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A common stumbling block for eCommerce retailers is their operations. Inability to scale warehousing, storage and order processing can impact profit margins, the end-to-end customer experience, and even conversion rates. In this article, we discuss what eCommerce fulfilment involves, whether you actually need third-party logistics (3PL), and how to find the right solution if you do.
What is 3PL?
3PL is the process of entrusting a third-party specialist to manage the storage and distribution of finished goods. 3PLs operate in single, or multiple countries, and due to rising demand from retail decision makers, and an explosion of online retail, fulfilment houses are diversifying their offerings, with complementary services such as outsourced customer service, inventory analysis, customs clearance support, bespoke packaging and in the case of 4PLs and 5PLs, outsourced manufacturing, procurement and strategic consultancy.
Outsource Fulfilment or Do It in-house
Outsourced Ecommerce Logistics Can Enhance Business Performance
Utilising a 3PL can help retailers scale, thanks to reduced labour and HR management costs, and access to increased buying power for shipping and packaging. 3PLs help increase order accuracy, thanks to streamlined picking and packing processes, and advanced barcode scanning technology.
Some fulfilment houses offer predictive, AI-powered inventory management software (WMS) as part of their service, helping retailers avoid missed sales from understocking, and excess capital tied up in inventory, often referred to as overstocking.
Figuring Out Whether You Need eCommerce Order Fulfilment
Outsourcing fulfilment is capital-intensive, and requires a lot of trust. Entrusting a third-party with handling the most delicate element of your retail operations involves a huge leap of faith. Most 3PLs demand a minimum of 10 shipments per day, whereas others require 300.
A good starting point is to consider your growth ambitions as a business, and current infrastructure. With eCommerce fulfilment providers, you typically only pay for what you need, but during quiet periods, you might be hit with minimum service charges to help cover the 3PL’s own overheads.
Insourcing Your Picking, Packing and Shipping
Conducting your order processing in-house means you will retain total control over everything from receipt of finished goods from suppliers, through to handing over your shipments to your courier partners.
However, investing in developing your own fulfilment warehouse, picking and packing staff, and associated infrastructure such as barcode scanning technology, forklifts, and warehouse management software, means taking your eyes off other mission-critical business operations, such as sales, marketing, human resources, and new product development.
How eCommerce Fulfilment Works?
Once you’ve signed up with your chosen 3PL, the first stage is to integrate your separate sales channels, such as Shopify, WooCommerce, eBay, and Amazon, or multichannel order management system (OMS), with their WMS.
Following this, the next step is instructing your suppliers of the new fulfilment centre address. The next step is to establish lines of communication between the 3PL, and your key contacts in customer support, management, IT, finance and procurement. Now, orders can begin flowing in.
Once a customer places an order via your online store, an order note is created, which includes picking and packing notes, ready for the warehouse operatives in the fulfilment centre, to collect the required item(s), take them to the packing bench for packaging, and application of the shipping label.
Then, each parcel, packet, or mail item is grouped by carrier, into bags, pallets, and/or containers, ready for collection by the 3PL’s courier partners, such as DHL, DPD, Royal Mail, Evri, and Yodel.
The shipping providers will collect orders at pre-agreed timeslots, ideally late into the evening; the later the 3PL’s order cut-off time, that higher the proportion of today’s orders can achieve their promise of next-day delivery.
On creation of the shipping label, and subsequent scans throughout the delivery journey, such as receipt by the courier, your customers will receive tracking notifications, and depending on carrier service selection, a range of in-flight delivery options.
Finding the Most Suitable 3PL
The obvious things to check are third-party client reviews, and their clients’ customer reviews. The less obvious things to check are Glassdoor reviews – if a 3PL’s staff are happy, they are likely to perform better in terms of picking and packing accuracy, and overall order processing speed. Checkout out fulfilment houses’ customer success stories, and reaching out to their clients, will also help with your due diligence.
3PL pricing is diverse, and incorporates storage, shipping, picking and packing charges, along with onboarding and software fees. Additional costs include returns, and handling customer queries.
Aligning expectations between client and 3PL is critical, and this means agreeing on delivery performance expectations, and establishing KPIs (key performance indicators) and OKRs (objectives and key results) will ensure both parties can monitor metrics such as on-time delivery performance, customer satisfaction scores, order processing speed, and also feedback from the client’s staff in terms of their interaction with the fulfilment centre during onboarding, business-as-usual, and account management review meetings.
The Future of Fulfilment Outsourcing
The order fulfilment sector is predicted to nearly triple in size over the next six years, outstripping online retail growth. This indicates increasing popularity of 3PL outsourcing amongst retail decision-makers. Going forward, best-in-class eCommerce fulfilment providers will need to leverage the latest AI and machine learning technologies, and invest in robotics and automation, to drive efficiencies and lower their cost bases.
These areas are relatively easy to replicate. What isn’t is soft skills, and breadth of capability. In the future, the most successful 3PLs will be those that offer scalability, a breadth of capabilities, and reach deeper into both the supply chain, and final mile delivery experience. Tomorrow’s consumers will demand greater personalisation, along with fast, free, yet environmentally-friendly shipping.