3rd Party Logistics Providers (3PL)…How To Choose The Right One

If you make things, send things, or sell things online then you probably need someone to fulfil and expedite your orders.

That’s where 3PL (3rd party logistics provider) comes in. But how do you choose a good one if you are an online retailer?

Order fulfilment is an integral part of running an e-commerce business. When outsourcing to a 3PL it is important to distinguish what the differences are between Open and Closed Book Pricing Systems so you can identify the best solution for your business.

Closed Book Pricing.

This offers financial certainty, bills will be based on the ‘actual’ costs incurred (plus an agreed margin), meaning that it is best suited to projects where the level of service is expected to change very little over the term of the contract.

Fixed pricing, however, is unlikely to encourage your supplier to invest in any new technology and work practices, and therefore during your contract term, it will be unlikely that you will be able to take advantage of new systems and reap the financial benefits.

Open Book Pricing.

This can offer transparency and flexibility and can adapt to any increases or decreases you may have in demand.

It is a method that is often focused around KPI’s and is especially useful when service costs are difficult to stipulate upfront. However it is an easy mistake to underestimate the time, resource and contractual tools needed to successfully manage an open-book contract, and this must be thoroughly thought through or it could end up having an effect on its practicality for the business.

Whichever choice is made success depends on both parties undertaking the necessary effort to accurately identify the required terms before putting pen to paper so to remove any misunderstandings and provide relationship harmony.

Key tips

• How scalable is your business – will the 3PL match demand?
• Spend time negotiating a detailed contract. Avoiding issues now saves so much time & money later!
• Understand the pricing, which is better for your business, open or closed pricing?
• If KPI’s are included in your negotiations, consider the implications of these; stock loss, stock damage, strong customer feedback, delivery condition & order accuracy.
• It should be clear within the contractual agreement what level of support you can expect from the contractor. Is it the level of support the business requires? Does it come at an additional cost or is it included within the management fee agreed?
• Reporting systems, an effective one needs to be put in place and reporting of the key variables should be weekly or, at the most, monthly.
• Find out whether the 3PL owns its premises or lease them and what security of occupancy they have in place? It is important to understand the 3PL’s business stability.
• It is essential that at least once per year, there is a full strategic review of the operation in place so that both sides can review the future needs of the business.

Wilson Browne offers comprehensive advice from a friendly and approachable team. With offices across Northamptonshire and Leicestershire we can meet you at a location convenient to you and the first chat is always free.

So call or email Wilson Browne today or contact Duncan Crowther.