it important to determine in advance whether a 3PL has strong relationships with those carriers.
  • Communications: Study a 3PL’s warehouse management system. Can it take in data in the formats you use to transmit shipping orders and return data in ways that your information systems can handle? If you communicate via EDI or APIs, does the fulfillment company have an in-house team with experience in mapping data to your needs? If it relies on an outside party for such work, how quickly does that vendor respond to requests for changes?
  • Growth projections: If your business is growing rapidly, does the 3PL have the capability to offer you more storage space and delivery services as sales grow?
  • Business continuity: In the event of a natural disaster, severe weather event or other emergency, does the fulfillment provider have the capability to move work to unaffected facilities?
  • Advanced technology: Is the fulfillment provider investing in high-tech systems, such as robots and AI-driven picking and packing systems to reduce costs and improve turnaround time?
  • Client base: Does the fulfillment provider have experience working with companies like yours, clients in the same industry or with similar products and sales cycles? It’s a red flag if most of its clients are significantly bigger or smaller than your company. If your company is much bigger than the 3PL’s typical client, your requirements may overwhelm the provider. If you’re a relative small fry compared to other clients, you likely won’t be a top priority. Neither is ideal.

Checklist: Is this 3PL right for you?

Every business is different. The right fulfillment partner will be one that can meet the specific needs of your company. The first step is to assemble a detailed picture of your product, customers, sales patterns and the services your business needs. Then you can determine if a fulfillment provider is a good match. Here is a checklist of common requirements:

Fulfillment Capabilities

Can the 3PL handle all the ways you ship, including single items, cartons, pallets, containers?

Carrier Options

Does the 3PL have established relationships with a range of national and local couriers, including any mandated by business customers?

Geographic Reach

Does the provider have a nationwide network of warehouses that will be able to deliver quickly to all your customers?

Communications

Can the provider’s warehouse management system handle data from your order management system and provide you visibility into order status? Does it have an internal IT team capable of mapping data to your needs, including via EDI and APIs?

Material-Handling Capabilities

Can the provider handle specialized products, such as heavy or bulky items, hazardous materials, perishables?

Scalability

Is the 3PL’s storage and fulfillment capabilities robust enough that it can readily offer you more storage space and delivery services as your sales grow?

Value-Added Services

Make a list of the specialized services your business needs, such as bundling products, customer-mandated labels, putting your logo on a carton or a packing slip. Can the 3PL meet these needs?

Business Continuity

In the event of a natural disaster, severe weather event, labor action or other emergency, does the fulfillment provider have the capability to move work to unaffected facilities?

Returns

Can the 3PL handle returned merchandise? How quickly can it get products back into stock to be resold?

Advanced Technology

Is the fulfillment provider investing in high-tech systems, such as robots and AI-driven picking and packing systems to reduce costs and improve turnaround time?

Seasonality

Can the fulfillment provider scale up to provide the storage space and pick, pack and ship services you will require in peak seasons?

Client Base

Does the fulfillment provider have experience working with companies like yours, clients in the same industry or with similar products and sales cycles? Are its clients much bigger or smaller than your business?

Part 3: Putting Together an Effective Bid Document

To make a valid comparison of several potential partners, it’s important to provide them all with the same information and in language they can comprehend. All industries have their own jargon, and not all companies understand terms the same way.

As a way to minimize misunderstanding, it can be helpful to have preliminary conversations with potential fulfillment partners to ask them specifically what information they need from you. They may be able to provide you sample RFP [request for proposal] documents to aid you in creating your bid document.

The next step is to be specific and thorough about your needs and the information you want in return from potential partners. That includes about pricing and delivery capabilities, including the ability to fulfill orders nationally and internationally if that’s what your business requires.

You also want to be very clear on your implementation timelines.

Lack of clarity in the bid document can lead to problems in making an “apples-to-apples” comparison of fulfillment providers. It can also lead to failing to get the best price possible, to service disruptions if the provider you choose can’t handle the work and possible unexpected costs layered on after you start working with the provider.

Here are some of the key points to explain in your bid document:

Required information for bid document:

  1. Who is your primary customer? Are you selling directly to consumers or shipping to retail stores or to businesses or other large enterprises?
  2. What geographic markets do you serve? What are your requirements for speed of delivery?
  3.  Do you have specific requirements in the following areas:
    • Shipping carriers: Some big companies may only take orders from approved carriers.
    • Packaging: Do you provide customized packaging for individual clients? Are you shipping fragile products or hazardous materials that require special handling?
    • The days of the week you need orders shipped.
    • How quickly you expect orders to be turned around. The 3PL should be able to meet whatever shipping guarantees you make to customers.
  4. How is your product stored? On pallets, in cartons, individually? How often will merchandise arrive at the 3PL’s warehouse and how much storage space will you require for how long? That kind of detail is essential for the provider to accurately estimate its costs.
  5. What is your current volume? Do you project that changing?
  6. Do you have one or more peak seasons? Do you regularly do promotions that significantly impact in-bound freight and outbound shipments?
  7. How will you transmit and receive data from the fulfillment provider? Via EDI, APIs, spreadsheets, manually? Be as specific as possible with your data needs. Mapping data flows between client and 3PL can be the longest part of the implementation process. The bidding process is the time to determine whether a provider can meet your needs, not once you’ve signed a contract and are trying to implement the agreement.

Finally, it’s important to give all providers ample time to respond thoughtfully to your requests for information. The best partners will take the time to thoroughly analyze your needs and goals. This is not a process to be done in haste.

Checklist: Required Information for a Bid Document

For any fulfillment provider to prepare an accurate bid, it must understand the nature of your business and the services you require. Take the time to prepare this document carefully and give providers ample time to respond. The best partners will take the time to thoroughly analyze your needs and goals. The bidding process is the time to determine whether a provider can meet your needs, not once you’ve signed a contract and are trying to implement the agreement. Here is a checklist of questions to include in a bid document:

Who is your primary customer? Are you selling directly to consumers or shipping to retail stores or to businesses or other large enterprises?

How is your product stored? On pallets, in cartons, individually? How often will merchandise arrive at the 3PL’s warehouse and how much storage space will you require for how long?

What geographic markets do you serve? What are your requirements for speed of delivery?

What is your current volume? Do you project that changing?

Do you have one or more peak seasons? Do you regularly do promotions that significantly impact in-bound freight and outbound shipments?

How will you transmit and receive data from the fulfillment provider? Via EDI, APIs, spreadsheets, manually? Be as specific as possible.

What are your specific requirements for:

  • Shipping carriers: Some big companies may only take orders from approved carriers.
  • Packaging: Do you provide customized packaging for individual clients? Are you shipping fragile products or hazardous materials that require special handling?
  • The days of the week you need orders shipped.
  • How quickly you expect orders to be turned around. The 3PL should be able to meet whatever shipping guarantees you make to customers.

Conclusion: Preparation Pays Off

Many companies are analyzing their fulfillment needs as they seek to exploit the new sales channels opened up by ecommerce and omnichannel retail. Some will conclude that working with third-party logistics providers with existing infrastructure and fulfillment expertise is preferable to building and staffing new distribution centers.

Selecting the right fulfillment partner for your needs is an important choice. The time spent making a good choice will be time well spent, as it will allow companies, whether they sell to consumers or businesses, to cost-effectively take advantage of new revenue opportunities.

The first step is to thoroughly understand your own needs. And that means involving all the teams inside your company that will be impacted by outsourcing some or all fulfillment to a third party. That way the bid document will accurately reflect your needs.

Your sales and marketing teams will want to weigh in on the capabilities needed to win new customers and retain existing ones. Your procurement organization can provide insights on any foreseeable changes in in-bound freight projections. Legal and regulatory experts can specify compliance requirements.

Ecommerce managers can provide important insights on the demands of online customers, and of the intricacies of fulling orders places on marketplaces that represent a growing share of both B2C and B2B ecommerce.

Finally, it’s crucial to ensure that your IT team makes clear what data it needs from a fulfillment provider and in what formats. Whether you will be exchanging data with a 3PL via EDI, APIs, spreadsheets or another way, mapping data flows in advance — and ensuring the partner can meet your needs — will go a long way to smoothing the implementation process.

A capable fulfillment partner can increase your revenue, reduce your costs and allow you to serve customers better. Choosing the right partner is an important decision that, if managed well, will pay dividends for years to come.