Running an eCommerce business requires hard work and dedication. You also constantly need to ensure that you can fulfil your order. When your business starts growing, it can become harder to meet all the orders you receive from your customers all by yourself. Third-party logistics (3PL) companies can help you manage those orders, but how do you develop and manage 3PL relationships?
What is Third-Party Logistics?
Third-party logistics refers to outsourcing any e-commerce or logistics such as warehousing, inventory management, and fulfilment. 3PL providers give e-commerce merchants the room to do more as they develop their infrastructure tools and automate retail order fulfilment. 3PL providers can offer one service, such as warehouse storage or transportation. Still, they can also provide a range of services that allow them to handle all aspects of supply chain management.
Making use of 3PLs can save costs, improve inefficiencies, and allows you to focus on other tasks. These providers’ help you address problems which include customer service, order tracking, returns, management of inventory, order fulfilment, etc.
How to Develop 3PL Relationships
A 3PL relationship is crucial for your business’ success, which is why you should not take it lightly. Therefore, you should take your time before establishing a relationship with a 3PL provider, as rushing the process could have disastrous consequences for your business. Here are some steps and practices you can follow while embarking on this relationship.
1. Create a Foundation
The most important to know and understand before developing a relationship with a 3PL provider is whether or not your business requires those services. The worst thing you could do is invest your time and resources into the relationship, and then realize that insourcing was the better option.
Once you have determined that you need to outsource, be selective about the 3PL you choose. Choose a 3PL that shares the same principles and values that you have. When you build a relationship based on shared values, you ensure your business’ success.
2. Try to Understand Their Business
Ideally, when you decide to outsource services, you should do your research about the business. Understanding a 3PL provider’s business is essential because it will impact your company, and it could be in a negative sense. Through research, you will be able to create a baseline for benchmarking and anticipate what you will gain by partnering with them.
To create an achievable benchmark, you can look at what your competitors are doing and then compare that with your business. Understanding what you are lacking and what you aim to improve will help address those issues with the 3PL provider.
3. Communicate Expectations
The third step in developing a relationship with 3PL partners is for both of you to have some expectations from each side. To establish what those expectations are, you need to be able to communicate clearly and effectively. You should ensure that nothing in the relationship is undefined. Examples of those expectations include:
- The services you are expecting from the 3PL.
- The role you will facilitate.
- Deadlines or milestones that they have.
Communication regarding goals and expectations should be written down, especially in paper form like a contract, so that it becomes easy to refer back to them. Aim to explain to the 3PL provider what you want your company to achieve. Understand from the 3PL provider what they see success as being and understand their key performance indicators (KPIs). It would be best to communicate with them about the role you will play to help them achieve those benchmarks.
If you feel like you are not on the same page regarding some issues, you can re-evaluate or look for another service provider. However, if you are on the same page, then establish escalation procedures to follow when problems occur. Mistakes are inevitable, but you need to understand how to deal with those issues when they happen. Establishing procedures before problems arise will prevent them from escalating.
4. Appoint a Contact Person
When developing and managing 3PL relationships, an important tip is to have one contact person, probably in a senior position, who you will communicate with if any issues or challenges arise in your supply chain. There might be multiple people involved in the relationship, which could lead to giving or receiving mixed messages. Assigning one contact person from each side will be able to prevent miscommunication from occurring. Choosing people in senior positions will ensure that issues are assessed and resolved quickly, leading to better decision making and quicker resolutions.
5. Incentivise Success
Once you are aware of the 3PL provider’s KPIs, it becomes easier to evaluate their performance and incentivise their success. There are a couple of ways that this can happen, such as:
- Having regular check-ins: By meeting regularly with your 3PL partner, you will hear about any challenges that they might be facing and help them overcome those challenges. This is a great time to see if you are all living up to your commitments set out when you start the relationship.
- Including a bonus: You should establish a bonus structure that you will use to incentivise your 3PL partner if they meet or surpass the established success metrics. Having a bonus structure in place helps boost the 3PL provider’s performance which will impact the success of your business.
Before all this, here are 6 Characteristics to Look for in a New 3PL Partner.