How to Actually Find a Good 3PL - X edit

I think I'm way overdue for a video on how to actually find a good 3PL.

I used to be a DTC ops manager and VP of ops at one of those brands.

We expanded from 2 global fulfillment centers to 8 within a year, and I made a lot of mistakes in that first year selecting the right partners.

And just through experience, and now with Iron Margin having run dozens of 3PL searches, I've learned a lot of valuable lessons and want to help brands avoid as many mistakes as they can when selecting a 3PL and then also managing the relationship, especially over the first few months when you select a new partner.

So first major question: when you're building your initial sourcing list, I recommend 10 to 15 3PLs that are qualified to run a good search.

And one of the first things that you'll want to look for is very simple: does this warehouse already handle products like yours?

So if you're an apparel brand, it's definitely a green flag if you're talking to somebody who works exclusively with apparel brands or can name dozens of apparel brands that they work with.

It's fine to get some of these through introductions, but I recommend fresh sourcing based on your actual requirements.

So putting together a brief of your volume, your requirements, your sales channels, all that stuff, and trying to find fresh leads as well.

If you just have a short list of like 2 to 3 intros that you received, it's very unlikely that you'll have the quantity that you need.

And oftentimes when people are giving you intros to 3PLs they recommend, they're thinking of their friends, or they're thinking of companies that are giving them a kickback for making those referrals.

So sometimes they can be good, but you definitely want to utilize both fresh sourcing through some platforms out there that will matchmake relevant introductions.

So other questions to ask during those initial intro calls: number 1 is who do they fulfill for?

And these 3 bullet points.

So the first one, monthly parcels.

I tend to just ask very directly, you know, how many monthly parcels are you shipping?

A lot of 3PLs won't reveal this.

Some are happy to reveal it, but it gives you a sense of, you know, what does their pooled volume look like and what types of underlying discounted shipping rates can they get.

The second question that I like to ask is the number of brands that they work with, just to see how concentrated they are with, you know, maybe they have a few really big brands or they might have like 50 smaller brands.

It's just good to know like what their makeup is and Especially good to know how big of a priority customer are you gonna be in their mix of customers.

And then third is like finding customers like you.

They should be able to point to other brands throughout the vetting process that fit and remind them of certain things you've done.

You want to find a partner who's done your requirements before, like they have actual reps at doing exactly what you need them to do.

Other things like, if you can record a video of how your current packout works.

so if you have a very custom process for pick and pack, you have multiple units, maybe you have like build your own bundle options.

If you can get the 3PL a video so they can actually see what it looks like, you'll be on a better page of like what pick and pack rates should look like and what sort of customization they can do for you.

So 3PL pricing.

Everyone knows- not everyone, but carrier rates get marked up by 3PLs, and brands obviously know that shipping rates are one of their biggest line items.

So what actually makes up the rates that you receive from your 3PL?

Ultimately, it's how well have they done negotiating their costs, and that's usually a function of how much volume they have and what shipping carriers they're working with and negotiating with.

And then they apply a markup.

So as long as the markup they apply is reasonable, like relatively modest, and the, you know, the volume that they have is enough to get good rates, then your pricing on the on the outside should be pretty good.

Here's a concrete example of that.

So let's say 3PL A, they get their rates at $5, but they mark up 20%.

The brand would pay $6.

In the second example, if a 3PL gets $6 rates and marks up 10%, then the brand pays $6.60.

So if a brand's done a great job of negotiating their underlying rates and they charge more markup, that still might be beneficial for you.

A lot of times 3PLs will merge all the carriers together into an economy rate card.

make sure you know, like ask them for things like what the fuel surcharge is, who the actual carriers are, and things like that.

Oftentimes when I see these like kind of blended rate cards from a 3PL, it allows them to to charge more markup but doesn't necessarily share the transparency that you would want.

So try and dig into that a little bit more if you receive kind of like a blended rate card.

Ask them the carriers, ask them the service, what they do for next day, you know, all those things.

What goes into the shipping charge?

So shipping charge, it depends on the carrier.

Some have very simple rate cards, like if you've seen like a Uni Uni rate card, it might literally just be the base rates.

But then you look at FedEx and UPS, there's gonna be billable weight, there's gonna be oversized charges, all sorts of rules that you're gonna want someone to calculate for you.

And better yet, if the 3PL can be transparent and calculate that for you and show you what your actual costs are, that's great.

So that's why when you have these 3PLs bidding for your business, you want to have like a 90-day export of your shipping data and have it be consistent.

Like, what you send to each 3PL should be the exact same.

Ask them to send you a complete rate card, but then also to rate the file.

What you want to find out is over that 90-day period, had you been working with this 3PL, what would you have paid?

So as long as you're doing that, you're gonna have like a consistent reference point.

I think a lot of brands definitely struggle with comparing 3PLs apples to apples, and this will help if you're sending the same information to each.

And then same thing with the fulfillment bill.

So pick and pack, storage, you're gonna want to compare all those line items.

Those are usually a little bit easier.

Easier to compare than the shipping, which is why I put more emphasis on on this file here.

And then when it comes to WMS, you know, there are some WMSs out there that are solid, and that's usually a good signal.

But you're also gonna want to dig into your specific workflows, ask them what happens, questions like, you know, what happens if I place an order and then I cancel it same day in Shopify?

You can ask them, will that update the WMS automatically?

What happens if I cancel an order that has already been shipped out?

Go through all these scenarios and see how sophisticated or, you know, simple are the answers that your 3PL is giving you.

You want to get the sense that they've answered this question dozens of times before and they're not kind of making it up on the fly or they don't have a good answer for you.

That's pretty much the process.

when you're kind of have this list of 10 to 15, you want to give each 3PL after their initial proposal specific feedback.

So you can tell them, you know, what the things are that you liked about their proposal and what are things that realistically they would need to improve to be considered.

You can tell them things like, you know, hey, your shipping costs are above some of our other proposals.

Is there any way you can reduce the markup or is there any other carriers you can introduce, just try and like come at it with a collaborative mindset to see what they can do.

Usually when 3PLs are giving their initial proposal, they usually have a little bit of room to to negotiate lower.

And same thing with the pick and pack station, like try and find ways where the cost can go down for them and the cost can go down for you as well.

So sending things like the videos can, you know, if they have a very clear idea of what they're gonna be doing, that gives them more confidence.

Oftentimes 3PLs, if they don't have clarity on what exactly your business is gonna look like, they're gonna charge you more because they should, right?

Because with the uncertainty, it could be more complicated than they think at quoting.

So trying to be as transparent as you can and really giving them like a clear understanding of your business is a huge win for you to be able to get the cost down.

Once you've actually selected a partner, you're gonna want to review the contract, try and get good terms.

So ideally avoid you know, large penalty fees for, you know, basically if you sign with someone, you know, you just want to have that flexibility.

You don't want to be locked into like a 3-year agreement, and if they're not performing well, having no SLAs that allow you to get out of a contract and be stuck into paying, you know, high minimums, you know, even if you did decide to leave.

So that's one thing you want to avoid.

there's not really a way you can test orders.

You're just more so gonna have to transfer all your inventory and begin with them, which is why the vetting is so important.

I don't recommend doing like a split shipment strategy where you're still using your old 3PL while testing a new one.

I think that just messes things and complicates it.

And then first invoice, review it, make sure everything looks good.

Before you sign, try and see if you can talk to customers, make sure you've done your due diligence with the cost comparison, and you have an actual transition plan.

those first 2 months are very crucial once you've began with a new 3PL.

you might choose a great 3PL.

But there's still a lot of work that needs to be done to be on the same page as them.

last thing you want is to select a great 3PL, but because of miscommunication and a lack of good systems, that things don't get off to a good start and you think that the 3PL is the problem.

Oftentimes, if you do this process, you're gonna be with a partner who's good for you and you just need to be on the same page, have good communication channels and work things out.