Over this past year we have seen a variety of different sized merchants choose to use third-party fulfillment (3PF) partners to handle their pick, pack and ship operations.
Each and every merchant has a different reason for using a 3PF partner, and each and every 3PF solution is uniquely designed to fit within a company’s fulfillment strategy.
Before we look at who the various 3PF vendors are, we will focus on why both small and large merchants.
Here are the eight steps you need to take when you select a 3PF partner.
Identify the overall objectives
What are your objectives for 3PF? Is it to delay or avoid expanding fulfillment facilities? Is it to reduce the package in-transit times to your customers? Is it to gain the advantages of a new OMS without spending capital and years implementing it? It’s important to be clear with your staff what the project objectives are that are central to writing the RFP.
Use a competitive bid process
Too many times we see management rushing to judgment about which vendor can best serve their needs based on inadequate facts and due diligence. It does take organization and structure to conduct a competitive bid process; however, the benefits are that you’ll make a more informed choice and be able to negotiate fairly having looked at all aspects.
Write the RFP
Here are the essential sections to your RFP:
- Background and culture of your company and what your project objectives are;
- Metrics describing your business including your monthly or quarterly transactional volumes for orders and returns; average number of order lines and average number of units per order, number of products and SKUs; an estimate of the amount of storage required in pallets, cartons, square and cubic feet; the information systems requirements (e.g., support of call center and customer service, merchandise analysis, forecasting; profit analysis, etc.); value-added services that you require (e.g., kit assembly, returns refurbishing, monogramming or engraving, etc.).
What are the standards that you want the 3PF partner to be accountable for? These include customer order turn around and shipping cut off; order accuracy; dock-to-stock inbound merchandise compliance and turn around; returns processing turn around; shrinkage percent, etc.
As you can see from this, you need to thoroughly understand and summarize your operations statistics and costs. Without analyzing and preparing a pro forma of your business, you will not have an objective measure of how the responding vendors measure up to your operation’s standards and costs.
Determine a qualified vendor short list
You must understand that there are many different types of fulfillment (e.g., direct to customer, retail cross docking, collateral and selling materials, etc.). Where some companies look at too few potential vendors without doing sufficient homework, many more go off in the other direction and look at too many.
The key here is to identify a handful of vendors that serve the direct marketplace for your type of business. For example, if you are an apparel business, and catalog still is a major percentage of your sales, you’re going to require the functionality that a catalog-oriented OMS provides.
In turn, in our minds, the providers you look at need to have current catalog clients and hopefully, apparel businesses. Why is the merchandise type important? Because in the case of apparel, they will be more apt to understand the quality assurance standards and requirements you may have; for example, your forward pick area may need to accommodate goods on hanger.
Apparel-oriented facilities are often cleaner and are going to be used to processing higher levels of returns and refurbishing and rebagging saleable stock.
Take another example, if one of your objectives is to service West Coast customers in a shorter transit time, do they have a Midwest or Western facility that will deliver this objective.
Follow up with vendors
Who will be the liaison with the vendors to answer their questions and provide direction for the project? This takes time. The quality of this will greatly simplify the analysis process. Without this person interacting daily with the potential vendors, the process will be slow and will make analysis not comparable on an “apples to apples” basis. This is a good activity to offload to an experienced consultant that understands the vendor marketplace, restricting RFPs and that has the time to work with the vendors.
Define your decision matrix
No matter what instructions you give the potential 3PF vendors, you are going to end up with hundreds of pages of selling materials and your requested information will be in completely different formats defying comparison. Early on, decide how you are going to compare vendor bids not only from a cost and standards, but also from summarizing other pertinent facts such as narrative to questions asked within the RFP. This use of spreadsheets will give you a good side-by-side comparison.
Narrow your search
Once you have your decision matrix with the vendor’s responses completed, reduce the list to two or three you want to look at in more detail. Don’t pick a finalist until you have toured the facilities you would be in and followed up on references for similar companies they presently service.
Make a final decision and negotiate final contract
Make sure you have looked at all the agreements. Be sure to include the standards that you want the vendor to meet in the services agreement. Use an intellectual property attorney to help you review the agreements.