When trying to grow an online store, entrepreneurs will consider a plethora of opportunities. This could be to increase sales, expand the product range, explore often overlooked marketing channels such as direct mail, and attend in-person events. What many business owners don’t realise, is that enhancing the order process element of an eCommerce business can help lower overheads, increase conversion rates, and enhance the end-to-end customer experience. This can be achieved by working with a third-party logistics (3PL) provider, that takes care of the storage, picking, packing, and distribution of your finished goods.
Entrepreneurs, whether they are running a start-up, SME or an established major brand, face two choices – to insource, or outsource. Insourcing order fulfilment means investing in one’s own operational infrastructure, such as warehouses, forklift trucks, barcode scanning technology, warehouse management platforms, and an experienced picking and packing team, along with public liability insurance and all sorts of other red tape. This is a capital-intensive strategic imperative, but does help retail decision-makers retain an element of control.
With outsourcing, the benefit of 3PLs is that you typically only pay for what you use. Fees include goods-in, picking, packaging, returns, integration charges, and shipping costs with the 3PL’s carrier partners. According to a new guide that breaks down UK 3PLs, fulfilment centres typically expect a minimum average daily order commitment, which can range from 10, to 300+ shipments going out each evening. 3PLs also tend to focus on specific product verticals, but there are some that are wider-reaching. SKU (stock keeping unit) count is also an important factor, as some 3PLs prefer smaller product ranges. 3PLs will also be interested in your business projections based on future investment in marketing, public relations, and markets you want to sell more into.
Table of Contents
How 3PL Services Work
Once you’ve found the right 3PL, the first stage is to negotiate a contract. This will be for a set minimum time period. It makes sense to agree on KPIs (key performance indicators) and OKRs (objectives and key results), to establish day-to-day, and periodical performance targets that are based on metrics, such as order processing speed, on-time delivery performance, customer satisfaction (CSAT) and net promoter score (NPS).
Once the contract is signed, lines of communication between client and logistics firm are established, for example heads of customer experience, procurement and supply chain leadership. Then, integration begins, between the retailer’s order management system (OMS) and the 3PL’s warehouse management system (WMS). The client will also instruct their suppliers to begin shipping finished goods to the new 3PL, ready to be received by the goods-in team, and stored in various picking locations.
Now that systems are synchronised, orders can start flowing into the fulfilment centre, in real-time. When an online shopper places an order, the 3PL receives an order notification. Their WMS generates a picking sheet, with packing instructions, along with a shipping label. The picking team will then collect the order’s item(s), and take them to the packing bench, to apply the shipping label, before organising by carrier, ready for collection by the 3PL’s courier partners.
At each point in the eCommerce fulfilment journey, the warehousing team will use barcode scanning technology to record the status of each order. When the shipping label is applied, and the parcel is dispatched, the consumer will receive a shipping and tracking notifications, so that they can monitor their delivery progress, through to the final mile. Depending on carrier and service selection, retailers will be able to offer a range of in-flight delivery options such as timed delivery windows, and the ability for online shoppers to choose a safe place for their parcel to be left. Depending on levels of involvement, some 3PLs offer further support, ranging from handling returns, to customer service outsourcing, product customisation, and customs clearance.
How 3PLs Can Increase Conversion Rate
Offering a late order cut-off time is a major competitive advantage, proven to increase eCommerce conversion rates, customer loyalty, and revenue. As Rob Whitfield, founder of Complete Strength testifies: “The majority of our orders will come in of an evening. When we had an earlier cut-off time, we missed out on sales. Now we’ve got a later cut-off time with Zendbox, we get less abandoned carts. We have also noticed customers are shopping with us simply because of the later cut-off time.”
The Future of Order Fulfilment
The 3PL market is skyrocketing, set to nearly triple in size by the end of the decade. Consumers are becoming fussier, anticipating a sustainable approach to online shopping, while at the same time fast and free shipping. These demands are forcing 3PLs to innovate, and the deluge of 3PL providers is driving them to differentiate; this means introducing inventory analytics dashboards, overseas ‘in-country’ fulfilment centres, and outsourced manufacturing, all of which can help retailers mitigate risk and respond to demand fluctuations more quickly.
Zebra Technologies specialises in barcode scanning technology, and recently commissioned a global research study into the future of eCommerce fulfilment. Zebra anticipates a shift from manual to digital fulfilment operations, with the introductions of wearable technology, vehicle-mounted mobile computers, and RFID-based inventory management systems. Demand forecast planning is predicted to grow the most out of all trends, followed by labour workforce management, tracking and event management, sensors and monitoring, route optimisation and scheduling. Technology-driven 3PLs will empower retailers to better forecast when to order new stock, to avoid understocking (and missed sales), and overstocking (to avoid capital tied up in inventory, a disaster for perishable products).
Finding the right fulfilment partner is more than just a box-ticking exercise. As a final thought, it makes sense to ensure you like the 3PL team on a personal level. Entrusting a separate entity with your inventory management is a delicate process, so finding the right one will pay dividends, not just to your profit margins, but also to your stress levels, and overall quality of life.
