Is your business ready to fulfill its digital future?
Whether you’re a new company whose value proposition comes to life through an engaging digital experience or an established brick-and-mortar retailer looking to expand online, delighting customers in today’s marketplace requires all fulfillment channels to be fully developed.
Yet fulfillment is not a core competency for many retailers. As a result, these organizations risk fulfillment activities falling short of customer expectations — degrading the customer experience and challenging customer retention.
Consumers are unforgiving of bad fulfillment experiences with a brand. Up to 85% will switch to a new company after one poor delivery event.1 And two-thirds (66%) of retailers think consumers are more likely to complain about the delivery experience than the item they bought.2
B2B shippers face the same level of expectations, whether it’s a single pallet or a full truckload of product. Many shippers must contend with business customers’ on-time in-full (OTIF) commitments, and missing those deadlines can cost shippers the business.
Retailers also face challenges in managing the ongoing pressure to improve productivity and meet evolving customer expectations for a fast and seamless fulfillment experience. Headwinds for fulfillment excellence include:
- Capability shortcomings. Servicing customers in both B2B and DTC channels, fulfilling across different units from eaches to truckloads, and handling multiple product formats including bulky, liquid and hazmats.
- Transportation depth. Managing an in-house fleet and drivers along with maintaining diverse relationships, including parcel, LTL and last-mile carriers.
- Capacity. Managing carrier relationships and capacity availability to meet services commitments.
- Labor. Addressing competition for staffing, which pushes up labor and benefits costs, putting pressure on margins.
- Technology. Deploying multiple solutions to manage orders, the warehouse and transportation, which requires significant investments.
- Managing imports. Importing and distributing containers throughout the U.S., requiring customs knowledge and logistics expertise.
- Network footprint. Moving inventory closer to customers, which reduces shipping costs but could require significant investment.
As companies hone their supply chain strategy, they face a make-or-buy decision to improve fulfillment: Invest capital in warehouse capacity and technology or work with a third-party logistics provider (3PL) to manage a portion or all of the fulfillment process.
“Because the cost of capital is so high, partnering with a 3PL can help with many of those issues,” says Daniel Stanton, a supply chain educator and consultant. “As a shipper, you can focus on the challenges in which you need to be investing time and energy to successfully deliver value to your customers.”
With help from a third-party logistics provider (3PL), you can turn fulfillment frustration into a competitive advantage.
Everyone wants free shipping now, right? So having the right 3PL relationship is key because you need to handle last-mile delivery efficiently or you’re not competitive.
Daniel Stanton | Supply Chain Educator and Consultant
What is a 3PL?
Third-party logistics providers, or 3PLs, have been a part of the supply chain industry since the 1970s, providing outsourced warehousing, distribution and fulfillment services. Companies store products at the 3PL facility, and the products are shipped directly to customers once they place an order. A 3PL can handle drop shipping, parcel deliveries, less-than-truckload and full truckload fulfillment. The 3PL does not own or take possession of the products. Instead, it provides services for its client companies.
A 3PL manages the back end, nuts and bolts of your physical distribution, helping to support the brand promises made through the front end of the sales process.
“A 3PL is customer-facing, handling last-mile delivery and drop shipping and fulfillment,” Stanton says. “The 3PL serves as the interaction between your customer, your products or services, and your firm.”
Companies may engage a 3PL to handle specific segments of a company’s distribution channels while other channels remain in-house. Some companies outsource all their fulfillment operations.
Engaging with a 3PL allows companies to focus on their core competencies and direct capital expenditures to vital areas of their businesses. A company can focus on product development and marketing and leave the fulfillment to an expert partner.
“With a 3PL, the sky’s the limit,” says Chris James, senior director of fulfillment operations for Essendant, a leading 3PL fulfillment provider. “We will explore anything a customer may need in the supply chain.”
Identify your potential for fulfillment engagement
In the fulfillment landscape, 3PL customers typically fall into two categories: the “must-haves” and the discretionary users. In either case, delivery excellence is critical for customer satisfaction. A recent survey found that when an order is late, 41% of consumers blame the brand and only 32% think the courier is responsible.3
A “must-have” company doesn’t have any in-house fulfillment capabilities. It may be a specialized manufacturer or a digitally native vertical brand. The company focuses on its core mission and relies wholly on outsourced fulfillment services. These companies understand the value a 3PL brings to their fulfillment process. It can be faster for a “must-have” company to ramp up sales with a 3PL than to build its own infrastructure, generating cash flow to support business development.
Discretionary 3PL users may perform some fulfillment in-house and outsource other segments. For example, a manufacturer or distributor that shipped pallet loads to retail distribution centers may have bolted on e-commerce parcel fulfillment during the pandemic. Their systems are set up for large quantities, but smaller caseloads or eaches are inefficient. They look to a 3PL to manage e-commerce orders. Some may rely on a 3PL to manage seasonal surges during the holiday season or back-to-school shopping. Working through these types of demand spikes can be challenging for a business.
For B2B shippers, OTIF commitments are critical. Whether you’re moving a pallet or truckload to a distribution or retail location, meeting delivery windows and quantity commitments requires a fulfillment process that’s set up for the challenge. Otherwise, your company could face fines and even lose the business entirely. An experienced 3PL can help improve your OTIF performance to meet those commitments and retain the revenue stream.
“In some cases, you can do some of it yourself, but in most cases, you need to weave together the right combination of partners that bring the right skills, expertise and value to the table so you can orchestrate a supply chain that delivers the best value to your customers,” Stanton says.
How a 3PL improves efficiency and customer experience
A 3PL typically offers the following fulfillment services customized to a company’s business requirements:
A company sends product to a 3PL facility, where it is added to the inventory. The product may come directly from a manufacturer and other suppliers. The 3PL manages the product’s location so it can be efficiently picked and packed for customer shipment.
The 3PL stores the product where it can be easily accessed for distribution, according to specific product requirements such as climate control.
The 3PL selects products from bins, shelves, pallets or other material handling structures according to customer orders in compliance with the client’s standards for accuracy and timeliness.
After picking, the items are packed for shipment in cartons, pallets or the most suitable format for the shipping method. Cartons and packing materials can be customized to maintain the client’s brand image.
Fills orders from a distributor’s inventory with guaranteed delivery, reducing the need for the merchant to carry inventory.
A 3PL can handle multiple units of measure to pick pallets, cases and eaches.
Value-added Services (returns, kitting, customization).
Depending on the client’s needs, a 3PL can perform additional activities such as managing returns, combining multiple items into a kit, and customizing products and packing materials.
Shippers’ needs are unique — and 3PLs have the versatility to meet them. It’s not a one-size-fits-all approach.
Chris James | Senior Director of Fulfillment Operations, Essendant
How a 3PL can turn fulfillment into a competitive advantage
As we all know, Amazon is the industry standard for turning fulfillment into a competitive advantage. While the e-commerce giant is a unique example, many companies can adopt some best practices to transform their operations to meet expectations for services such as two-day delivery and product tracking.
Partnering with a leading 3PL can help ensure the customer relationship that begins with digital e-commerce is fulfilled on the physical side of the transaction. Look to a 3PL partner to provide these advantages:
- Industry expertise. Whether you rely on a 3PL for some or all of your fulfillment operations, they have capabilities that most companies don’t develop for themselves, such as information technology, better processes, experienced staff and dedicated facilities. “Because a 3PL focuses on these things every day, they are likely more efficient and cost-effective than what you can do internally,” Stanton says.
- Expense reduction. Working with a 3PL can move fulfillment costs from a capital expense to an operating expense so companies don’t have to invest in their own facilities. A 3PL can scale up and down for seasonal surges and peak demand. Also, labor costs are carried by the 3PL, reducing overhead expenses. With efficient warehouse processes and technology, fulfillment costs could end up being less than in-house options.
- Network design. Locating inventory closer to customers is cost-efficient, supporting fast delivery with lower shipping costs. A 3PL typically has a presence in major logistics hubs nationwide, with facilities already equipped with the infrastructure and technology to handle last-mile delivery.
“Network design is one of the biggest challenges most shippers have,” James says. “You must have a fulfillment partner that is in your markets with nodes that can satisfy your customer base and your service offerings.”
Optimized network design can also reduce costs for inbound shipments. Strategically located warehouses reduce zone rates and lead times so product is available faster and at a lower cost.
- Omnichannel commerce. A 3PL can support fulfillment through multiple channels, including traditional e-commerce parcel delivery and drop shipping, as well as click-and-collect options such as BOPIS, BOPAC and lockers. A selection of well-executed options gives customers a better experience, leading to improved retention. Data analysis can pinpoint which products should be inventoried at which location based on historical and predicted volumes.
- Scalability. Shippers can leverage a 3PL’s embedded footprint and infrastructure to add or reduce capacity as business requirements change. Ramping up to handle peak season e-commerce or support a product launch can happen without long-term investments.
- Visibility and transparency. Visibility is the ability to see inside your supply chain, and transparency is being able to share information with other parties. A 3PL should have the technology and processes to collect and synchronize data and share it internally and externally.
- Customer satisfaction. The Amazon effect leaves customers expecting consistent, fast deliveries with near real-time communication. “We’re past the point where customers will tolerate mediocre e-commerce fulfillment,” Stanton says. For B2B shippers, a 3PL can boost OTIF rates. James says Essendant helped one fulfillment customer improve their OTIF rate from the mid-80% range to 96%.
Take the next step to better fulfillment
Transforming fulfillment with a 3PL relationship is about more than cutting costs. It should focus on value, service and quality. For many companies, the fulfillment process is one of the primary connections with customers. Your 3PL partner ensures that the relationship lives up to your brand promises, fostering customer loyalty over the long haul.
“It’s not just about price. Make sure you understand the value that could be gained from the relationship,” Essendant’s James says. “The 3PL may bring things to the table that you didn’t know you wanted or needed.”
With consumers making buying decisions based on delivery time and costs, the ultimate goal is to tap into a 3PL for their capabilities, technology and workforce based on your unique needs.
“Your relationship with a 3PL is not a commodity relationship; it’s a business partnership,” Stanton says. “You need a partner that aligns well with your business, your culture and your strategy, as well as somebody that’s providing value so you can both succeed in the relationship.”
With over 100 years as a wholesale distributor, Essendant offers its logistics expertise as a 3PL fulfillment provider. A broad range of customers across industry verticals count on Essendant to manage and deliver products to customers each day.
1 “FarEye Study Says Retailers Risk Losing 85% of Online Shoppers Due to Poor Delivery Experience,” Business Wire, July 18, 2023, https://www.businesswire.com/news/home/20220715005443/en/FarEye-Study-Says-Retailers-Risk-Losing-85-of-Online-Shoppers-Due-to-Poor-Delivery-Experience.
2 “Fixing Failed Deliveries: Stamping Out Faulty Fulfilment,” Loqate, https://info.loqate.com/hubfs/Loqate_Fixing%20failed%20deliveries.pdf.
3 “Fixing Failed Deliveries: Stamping Out Faulty Fulfilment,” Loqate, https://info.loqate.com/hubfs/Loqate_Fixing%20failed%20deliveries.pdf.