Choosing the right order fulfillment provider is instrumental. If the correct choice is made, the order fulfillment company will help propel your business growth by shipping orders accurately and on-time, managing stock and inventory levels, and providing exceptional customer service. But if the wrong company is chosen, the results can be catastrophic, leaving your business with the prospects of damaged reputation and decreased profits.
Make no mistake about it – your choice of order fulfillment provider is a make-or-break decision.
Unfortunately, most companies make a huge mistake when vetting fulfillment providers: they put the emphasis on product and service specialization, technology integrations, and location rather than some of the more important selection criteria. This is an understandable first instinct, as it’s certainly important to make sure a fulfillment company will be able to perform the required tasks in a suitable location.
However, not only do most fulfillment companies in the current landscape perform a comprehensive set of services and integrate with numerous technology platforms, but there are also some more critical things that need to be investigated to make the right choice. Simply put, these more common selection criteria are not always reliable indicators of the order fulfillment provider that best fits your business needs.
Of course, investigating compatibility in terms of product and service specialization, technology capabilities, and location are not without value. But more pertinent factors foretell whether a fulfillment company is worth the cost. Here is a comprehensive list of things to look for in a 3PL provider.
The Right Quality of Service
A high-performing fulfillment provider is easy to identify if you know a few things to look for. The following key concepts will point you in the right direction and help you eliminate the wrong companies from your shortlist.
Guaranteed Performance with Accountability
A 3PL company must be able to operate at a high level, and when they do make mistakes, they must take accountability for errors. Unfortunately, many companies will tell you anything you want to hear – assuring you that they will perform high-quality work and rarely ever drop the ball.
But how do you know if their promises will be kept?
The easiest way to gauge whether a fulfillment provider is trustworthy is to go straight to their contract or agreement. Reliable companies have SLAs (service level agreements) and are willing to include performance guarantees in their contractual agreements with customers. Unreliable companies who don’t take ownership of mistakes will have agreements that “pass the buck” and avoid any penalties for lack of performance.
3PLs that provide performance guarantees will include the following in their contracts:
- Specific performance guarantees that they will meet, including the timeframe to receive goods into their warehouse, inventory accuracy, order accuracy, and sometimes even shipping accuracy.
- Remedies for lack of performance, such as reimbursement for mis-shipments and lost inventory over an acceptable level, will be noted as well.
Performance is the foundation of a healthy 3PL relationship, and the right 3PL will have a pathway to measuring and being accountable for performance. Any service you consider should guarantee performance rates through a contractual agreement.
Regular and Consistent KPI Measurement
The fulfillment provider should measure Key Performance Indicators (KPIs) – and this is non-negotiable. KPIs track progress against specific targets set by your contract. KPIs often concern quality, costs, speed, efficiency, resource utilization, or personnel compliance.
It’s one thing to list KPIs in the agreement, but it’s altogether different to have codified processes and technologies that enable the measurement of them. A reliable fulfillment company will have documented processes and procedures for every task performed in the warehouse, and online reports will be available to view results on a daily, weekly, monthly, and yearly basis.
Take inventory management, for example. Operating with a low percentage of inventory loss (lost or damaged product) requires:
- Having a thorough receiving process to ensure products are counted correctly, entered in the system correctly, and placed in the proper area within the warehouse
- Performing routine inventory counts, whether cycle counts or yearly counts, to ensure no mistakes are uncovered
- Executing a near flawless order picking strategy, so that incorrect items or quantities aren’t picked
- Providing a robust set of reports for staff, management, and customers to view in real-time
All these things combined will result in a low level of errors. It won’t guarantee perfection, as no fulfillment company is perfect, but it will ensure proper levels of performance.
So how do you know if a provider meets the mark in this area? Simple…ask for the processes and procedures manual and/or ask for a demo of their technology system and reporting. If a company doesn’t have these key components, you may want to drop them from your short list of options.
One other important note about KPIs – the best order fulfillment providers hold regular meetings with your business about KPIs. A reliable line of communication ensures that fulfillment companies are accountable for results and that they are being proactive instead of reactive. High-performing fulfillment providers will have monthly meetings or at least quarterly meetings to discuss performance.
Positive and Truthful Customer Reviews
The hallmark of quality service is positive feedback. Search for reviews and ratings of the fulfillment provider on the internet – this will give you a glimpse into their performance.
The overall quality of the reviews is more telling than the number. Pay attention to what clients say about the order fulfillment company. Then pretend you’re the client. Would you be satisfied with its performance? Do its practices encourage customers to shop for your product again? Or do its practices deter customers?
A Culture of Honesty and Integrity
A quality 3PL provider emphasizes its honest business practices. You can gain tremendous insights into an operation by the types of deals they strike and the transparency of their overall operations and relationships.
Be Wary of Back-Door Deals and Middlemen
The fulfillment provider should dissuade back-door deals that negatively impact your pricing – and they should champion your best interest. Without these measures, the relationship is built on a foundation of secrecy and lack of transparency, and you may pay more for your fulfillment services than needed.
Sometimes, providers strike deals with brokers or middlemen to increase their earnings. It’s not to say that every brokered deal is inherently bad, but they are extremely challenging and oftentimes harmful to you, the client. Unfortunately, by inserting another party, these providers most likely add an additional layer of costs to your business.
There are a few matchmaking services that are legit, matching you to the best fulfillment companies and only charging a small fee for the connection that does not in any way impact your pricing. But unfortunately, most lead generation companies, ‘top list’ websites, brokers, or fulfillment marketplaces take a cut of the deal anytime they refer your business to the fulfillment company. When commissions are involved, it’s far too easy to “play favorites” and pass deals to the companies that pay the highest dollar for referrals. This leads to extremely biased matches and should be avoided.
At the end of the day – be careful who you trust. Your fulfillment provider should be completely open with you about the structure of your deal. After all, if they can’t be honest with you about this important component, can you trust them fully with your inventory?
Best Match for Size of Operations
Another relevant factor is the size of the order fulfillment service. In many cases: small 3PL providers best match with smaller businesses, and larger 3PL providers best align with larger companies. A single provider usually cannot serve all business sizes equally.
The search engines make this type of analysis extremely difficult, because most of the top results are filled with larger 3PL providers. If you find yourself in the boat of startup operations and/or lower order volumes, keep searching past the first few pages of results and keep an open mind for single-location and smaller fulfillment providers, as they will likely offer the best overall pricing and terms.
Other Factors That are Important to You
Based on personal preferences, other factors may rank high to you. These factors are not the same for every business.
Perhaps it’s important to you that the fulfillment provider is close in physical proximity to your business. In that case, make it a priority to evaluate fulfillment companies on their locations. It might make economic sense to choose the fulfillment provider nearest to you.
In another example, you could prioritize the “personal fit” of the staff at the fulfillment facility. If you want to feel at ease around the personnel, choose the facility with that in mind.
Other businesses prefer a facility that matches their company style. Perhaps an eco-friendly business seeks facilities that reduce their carbon footprint or use recycled material.
Therefore, prioritize any important “other” factors that are most important to you before conducting your search.
Each business is unique. Therefore, the most important factors for choosing a fulfillment provider may vary slightly. While it’s important to consider services, technology, and location, there are some more important factors that could make or break your entire relationship. When choosing your 3PL provider, consider its quality of service, business ethics, and compatibility in terms of size – and then sprinkle your analysis with a healthy dose of any factors that are of particular importance to you. If your business has specific needs, evaluate the provider against those standards.
Will Schneider is the founder of WarehousingAndFulfillment.com, a company that operates as a match-making service for the fulfillment industry. Prior to starting WarehousingAndFulfillment.com, Mr. Schneider gained extensive experience in the logistics industry running two private warehousing and fulfillment companies, and served as the Vice President of netQuote, a real-time quoting service for the insurance industry. In addition to writing informative posts about outsourced fulfillment and shipping services, he is also passionate about helping businesses find the right solutions to improve their overall operations. When not working, Will enjoys coaching youth basketball.