To maximize 3PL benefits when it comes to B2C fulfillment, it's not just about the 3PL's actions, it's how you, as the brand, manage the relationship. The information you share, the objectives you set, and how you set up the contract.
In a recent episode of the Unboxing Fulfillment podcast, Amware CEO Harry Drajpuch and its EVP of Strategy and Operations, Chad Warzecha, talked about different ways for brands to maximize 3PL benefits.
Set relevant, realistic KPIs
Brands should avoid KPI gymnastics. With the right systems, there's very little that can't be measured. But should they be? Some KPIs don't significantly move the needle for the business. Others, like on-time delivery are important but are more a measure of carrier performance then the fulfillment 3PL's performance.
If a KPI winds up on your metrics dashboard, that means time and effort is being spent to gather and analyze the data. Are those team resources better spent elsewhere?
The other issue with order fulfillment metrics is setting unrealistic KPIs. If a brand running its own fulfillment has delivered 95% order accuracy for years, but then, when they move to a 3PL, expect 100% performance, is that realistic?
Even in manufacturing environments, where robots do just about everything, you never hit 100%. 3PLs, frankly, should be better than insourced operations. They are the experts. But humans are not perfect. Advice: Zero in on the 4, 5 or 6 metrics that really matter to your business and to your customers. Then measure and manage the hell out of them.
Share contract terms with those supervising the work
Too often, 3PL contract details are worked out by a small group of people and specific contract wording is not shared with those responsible for getting the work done. In Hollywood, there's something called a script “read through” that involves the writers, director and all the actors. With the exception of some of the boilerplate legal statements, this read-through idea is not a bad model for 3PL fulfillment contracts. Everyone hears the actual words and can ask questions if things are unclear.
What that avoids is situations like these: an inventory discrepancy is identified and all parties refer to the contract to help resolve the issue, only to find that the amount of inventory shrink allowance is not clear.
Contracts once signed, tend to get pulled out only when there's a problem and when emotions are high. At these times, it's best if the parties constructing the contract had the foresight to anticipate problems and provide clear guidance.
Treat 3PL relationships as highly strategic
It's flat out easier to manage fulfillment 3PLs like vendors versus partners. A true partner relationship requires the brand to invest significant time to communicate short-term and long-term plans to the 3PL.
But that time is an investment with a potentially big payoff.
Let's say new product launches will trigger 2X growth in online purchases for a brand in the next two years, but a commensurate profit initiative within the company requires a parcel cost reduction of 10% per shipment. If that information is shared well in advance, the right 3PL partner could use the intelligence to proactively design an entirely new distribution network to handle the added volume in a more streamlined way.
While the advantages of a more strategic relationship seem clear cut, many relationships remain at the tactical level because brands don't make partnering a priority – or they're cautious about sharing proprietary information, like long-term business plans, with a contracted service provider.
Advice: 3PLs want to help. Let them. To maximize 3PL benefits, treat that 3PL like a strategic member of your own internal team
Set a common communications cadence and stick to it
In logistics, some executives choose to “manage by exception.” The idea is that, if everything is going as planned in one area, you can avoid focusing on that area and instead focus attention on more immediately pressing issues. This seems logical from a time management perspective, but it should not be applied to regular communications between a brand and its fulfillment 3PL partner.
To maximize 3PL benefits, brands should establish a regular meeting cadence and cancel only in special circumstances.
Such meetings should not only look backward (Is performance meeting SLAs?), but should also look forward (What do forecasts look like for next month? Next year?). Sometimes, the least specific questions can yield the most important dialogue.
- How is the business doing relative to its growth and profit plan?
- Where’s the business going?
- Do you have any concerns about the way fulfillment is being handled?
- What could we, as your 3PL partner, be doing that we're not doing today?
The most successful organizations in the world have one thing in common: great communication. They put the right people on the bus and make sure, through clear communication, that there is 100% alignment on direction, objectives, and the path to get there.
That should be the goal of shipper–3PL communications.
Instead of viewing these collaborative meetings as a standing obligation on an already-packed calendar, view them as an investment in creating an informed, empowered, and committed 3PL partner.
More information on how to maximize 3PL benefits
For more information on how to get the most from order fulfillment outsourcing, check out our eBook: Outsourced Fulfillment Services: The Ultimate Guide.