4 Red Flags Brands Should Watch Out for When Selecting a 3PL Warehouse

With the growth in warehousing and logistics over the past decade, there is no shortage of third-party logistics (3PL) warehouses for a brand pick from. Especially in port cities, there are probably at least a dozen different 3PL warehouses in the same neighborhood. So how do brands choose the best 3PL warehouse for their company? While there are lots of positive qualities brands look for when choosing a 3PL, they have to stay cognizant of any potential red flags. Listed below are four warning signs brands look out for when choosing a 3PL fulfillment partner.

Lack of Experience in a Specific Vertical

When a brand assesses which 3PL to outsource their fulfillment to, they often have a clear, solid idea of what they are looking for.

Top performing 3PLs are able to meet the demands of a variety of industries, but they tend to focus and hone in on a specific vertical; their bread and butter so to speak.

Brands may be wary of 3PLs that seemingly 'do it all' and are willing to partner with any brand, regardless of their unique needs. The logistics industry on the whole has seen tremendous growth the past decade, and with that growth, 3PLs have found niches with what kind of customer they serve. Warehouses may focus on a specific vertical. Cold storage, nutraceuticals/pharmaceuticals, bulk inventory & raw materials, hazmat, wine & spirits, and apparel, are a few of the popular industries 3PLs tailor their business to.

Brands will gravitate towards tailored 3PLs- especially if they have very specific inventory control needs, like cold storage or hazmat. They will want to find a fulfillment partner that has tried and true experience fulfilling that type of inventory.

Lack of or Poor Warehouse Management Technology

With rise of ecommerce facilitated by the “amazon-effect”, the majority of consumer shopping is done online. Furthermore, two-day shipping is now the norm. It has become increasingly harder for 3PLs that use single point solutions or manual functions to track inventory. Brands now look critically at a warehouse's technology stack to ensure the 3PL can support the volume, processes, scale, and visibility required by the brand.

Over the past decade, ecommerce was growing an average of 15% year over year, and in 2020 it surged even more to 32% and reached $790 billion. With that amount of growth, it has become close to impossible to meet SLAs and give your customers the room to grow unless your warehouse has an established warehouse management system (WMS) and the technology partners.

Having the right technology partner is critical- and this does not just include the flashiest software solution, but also a partner that understands change management, supports the warehouse in adoption, and has a focus on proven best practices. In addition to the internal benefits of the right WMS solution, having the right technology also allows for more transparency and accuracy. A WMS that offers a customer portal will let the brands see their inventory in real time. Proven processes for inventory validation through mobile barcode scanning will guarantee the right items are shipped to end consumers.

Reputation

This may seem obvious, but brands want to read reviews and ask for references from a 3PL warehouse before signing the dotted line. Word spreads fast, and having great customer reviews or testimonials can help prospective brands get an accurate sense of what kind of fulfillment partner you will be. At the end of the day, a 3PL will play an integral part in the brand’s overall experience and reputation.

When brands do their diligence, they often look at the following success markers:

• How long has the 3PL been in operation?
• What technology stack is supporting the warehouse operation? Will they have a pulse on how inventory is being handled?
• What are the SLAs for customer support?
• How many warehouses is the business shipping from? What is the geographic spread of the operation?
• Does the warehouse have the capacity to support the brand’s 1-3-5 year growth plan?
• Does the warehouse have a focus and expertise with similar verticals and commodities?

Pricing/Contracts

When choosing a 3PL to work with, brands want to find a partner that is fully transparent on how their pricing structure works. Rate sheets should be as simple as possible, as gray areas are often opportunities for conflict. A 3PL warehouse’s focus should be on providing a great experience so customers want to stay with their warehouse, not feel trapped in a contract.

3PL warehouses should clearly outline service level agreements (SLAs) around error rates and time to ship to provide brands with the understanding of quality commitments.

Avoiding the Red Flags

Like any company, no 3PL is perfect, but with the proper preparation, customer testimonials, technology, and contracts, you will find great brands to partner with.

To learn how to better prepare your 3PL warehouse for new business and new brands, check out the Peak Season Playbook.