8 Factors to Consider When Selecting a 3rd Party Fulfillment Provider
3rd party fulfillment is an integral part of any eCommerce logistics strategy.
When done right, online merchants can reach new customers and differentiate themselves by providing a positive customer buying experience. This allows them to increase sales, while maintaining a strong brand reputation. These merchants can then spend more time and energy focusing on other areas of their business.
It’s important to assess a third-party logistics solution based on overall costs. Just looking at one cost (say fulfillment cost) is not capturing all logistics costs. Merchants should be aware of the multitude of factors that go into choosing the right fulfilment partner.
The question is, how do you select the right fulfillment partner?
Below are 8 factors that any eCommerce merchant should assess prior to choosing a 3rd party logistics provider.
1. Shipping Options / Speed
Generally, the most expensive part of eCommerce is shipping. You’ll have to pay to get the package from the fulfillment center to your end customer. That’s called “last mile” or “final mile” shipping.
As a merchant, it is critical to partner with a 3rd party fulfillment center that offers many different last mile shipping options. The 3rd party fulfillment center should be able to provide transportation rates to customers in different geographic areas, they should be able to provide rates for different sized shipments, and they should also utilize the services of carriers that offer different transit times.
At JORI Logistics, we partner with OpenBorder Shipping to do our “last mile” shipping. OpenBorder allows merchants to choose different shipping options for each shipment. These range from courier shipping rates, truck shipping rates and even air shipping rates to merchants that need different last mile delivery options.
It’s extremely important to have options. Some customers may be in very remote locations, some customers may pay more for next day shipping, and some customers may just want the cheapest shipping option. You need to be able to offer what the customer wants.
Find out more about the shipping options OpenBorder Shipping offers here.
2. Fulfillment Locations
As a general rule of thumb, if you are a merchant, you want to have your fulfillment center as close to your end customer as possible. That is because then it will be cheaper and faster for them to get your product.
In a perfect world, you would have a fulfillment center in every city where customers can get their items shipped. Obviously this is not possible because it would cost too much, and you would need to have your inventory all over the world. Maybe Walmart or Costco could do this but not the average online store.
Be strategic about where you place your 3rd party fulfillment warehouses.
A good starting point would be to partner with a fulfillment center in the county (or economic union) of your end customer. This will minimize costs and save you time because there will never be a customs clearance required for the last mile shipping or return shipping.
Once you’ve decided which country (or economic union) to enter, you should find a fulfillment center that is centrally located so you can service customers anywhere within the country.
Many companies make the error of putting a fulfillment center in the country’s biggest city. This will allow the merchant to ship cheaply and effectively to that city; however, they merchant will have difficulty shipping cheaply and effectively to other consumers in the country.
You want to find a fulfillment center that uses up to date software that makes it easy to use. Make sure the fulfillment center can handle EDI data integrations, API integrations, and can provide reporting on orders and inventory.
4. Flexibility & Additional Service Offerings
Some fulfillment centers are very flexible with their service offerings and will create tailored solutions to your specific needs. Other fulfillment centers are rigid, and you must fit within their system. It’s important that you understand what flexibility you need before choosing a fulfillment center.
Check with your fulfillment provider to see if they can do the following:
- Can they sort orders?
- Can they combine orders?
- Can they assemble products?
- Can they perform quality control and inventory counts?
- Can they use specific branded packing material for shipping?
- Can they add in marketing inserts and other marketing materials to the packaging?
- Will they allow the merchant access to check out their inventory / product on a regular basis?
You’ll want to make sure that your fulfilment center is able to make specific process adjustments for your specific needs.
5. Reverse Logistics / Returns
Don’t assume returns are a one-off situation that can be handled on a case-by-case basis. According to eMarketer, eCommerce has a return rate of 20% with it reaching 30 % in the holiday season. It can reach up to 50% when dealing with certain products.
If you are selling a product with a return policy, make sure you are working with a fulfillment center that has:
- A good reverse logistics process
- A good quality control program to evaluate if returned items can be reused
- Scalability for peak seasons
Returns get very complex when you are dealing with cross border shipments. Each situation (product / geographic locations / customer expectation) is different, and we would recommend you contact us to review the specific situation before recommending a solution.
6. Turnkey Logistics
When we talk about an eCommerce logistics it’s important to understand the concept of “overall costs”. Often merchants make the mistake of only focusing on the costs for a 3rd party fulfilment center to store, fulfill and ship its products to its final customers.
Many merchants overlook the fact that they will need to ship inventory to the 3rd party fulfillment center on a regular basis. This is simple and straightforward if you are shipping to a 3rd party fulfillment center in your own country; however, things get much more complicated when you are shipping to a 3rd party fulfillment center in a different country.
If you are shipping inventory to another country, merchants have additional challenges to consider:
- Are you getting the most competitive shipping rates for your bulk inventory orders?
- Do you have a plan to keep shipping costs down when replenishing inventory levels? (Hint: Shipping larger volumes at a time will save individual costs per unit)
- Do you have a customs broker to clear your goods into the foreign country?
- Are you reducing duty costs by capitalizing on free trade agreements?
- Are you paying the correct amount of duties and taxes to the foreign government?
- Are you making sure that you are filing for tax refunds in the foreign country?
- Are you customs compliant in the foreign country?
- Are you reporting the correct accounting and sales information to the foreign government?
Because of all these challenges we recommend that you work with a 3rd party fulfillment center that can also act as a customs broker, freight forwarder, international trade consultant, and bookkeeper. Most fulfillment centers require merchants to ship inventory to their location—they minimize the fact that just getting product to their location adds a number or costs, risk, and headaches to the merchant.
By working with a company that provides customs clearance, freight forwarding, international trade consulting, 3rd party fulfillment and bookkeeping, merchants can save time and money by utilizing one company for end-to-end logistics services.
7. Product-specific Considerations
Depending on your product, you may have specific requirements. Here are a few examples below:
- Security of high value items
- Temperature control
- Can handle special goods such as alcohol and tobacco
- Handling items that are classified as dangerous goods
- Limited breakability on more tender products like glass.
Having a fulfillment center that is equipped to handle your specific product will save you a lot of stress and concern as fewer things can go wrong.
8. Customer Service
Arguably the most difficult to measure, but most important aspect of choosing a 3rd party fulfillment center is choosing one that has a high degree of customer service. Any company will be able get the job done for you, but who will do it reliably and who will be there for you when inevitable challenges arise—this is real world logistics so challenges will always arise! Focus on working with a company that can handle exceptions, not just day to day operations.
You should work with a company that has a long-established business history, has good reviews online, can provide trade references, and cares more about you than they do about landing big brand name clients. Work with a company that sees you as a person, not just another number.
Although it sounds hokey, having a strong logistics partner that you can rely on will keep you out of day-to-day logistics fires—allowing you to focus on running other areas of your business.