Guide: Successfully Managing the 3PL Relationship

5 tips to improve your 3PL's performance, improve your customer experience, and keep your customers coming back.

Jim Sharkey
May 10, 2024
From Vexed Parties to Valuable Partnerships: Successfully Managing your 3PL Relationship

I Hate My 3PL: From Vexed Parties to Valuable Partnerships

I had a great discussion with a current Mochila client last week in which he was relaying a conversation he’d recently had with some of his industry peers. And it really drove home for me just how widespread dissatisfaction with 3PLs is across the board - and how terrible the 3PL industry is at managing relationships with its clients.

Anecdotally, at least, it seemed that most brands tend to think their 3PL does an OK job at best, and many felt that the performance of their 3PLs left much to be desired.

As I absorbed this window into the minds of other ecommerce retailers, two points quickly became clear to me: (1) many brands feel frustrated, but helpless as to how they can improve their 3PL's performance and (2) most 3PLs provide ad-hoc band-aid solutions to major issues, but don’t work with their clients to collaborate on improving fulfillment and operations in a sustainable way that supports a brand’s growth.

Together, these things lead to a painful status quo: the lackluster 3PL performance creates a drag on the growth and scaling of the brand, but the 3PL performance, while poor, is not bad enough to make the brand feel like the cost of switching would be worth it (dance with the devil you know, and all that). So - where to go from here?

Coach your 3PL Into an Improved Relationship

Obviously, choosing the right 3PL is the most critical part of making the relationship work, and we’ll dive deeper into the topic of finding a good fit and strategically selecting a 3PL partner in a separate article.

But in the meantime, once you’ve chosen a partner, there are some simple steps that can be taken - and this applies even to brands that are happy with their current 3PL - to successfully manage the 3PL relationship and ultimately improve the performance of your fulfillment operations. (Note: the recommendations below are based on my experience working with larger brands, but many of the principles can be extended to smaller businesses working with a 3PL.)

1. Establish regularly scheduled communication.

Clear, proactive communication with your 3PL is KEY. Set up a regular, recurring meeting with your 3PL. Strategic upfront conversations about how to tackle upcoming issues and events mean fewer hiccups and thus fewer time-sucking triage meetings and post-mortems. 

At Mochila, we have weekly calls with our enterprise clients to cover both tactical (short-term) operations and strategic (long-term) initiatives. When scheduling these meetings with your 3PL, aim to share information as far in advance as possible, even if you’re not sure yet about the magnitude of impact the information might have relevant to the 3PL.

The vast majority of issues with 3PL performance can be traced back to communication breakdowns on both sides. (If you really want to understand how communication across different companies in the supply chain can impact operational performance, I highly recommend this podcast from This American Life on the Toyota production system.)

Ideally, part of your regular communication involves a review of a written forecast of orders and incoming inventory to be received, and both a short-term and long-term plan. Not only does this help your 3PL plan and ultimately perform better, but it also helps you to keep them accountable.

2.  Standardize processes.

One of the most effective investments you can make in streamlining the 3PL relationship and scaling your business is to standardize your operations. Standardization allows you to more easily outsource your fulfillment, freeing your time and energy to focus on your core business. 

There are two major things to focus on when it comes to standardization: (1) inventory sent to your 3PL should be clearly identified, correctly labeled and barcoded, and ready to be put on a shelf. Faster and accurate receiving results in a higher in-stock rate, which directly translates to higher revenue. And (2) your packing process should be well-defined, especially for brands that have more complex packaging requirements. 

At Mochila, we work with each brand to ensure the packaging guidelines can be followed consistently, especially as the business scales, and we help our clients find the right balance between brand presentation, scalability, and cost.

3.  Simplify processes and solicit feedback.

Simpler processes are not only easier and less costly to outsource, but they also result in faster and more accurate receiving and shipping processes. These two things, in turn, are the biggest drivers of a consistently positive customer experience. 

Not sure where to begin in simplifying processes? Always ask your 3PL for feedback and ideas in this area. A good logistics partner brings the benefit of deep process experience and can help you identify opportunities to make your processes better, faster and cheaper. While not all of your 3PL’s suggestions may be the right fit for your business, more often than not you’ll uncover improvements that will impact your bottom line.

4.  Involve your 3PL in major changes to your business model.

In our first tip, we talked about scheduling regular meetings with your 3PL and discussing both short-term and long-term plans and goals.

In these meetings, it is easy to fall into the trap of focusing only on the tactical, short-term, and urgent needs. But it is critical to also discuss the long-term, strategic, and big changes coming to your business.

Whether you’re running a new promotion, launching a new sales channel, or adding personalization services like embroidery or handwritten notes, it is important to involve your 3PL in these new initiatives early on and see how they might assist, possibly in ways not previously contemplated or discussed. Collaborating early on allows time to solicit and discuss recommendations from your 3PL, and generally leads to a smoother launch and a more scalable process.

5.  Always remember: capacity, capacity, capacity.

Just like the number one rule of real estate is "location, location, location," the most important rule of fulfillment is capacity, capacity, capacity. When capacity requirements -  and capacity constraints - are not sufficiently forecasted and communicated between both parties, everyone feels the pain and is left scrambling for patchwork solutions.

Unlike the cloud, a warehouse facility has four walls and (at least for now) needs human workers available to run it. While a good 3PL can and should scale with your business, adding storage and labor capacity - whether via additional warehouse space, shelving, or hiring and training people - requires time and planning. A failure to plan for and build in sufficient storage capacity and labor capacity requirements with your 3PL partner is far and away the biggest root cause of failing 3PL performance and unhappy retailers in the 3PL world.

Relatedly, it’s important to understand how much time your 3PL might need to scale up to changes in your business, and give your 3PL enough notice to build the capacity needed to serve your customers appropriately. Most delays can be traced back to a failure to build enough capacity in advance, and makeshift solutions pulled together on the fly are almost always far less efficient and, consequently, lead to longer processing times.

Taken together, the first four tips above are all designed to enable this fifth and final tip of ensuring that your 3PL has enough capacity to meet your customer promises. 

Summary: A Better 3PL Relationship

The 3PL relationship can and should be a strong one that helps your company to meet and exceed its commercial goals. Although it may initially seem daunting, taking straightforward steps as outlined above can help turn your frustration with your 3PL partner into a relationship that you don’t just tolerate, but that you appreciate as a value-add partner. 

Standard and simple processes allow more orders to go out with fewer resources, and strong and regularly scheduled communication allows your 3PL to better understand your business and have the time to make recommendations and allocate the appropriate resources.

Want to learn more about how you can improve their relationship with your 3PL? Schedule a call with us.

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