E-commerce News and Insights
Apr 30, 2020

How To Determine if a 3PL is Right For Your Business

Shippo Snippets: 

  • The COVID-19 crisis has rocketed fulfillment to the top of every customer’s priority list
  • Ask yourself: is it better to engage a logistics service provider, or invest in building your own system?
  • A typical third-party logistics company contract lasts three to five years. What could you accomplish with your business in that time?
  • How would third party logistics companies work with your existing systems and channels? 

The Story: 

The COVID-19 crisis has rocketed fulfillment to the top of every customer’s priority list. And certain questions burn hotter than ever before: “how fast will your product reach me?” and “how much will this cost?” 

For businesses that have already been scaling, or have been growing due to increased customer need stemming from the pandemic, this may be the time to consider a third-party logistics (3PL) solution to help meet the demand for fulfillment. (Or, something to think about once the current storm passes.) As a quick refresher, 3PLs are companies that help you fulfill and deliver your product. This can include warehousing, packing, transportation, and shipping, among other related services. Some may focus on a niche (a specific type of product, like perishables or healthcare-related materials for example) or offer either domestic or global shipping services (or both). Some can specialize in B2C and/or B2B fulfillment. 

The idea of using a 3PL company is to help you grow your business, reduce costs, boost efficiency, and ultimately, provide a better experience for your customers. Also, having an experienced, reliable 3PL company do the work for you can allow you to focus on other priorities in your business. However, before you make any definitive moves, contemplate the bigger picture and make sure the switch is right for you (and your customers). Employing a 3PL may not be the right choice, but it may be worth the investigation and research. 

To determine if a third-party logistics company is right for your business, ask yourself these questions:

What Can a 3PL Company Bring to Your Table? 

You probably already have a good idea of what your in-house shipping is costing you in terms of money, time and labor. How would a 3PL provider make things better for you and your business? Consider how you may benefit from 3PL expertise and experience, as well as from their facilities. 

Does the 3PL provider: 

  • Have a strong history of service? 
  • Deal with clients of your size? 
  • Ship globally? 
  • Work well with your systems and channels? 
  • Have one facility to service your product, or many? 
  • Use the type of technology that will keep you competitive? 
  • Offer service in B2B or B2C fulfillment? 
  • Have a good reputation for shipping certain types of product items that match yours? 
  • Offer any value-added services, such as personalization or assembly? 
  • Have the flexibility to grow and change as your business grows and changes? 

How Do the Operational Costs Work (or Not Work) For You?

Are you able to calculate your costs for the coming year—especially under current crisis conditions? 

This may take some work, including ironing out the internal costs you may pay for labor/management, occupancy/rent, purchasing related shipping materials, information technology and actual shipping costs. 

You should also drill down to calculate the cost per customer order, including what it costs you per unit.

Even if you are only able to come up with a ballpark number, how does it compare to the cost of a 3PL solution? Is it an easy comparison? 

How Will a 3PL Affect or Benefit Your Customers? 

  • Does cost and time depend on geography/location? 
  • Does the 3PL work closely with air and sea ports? 
  • What transportation services are owned and managed by the 3PL? 
  • Will the customer save money or gain efficiencies as a result of using this 3PL? 
  • How will the 3PL’s delivery strategy improve your customer service? 
  • Is the 3PL’s fulfillment location a major improvement over the one you’re using now? 

What Does a 3PL Contract Offer? 

When contemplating contracts, you need to think about long you’ll be working with the 3PL if you decide to sign up. Know that a typical 3PL contract lasts three to five years. Would they be flexible with this time frame, in the event that you’re still unsure about signing up? 

When negotiating, ask these additional questions: 

  • Will your costs be fixed for the duration of the contract, or will they fluctuate? How are the costs calculated? 
  • What are the exact types of services contracted? For instance, ask about shipping times, return processing times, inventory shrinkage, and the percentage of orders taken. 
  • Are there penalties to the logistics service provider or compensation owed you if they violate any of these services? 

How Are You Fixed for Capital Expenses? 

Would it be a better move for you to engage a 3PL instead of investing in a system yourself? Will using a third-party offer substantial savings over the course of time? If so, the money you save—or avoid spending—could be used for other needed investments in your business. 

Have You Done Your 3PL Due Diligence? 

What kind of partnership do you desire for your 3PL experience? Here are a few things to consider.

When requesting a proposal, ask for:

  • Their end-to-end plan
  • How fast they can implement your shipping schedule (and make it happen)
  • How long a typical project will take (time frame)
  • Who will be responsible for what? 

Drill down even further and find out:

  • How they use technology—including artificial intelligence—and how it can be integrated with your systems.
  • How they can customize their operations specifically to suit your needs. 
  • What type of accounting they offer 
  • What type of onboarding training they offer, to you and you staff
  • What kinds of reports, analysis, and data they can offer you to better understand the plan’s implementation
  • What type of service-level agreement they offer, which would track their accountability

The more you know about how 3PL companies implement shipping, delivery and other aspects, the better you’ll be at determining if a 3PL is the right choice for your business. 


Check out Shippo for efficient, cost-effective and easy-to-implement shipping and logistics solutions. 


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Ron Sklar
is a business content writer based in New York. He writes for clients in a number of sectors, including real estate, healthcare, financial services, tech, and transportation/automotive.

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