While ‘supply chain’ refers to the journey from raw material, to happy repeat customer, a critical element that is often overlooked is the order processing. This operation involves ‘goods in’, picking, packing, distribution, ecommerce fulfilment and increasingly, value-added services such as outsourced contact centre support, customs clearance, and specialist storage solutions.
In this article, we will delve into the various elements of third-party logistics (3PL), and things to consider when finding the right one.
The history of warehousing and distribution
Warehouses developed over the last three millennia, as a method to store surplus food, and help people survive long winters, and periods of famine. From 1300 to 1700, the use of the term “warehouse” became more common, for usage to store products and commodities.
The industrial revolution that followed, led to the requirement for more advanced supply chains, to support global trade and mass production. In the late 1800s, new sales channels, such as mail order, developed, leading to requirements for advanced pick and pack warehouses.
By the 20th century, new technologies developed, such as telephone, radio, and by January 1st 1983, the internet, leading to a requirement for a total transformation in supply chain technology and logistics management.
As global internet usage has proliferated throughout the information age, warehousing and distribution technology has become increasingly sophisticated, thanks to warehouse and inventory management software, barcode scanning and RFID technology, and real-time courier tracking. In the last decade, AI, IoT and automation have led to leaps and bounds in efficiency, leading to accelerated order processing.
How the ECommerce fulfilment journey works
Ecommerce order fulfilment begins with the integration of an online retailer’s sales channels, and/or OMS (order management system), with the third-party logistics centre’s WMS (warehouse management system). At this point, the merchant’s product range is mapped up to barcodes and various pick locations.
Then what follows, is the delivery of finished goods, in bulk, from supplier, or manufacturer, direct to the 3PL warehouse. At this point, the ‘goods-in’ team will receive the pallet, or shipping container of items, from the inbound logistics provider, ready for ‘breaking down’, and organising by SKU (stock keeping unit).
The products are then allocated various picking areas, where they are stored either in a designated pallet location, or if in smaller quantities, in pick faces, alongside other, different products.
When an order is placed, the picking team receives a notification, and they will then collect the product(s) from the pick location(s). Then, the products are taken to the packing location, and at each action point, the barcode scanner records activity, which is fed back to the inventory analysis tool.
If finished products, a shipping label is applied; if not, there is an additional packing stage. Products are then arranged by courier, ready for collection by the 3PL’s carrier partners. When the shipping label is created, this triggers a notification and the consumer will receive a shipping notification with tracking details.
Depending on the retailer’s carrier service selection, they will be given various in-flight delivery options, to enhance their customer experience.
Things to consider when looking for a 3PL
While traditional eCommerce fulfilment services included storage, picking and packing, more recently providers have introduced value-added services, such as manufacturing, customs clearance, outsourced customer service, and specialist options including frozen goods storage, garment ironing and hanging for apparel businesses.
When trying to find the most suitable 3PL provider, it makes sense to begin with considering your own business’s needs. Why are you looking to outsource fulfilment in the first place? Is it because you are running out of storage space? Could it be a cost-saving exercise, to maximise profit margins? Could you be trying to accelerate order processing, and deliver on your customers’ expectations? Or, could it be a combination of these?
Outsourcing fulfilment is capital-intensive, and a risky operation, given that you would be entrusting a third-party with the most delicate element of your business operations. This is why it’s crucial that you assess each provider’s client feedback, and clients’ consumer feedback, on third-party review platforms, and the 3PLs’ own case studies.
Some providers will have hidden fees, and fee structures will vary greatly. While some providers are optimised to help SMEs shipping 10 to 30 parcels per day, others are geared towards mid-market, and established retailers shipping 300+ average daily orders. Some 3PLs will offer late order cut-off times, weekend dispatch, and an EU warehouse.
Some carriers partner with a single carrier, but the smartest will mitigate risk with a diversified approach to carrier selection. Fees will typically be based on initial setup costs like website integration, followed by monthly fees for storage (by pallet space), goods in, packaging, and returns costs.
eCommerce fulfilment case study of a Shopify retailer
Complete Strength founder, Rob Whitfield, has acquired new customers thanks to their provider’s 10pm order cut-off time, adding: “The majority of our orders will come in during the evening. When we had an earlier cut-off, we missed out on sales. Now we’ve got a later cut-off time via our new 3PL, we get less abandoned carts. We have also noticed customers are shopping with us simply because of the later cut-off time.”
The relationship between 3PL services, and your supply chain
Working with a 3PL can assist the optimisation of your supply chain, most effectively when utilising a 3PL that offers deep inventory analysis. By monitoring order volumes, demand, and good-in metrics, inventory analytics tools can predict when to, and when not to order in new stock from suppliers.
This is mission critical, to avoid understocking (which can lead to missed sales), and overstocking (and subsequent capital tied up in inventory, a disaster for businesses that sell perishable items).
Some final thoughts on eCommerce order fulfilment
As internet adoption grows, so too has the market penetration of 3PL services, an increasingly popular strategic imperative. Consumers are becoming comfortable with buying from a plethora of sales channels, including TikTok and Instagram.
These same consumers are a fussy bunch, demanding fast and free shipping, and product customisation, while at the same time, a sustainable approach to packaging and distribution. With the majority of negative reviews related to the post-checkout customer experience, getting order fulfilment right will be the difference between business success, and failure.