Should you outsource your eCommerce businesses’ warehousing to a 3PL?
Outsourcing pick/packing to a 3PL
Before you consider outsourcing your warehouse pick and packing to another company you first need to determine what you are hoping to achieve. In general, there are a few reasons why you may want another company to do your warehousing activities:
- Cost- to save money if you have determined their cost per pick is lower then what you currently pay in warehouse space and wages.
- Time- free up existing resources to spend more time on value add activities such as strategy and talking to customers
- Quality- improve order picking accuracy and reduce stock damages by engaging a company who specializes in warehouse logistics
Where to start
Depending on your existing costs and order picking performance, you may or may not improve by outsourcing, so first it is critical to gather data. At a very minimum you need to be determining your existing:
- Costs- ensure you include all of them not just labour costs and leases. Include all the small stuff too such as packaging supplies, warehouse equipment hire, electricity etc…
- Pick errors- this can be tedious to determine if you’re not already capturing it. You’ll probably need to review customer complaints around not getting the correct item, to work this one out
- Pick turnaround time- how long after an order is placed can you have the item picked and ready for dispatch
The next step is straight forward. Begin contacting 3PLs and discuss their numbers. When searching for a 3PL you can speak with the big players, although you shouldn’t rule out a smaller operation. One client ScanSKU worked with, approached their freight forwarder to do their pick/packing. They had noticed their freight forwarder had spare warehouse space and idle labour (when a delivery was not being unloaded). In this case the company had to spend more time with the 3PL setting processes and expectations, although as they were a smaller 3PL, they were much more accommodating and flexible then a big player would have been.
Once you’ve identified a short list of 3PLs, key metrics you want from them include:
- Rates/costs- ensure you gather all their costs such as cost for packaging, labelling if required, returns, unpacking deliveries and so on.
- Promised or expected pick error rates and turnaround times. Ask if they capture pick errors and can share broad performance metrics (if they don’t you should be concerned)
In doing a comparison it’s not just about costs and performance, also enquire what reporting they can provide you. Can they send reports such as frequent inventory reports, real time order status updates? Do they charge extra for any of these services?
What else to consider
There are some other key factors you mustn’t overlook when assessing outsourcing your pick/packing. Some of the big ones include:
- Insurance- does the 3PL have adequate insurance in the event there is a fire/flood/theft at their facility?
- Adhoc processes- do they handle returns? What happens with damaged stock?
- Transport- do they use their own carriers, or will they be willing to use yours. Who owns the relationship with the carrier responsibility for any damages caused in transit?
Overall, outsourcing your eCommerce businesses’ pick and pack warehousing can be a great idea. There are cost savings, potential order picking accuracy improvements and the opportunity to shift some of your business risk out of your company. By far the biggest advantage to outsourcing your pick/packing, is having your own people focus on value add activities, leaving the monotonous pick packing to a company who specialize in it.
ScanSKU develops and manufactures held-held Android Based Barcode Hardware Solutions. ScanSKU partners with app and software developers in Inventory, POS, Asset Management and Mobile Invoicing Industries, to ensure the customer can begin using the solution right out of the box.