In a recent post, we tackled the uncomfortable necessity of saying “no” in a 3PL eCommerce fulfillment partnership. In this post, we’re going to double down and get even more uncomfortable; we’re going to talk about money. Specifically, we’re going to discuss the importance of identifying and anticipating all logistics costs ahead of time when entering a relationship with a third-party logistics company (3PL).
Logistics Costs: The Honeymoon
The start of a new relationship. It’s a happy and exciting time. You are happy to have found the expert 3PL who is going to take all or part of your supply chain operation off your plate. The 3PL is happy as it has signed new business and gets to wow a new customer. To arrive at this happy place, you will have signed a contract that clearly spells out the responsibilities of each party. But, does it truly cover everything?
As we see in our eBook, “5 Reasons Why eCommerce Supply Chains Fail,” the answer is “maybe not.”
As part of your contract, you will have identified key metrics that each side is to meet as part of their given responsibilities. For instance, a metric may be that the 3PL is to ensure that 99.5% of orders arrive to the customer “on time” (whether “on time” means within 2 business days from order, or 3 days etc., that will be laid out in the contract).
While, of course, the 3PL strives for perfection, 99.5% is a reasonable metric given disruptions outside the control of the 3PL. So, both parties agree to the 99.5% metric. And, let’s say that the 3PL exceeds that metric; everyone would be happy, right? But that’s not where the story ends.
Logistics Costs: The Argument
Say, for instance, that you’re shipping 100,000 orders a year. A 99.5% success rate could still mean that 500 orders are not successful. What happens with those orders?
They can trigger finger pointing between the company and the 3PL about fixing the problem and covering the logistics costs of these fixes.
The customer’s perspective: “My customer is not happy. The 3PL needs to pay to make these orders right.”
The 3PL’s perspective: “At 99.8% perfect order performance, we’re exceeding the agreed upon metric.”
Discussions reach an impasse and a great relationship turns sour over the little things left unsaid.
Anticipate ALL Logistics Costs
The eCommerce company and the 3PL both have the same goals: 100% customer satisfaction. However, both parties know that things don’t always go as planned and there will likely be small hiccups along the way. It is VITAL to the success of the relationship – and ultimately to the happiness of the customer – that any scenario in which things could go wrong are anticipated and addressed at the outset.
For each possible problem that could arise:
- Who owns it?
- What actions will be taken to remediate the problem?
- Who is liable for the logistics costs?
There is no right or wrong answer to these questions. The important thing is that the questions are asked and answers are agreed upon BEFORE the order fulfillment process starts flowing.
No one wants to think about these messy “what if” scenarios at the start of a relationship. But it’s far better to deal with these questions before the fact than when emotions are high.
You will never reach 100% perfect order nirvana, but having clear alignment about how to deal with mistakes - and related logistics costs - when they arise results in fast action to fix problems and a better relationship with your provider based on open, honest, transparent communication.