A fulfilment or 3PL (third-party logistics) provider is a term to describe a company which processes products and orders on the behalf of it's clients and ships them to their customers. This, in itself, is a very generic term which does not even touch the differences between each operation.
Understanding the various business models is crucial if you intend to partner with right company to handle your products and orders. Getting this wrong can lead to damage of your brand's reputation, let alone cause delays and financial losses. However, getting it right, can be the very thing that sets your company on its way to success.
So, lets dive right in and take a look at what each fulfilment provider can bring to your table, the things to look out for (both positive and negative) and, ultimately, which one is the right fit for you.
The first point to consider is this: your company and a 3PL must aim for a 'perfect marriage'. In essence, both operations need to fit each other well; if your requirements are not suitable for a particular 3PL, it will also negatively affect their business. Imagine an automated warehouse, using barcode scanners at every step of the way, being asked to handle products with no barcodes on them at all; this will require an element of manual preparation, which would actually suit another type of 3PL better.
So, let's take a look at the different categories types in a simple bullet point list, exploring each type further in this article.
Amazon FBA
Amazon FBA Prep Centre
Mom-and-pop
Fully automated
Global-scale
Hybrid
Now, within each of these categories there are many further sub-divisions, which we will explore in our next article. For now, lets concentrate on the different models, with the pros and cons of each.
Amazon FBA
The ever-present service from Amazon, Fulfillment by Amazon (FBA), stores, packs and ships orders to customers as they are placed on the Amazon platform. A true Juggernaut in the 3PL space, it is more limited to Amazon sellers, rather than ecommerce in general, who wish to utilise Amazon's wide network and fast delivery options.
It is widely known that using Amazon's FBA service helps Amazon sellers win the coveted Buy Box, where the vast majority of sales are made. If you offer a regular, slower, normal service at the same price as an FBA seller, the likelihood of you winning the Buy Box is significantly reduced, and therefore your sales also significantly reduced.
The huge benefit of using FBA is to increase the chances of winning the Buy Box, simply by offering fast and efficient delivery services supplied by Amazon. It also enables the potential to expand your business into other Amazon country marketplaces, particularly in the EU and the North Americas.
Now this may seem all perfect and rosey but there are many considerations you must take into account, namely:
Product restrictions,
Returns,
Handing over all control of your customer services to Amazon,
Product stickering and product preparation, in line with Amazon requirements.
Product restrictions are common in the FBA program, with sub-sections within the Amazon framework. Examples include Hazmat goods, such as nail polishes and perfumes, to summer meltables, which include products that cannot withstand summer temperatues of 75 to 155 degrees Fahrenheit (24 to 69 degrees Celcius). You need to be enrolled in programmes such as Hazmat but summer meltables affects all sellers, so you need to be critically aware of any items you are considering putting through FBA.
Returns are a major consideration for any retailer but perhaps eve more so when using FBA. In Amazon's own words, they strive to be the most 'customer-centric' business in the world, meaning that the customer is truly the top priority. You have no say about the way in which returns are handled and you will need to accept that this can result in 'unfair' returns becoming a part of your business, the numbers of which you need to include in your profit margins and ROI.
A time saving benefit of FBA is handing over the customer services element. Almost all customer queries are handled by Amazon staff, freeing up valuable time and potentially reducing stress levels for your business. However, this can also lead to products being refunded without the need for return, so you must be aware once again of the financial implications to your bottom line.
Finally, all products flowing through the Amazon FBA network require an identifying code on them, such as an EAN, UPC or Amazon FNSKU, alongside certain preparation requirements. If a product does not have this, it cannot go through FBA; that's where either an FBA Prep Centre or Amazon's in-house team can come to your rescue. Amazon's own warehouses offer the facility to FNSKU and prepare products upon arrival but, as ever, you are handing control to FBA from where you have no transparency over the state of play. This is where a top-rate Amazon FBA Prep Centre can frequently be a better bet; their knowledge and expertise, combined with transparent operations can provide the same final outcome but with a better experience and better business relationship.
Amazon FBA Prep Centre
Products destined for Amazon FBA need to meet certain requirement in order to be eligible to operate through the FBA network. Amazon can handle this upon arrival and charge the costs to your account but you are handing more control over to the teams in Amazon's Fulfilment Centres (FCs); a more common approach is to use an Amazon FBA Prep Centre.
This type of operation predominantly revolves around the application of FNSKU stickers, polybagging or bubble wrapping products and bundling/kitting, all in line with Amazon policies. The ability to handle vast ranges of SKUs, in varying quantities, all with potentially very different requirements, is very different to other forms of fulfilment solutions.
Prices can vary significantly depending on volumes being put through an FBA Prep Centre; frequently, the greater the volume, the cheaper the unit rate will be. Other costs to be considered include pallet offloading, pallet rebuilding and box forwarding, but these need to be discussed with the FBA Prep provider itself, as each company has it's own way of pricing.
It is also worth noting that if you have consistent volumes flowing through their warehouse, it may be worth discussing a longer term contract, with some cost savings to be expected if certain quantities are met. Many FBA Prep Centres will also handle the shipping element of sending products to Amazon, on your behalf, via your own account or through their own shipping network.
So, if you are selling on Amazon and wish to use FBA, using a Prep Centre will give you more control over pricing and business relationships versus simply firing products into the nearest Amazon FC and hoping for the best.
Mom and pop
Within the 3PL world, there are various sizes of operation and various methods of operating. Perhaps the smallest type is known as a 'mom and pop' 3PL, referring to a company that does not employ an army of staff, does not have vast warehouses filled with automated systems, but does offer a much more bespoke service. Some brands require a much more personal service, rather than bulk barcoded pick and pack runs, which can pretty much encompass any requirement.
Due to the nature of these 3PLs, they have the ability to accommodate unusual or bespoke requests, often at a moment's notice. If you are a company that is not super-high volume or requires a real attention to detail mentality, then a mom and pop outfit may be just the partner you are looking for.
If you are a medium sized retailer, chances are you will be one of the largest customers of a mom and pop 3PL, and could potentially have more bargaining power over price and service levels. They will most likely not want to lose you!
However, if you are a high volume retailer or are simply looking at the 'per unit price' only, this may not be the perfect match. High volume requires automation and great tech, which you will often not find in the smallest of 3PLs; this requires large-scale investment and will not be a realistic proposition for a mom and pop outfit. Price is always a factor of great importance but a smaller 3PL may not be able to match the volume-leveraged pricing structures of the big warehouses.
In conclusion, if you are more concerned over customer service levels, rather than high volume and simply price, a smaller mom and pop 3PL could very well be the exact place for you to go.
Fully automated and Global-scale
In order to achieve high volume capacities with very low error picking rates, a fully automated system is imperative. High level tech also aids customers with visibility of operations and is a great way for them to build your trust. Particularly well suited to large volume retailers with a potentially limited SKU base, fully automated systems have the ability to handle almost unheard of volumes per hour, with extraordinarily low margins for error.
These types of 3PL are often much larger, as they can take advantage of their greater spending power compared to their counterparts, and due to the business need for outright efficiency. There is, however, a chance that the personal touch can be lost and a smaller outfit may carry no importance compared to the 3PL's biggest clients. This does not suggest for one moment that a larger 3PL will not care about you but the reality will simply be that you are a much smaller concern compared to their largest clients.
Another benefit of a larger fulfilment provider is their physical storage space. Due to their great output and larger premises, you should have more room to grow using the same company. You will not need to be concerned with finding a new service provider in 12 months time after a year of growth but can simply continue on your trajectory.
Expanding into further markets can also be aided by using a global 3PL; the largest outfits will have bases all over the world, which potentially allows for easier expansion on a physical level. Using the same company to transfer stock from one country to another should enable you to offer faster, more efficient delivery to your end customer, whilst still only dealing with one point of contact.
All this being said, a small retailer may not fit the business model of a large scale 3PL and a high volume seller with vast SKU ranges may also not be best suited. In the case of a smaller retailer, a mom and pop or mid-sized 3PL may be the best option for you.
Hybrid 3PL
In some cases, a fulfilment provider may have more than one speciality. The same comments from previous sections regarding company size apply but there is one crucial difference. A fulfilment provider, such as Danum Fulfilment Services, which has more than one speciality, is the ideal solution for multi-marketplace sellers. Some retailers, of various sizes, offer their products on more than one marketplace; some sell on Amazon, eBay AND their own websites, rather than concentrating on a single revenue stream.
Rather than using one 3PL for your Shopify fulfilment and another for your Amazon FBA Prep, using a hybrid 3PL can provide a huge benefit by having a single point of contact, simplifying your business further. The potential to only use one pool of inventory for all your sales channels can further improve your cashflow and product availability.
Summary
In conclusion, a lot of the factors you need to consider when scouting for a new 3PL revolve around what your company actually needs, not just now but also in the short-, medium- and potentially long-term future. You will need to factor in the various requirements your business has; do you need the personal touch or are you solely focused on volume? Do you sell on one marketplace only or do you chase multiple revenue streams? Are you a medium sized outfit wanting to be the biggest client a smaller 3PL has and potentially reaping the rewards from this status?
These are just but a few questions to answer before diving in with any service provider and there are of course many more. There are also various other fulfilment service types within each sector, some specialising in certain retail sectors compared to others, each with their own pros and cons.
Ultimately, finding the right 3PL for you requires honest and in-depth communication from both sides. The retailer needs to honestly answer the questions a 3PL has and the 3PL needs to communicate what it genuinely CAN do for you, rather than over-promise or embellish its real operation. There is no shame in honest communication and will actually aid finding the right provider, whereas holding back on information can be extremely harmful in the long run both mentally and financially.