How to Determine Your 3PL System Requirements

The internet has created a level playing field for sellers, spawning legions of ecommerce companies which became merchandise category killers. By a category killer we mean their assortment is narrow and deep and takes sales away from established sellers by offering more online choices.

Amazon, Wayfair, Walmart, eBay, Target and others have become platforms for selling product online and in stores. In turn ecommerce companies have become multichannel in terms of systems and fulfillment capabilities.

Developing and selling unique product is king. But critical systems functionality and efficient fulfillment are at the heart of this multichannel strategy. In all cases, merchants must meet compliance standards of marketplaces and big-box stores. Many third-party logistics (3PL) businesses are ideally suited for bringing this functionality and cost effectiveness to ecommerce, manufacturers and brands.

Time to market will often be considerably faster and at lower costs when using a 3PL. As you look at your business, what are the high-level business requirements for starting a 3PL relationship? Here are 7 areas to consider:

Vendor Drop Shipping

The major benefit is the ability to show a widely expanded product assortment without purchasing slow moving or low demand inventory. Many ecommerce companies got into the business without inventory, fulfillment and systems by using a 3PL.

IT Compliance Support (Marketplaces, Big Boxes)

Many 3PLs have been providing these services for years. Sellers must meet all of the compliance requirements for systems and fulfillment including Electronic Data Interchange (EDI) to transmit or receive purchase orders, advance shipping notices (ASNs), invoices and other documents electronically.

Automated generation and matching of transactions and paperwork is a key compliance requirement. Ecommerce sellers want to give the 3PL one purchase order with multiple shipping dates, quantities and retail DCs and stores. From the retailer’s perspective they want to be able to match and reconcile the PO, shipments, receiving and invoices electronically.

Fulfillment-oriented compliance standards include product preparation (boxes, packaging and dunnage for protection); box content information; product labeling standards for barcodes by label type and size; customer shipping and carrier labels; pallet requirements for size, weight, labeling, stacking height; carrier requirements for small parcel delivery, less than truckload (LTL), or full truckload (TL).

Examples of this compliance include customized product packaging, picking by store and shipment packing for a single SKU. These may include retail packaging for shelving and end caps and retail pricing vs. different requirements for direct to customer. For shipping, the retailer may have different requirements for by-store shipment, mixed SKUs and box quantities.

All of these are not negotiable. If you don’t meet the system functionality and fulfillment requirements, finding the right 3PL for this support is key.

Support for Unique Brand, Marketing Strategies

For decades 3PLs have specialized in marketing fulfillment such as direct response TV, subscription programs and club plans. These are high-volume transactions for a short duration. Also of course, not all customers get the same product each month.

Some ecommerce companies have launched advertising campaigns to generate pre-orders, source the product from the manufacturer and fly it in via air cargo. They advertise there may be limited availability and four to six weeks lead time. From a marketing perspective, what are the requirements for your business?

Multi-DC Processing

If you are operating in a multi-DC environment, what business rules are set up for filling orders and backorder processing from multiple locations to control shipping costs? What multi-DC historical sales and inventory planning support by location do you need?

OMS Functionality

Are you looking for the 3PL to provide OMS functionality? What specific functionality is required (call center, customer service, credit authorization, etc.)?

Interfaces and Integration

What system interfaces are required? With some 3PLs, some interfaces and integrations may be standard or require minimal setup and fine tuning. EDI implementation can be more time-consuming if the provider does not have the specific platform or big box experience. Interfaces required may be in-house inventory planning and control systems, general ledger, accounting and marketing systems.

3 Selection Steps

Document user requirements: Define user requirements in your RFP in terms of processes, high-level files or data used, functionality, calculations, reporting and display examples. Your vendor comparison needs to tease out which 3PLs have the best functionality across all channels.

Don’t short cut due diligence: A detailed RFP should help identify required system functions and what they have available today. It’s important to establish whether it’s part of their business today vs. something they could develop. Make sure to get extensive demonstrations from multiple bidders, do site visits and call multiple clients using this functionality for reference checks.

Get total proposal costs: Remember to include all IT costs into your planned cost per order and budget. Our blog post from September shows you how to get an apples-to-apples cost comparison. This includes identifying projected implementation costs with modifications and operational charges for managing servers and communications.

Third-party fulfillment isn’t for everyone. However as selling product via ecommerce becomes more complex from a system and fulfillment perspective, a 3PL can bring significant cost-effective benefits to your business.

Brian Barry is president of F. Curtis Barry & Company

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