In the Fortune 500 annual report of the largest US companies, which includes Walmart, Apple and Amazon, 90% of the companies use the 3PL model. The 3PL solution eliminates the need for operational logistics, and allows management to focus on business development. This is important not only for large businesses, but also for small ones.

However, how can you choose an operator who will really support you in development? What must you know before starting your cooperation? What are the most important factors you must consider – rates, a recognized brand, or the services offered?

Before you start comparing an operator’s offers, you need to understand your own costs. Only then can you evaluate the attractiveness of each operator’s offer. Because even if the price is higher, do you still come out ahead, due to the scale effect, for example, or otherwise receive additional value that you did not previously?

Let’s also take into account those things not currently included in the costs (e.g. your own work) at the current scale of the business, but which, with development, will likely come into play. It is worth being aware that business development will force you to incur some additional fixed costs.

How do you calculate your own costs?

Warehouse

a) AreaMaybe at the beginning of your business you can use your own apartment or garage. However, this is a temporary solution – at some point, you will have to invest in professional infrastructure. If you decide to rent a place in a warehouse, you will also have to take into account such costs as: insurance, security deposits, and even a fee for cleaning services.

b) Infrastructure: The warehouse should be equipped with appropriate shelving, containers, hangers and order-picking trolleys. Additionally, at some stage, it will become necessary to implement a technological solution: WMS, order collectors, EAN code scanners, printers, etc. Then you must pay for the implementation of the new software as well as for servicing and maintenance.

c) Packaging materials: If you still have relatively few orders, this area can have a high cost. You will, most likely, not need whole pallets of packaging. Buying excess stock also wastes money and increases the chance of destruction during storage. On the other hand, you can get better rates for materials when you order in bulk.

d) Shipment: If your warehouse does not happen to be on courier routes (especially if the volume of shipments is not too big) you will have to take orders to the sending point – leaving you paying for transport and wasted employee time.

Employees

Even if you currently only employ the aforementioned person, you will also bear other costs in addition to their remuneration. This includes recruitment costs or accounting costs, and for each subsequent person you hire, these costs will start to multiply. What’s more, when an employee is at the implementation stage and is just learning, you can incur additional costs due to their slightly less effective work.

Illness and holidays are also often overlooked — the former is unpredictable and the latter inevitable. In that case, who will replace an employee? What if they get sick during a period of increased sales? Do you have a backup plan?

Your working time

It is said that someone with their own business works 24 hours a day. Very often at the beginning of a business, you find yourself devoting all your time to its development and while it might seem that it’s costing you nothing (apart from your own effort), that’s not true. At this point, it is worth adopting a more “corporate” perspective and considering how much an hour of the owner’s work is costing the company.

Negotiating contracts with couriers, suppliers, insurers, human resources, finance, sales and marketing, etc., takes a lot of work. It’s difficult enough in this period to focus on business development — can you in this case, also allow yourself to pack orders or clarify mistakes?

Checklist: how to evaluate an operator’s offer

The following list sets out the points that must be considered in order to analyze the offers of potential third party logistics partners. Not all operators’ offers will be extensive – that is why it is crucial not only to talk to a potential partner, but also, and above all, visit their warehouse.

Checklist: How to Compare 3PL Operators’ Offers?

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I. Prices: Is the offer attractive in terms of price?

The necessity of understanding of your own costs was mentioned above. If you are aware of them – and whether they are too high and too low for the realities of the industry – you can say how much you should expect to pay for logistics services. In business, while the price is always one of the key elements, it is also important to understand what you get for this money. Pay attention to, among others, how many people will be dedicated to your service, how many work-hours the operator anticipates and any additional costs associated with packaging and infrastructure.

#1 Does the offer involve any minimum starting value?

The operator may want to specify a minimum contract value. Determine how this was calculated. To handle your orders, they must provide sufficient people and infrastructure. Each subsequent client also means an increase in their administrative costs. Do not be surprised if the offer includes a statement of:

  • the minimum invoice amount,
  • a minimum service budget,
  • the minimum number of packages per m³ of storage space occupied,
  • the minimum number of packages that you will undertake to order monthly or daily,
  • other fixed costs (such as a fee for a dedicated manager to run the project).

Additionally, if there is no such statement in the analyzed offer, you should ask directly how costs will be determined when the volume declared in the contract is not met (or in extreme cases, if no order has been commissioned at all).

#2 Integration:

Professional e-commerce system integration requires the work of people who specialize in onboarding – often a dedicated onboarding manager and IT team. While the integration of the WMS with popular platforms available in the SaaS model (such as Shoplo, Shopify, IAI Idosell) or Open Source (Magento, Presta Shop, WooCommerce) will be carried out in a standard and seamless manner, a proprietary store management system or a more complex SAP environment can cause complications. This may result in a greater amount of work and time on the part of the implementation team. In this case, it is possible that you will face additional costs.

Most operators use a WMS readily available on the market and these advanced systems are specially adapted to the needs of managing the work of an e-commerce warehouse. Of course, each new customer entails certain costs for the operator – modifying or adding specific functions, building a new order picking scenario, creating new exceptions, etc., so it is possible that in the case of a customer requiring a large investment, the operator will include these costs in the starting fee or monthly subscription.

Questions:

  • Is integration included in the price or is it extra?
  • In the case of a non-standard process, do you pay for additional hours or otherwise?
  • Is technical support included in the price or must you pay extra?
  • Will there be a subscription fee for using the storage system after integration?

#3 Receipt of the goods to the warehouse:

What set of standards regarding receipt of goods by the operator will affect your costs? For example – if you sell B2B, it is very possible that your products are packed in larger packaging. Your deliveries will also probably be less frequent, but larger in volume. It would be more preferable for you if the rates for the receipt and the way they are calculated is different than in the case of a B2C store.

Questions:

  • Will you be charged per item, packaging or SKU?
  • Does the operator require additional payment for the amount of work done, e.g. if it will be necessary to open parcels, check, and mark the goods?
  • When accepting goods, is color coding acceptable or does the operator identify products only by EAN code?
  • Will the frequency of deliveries affect costs? How many deliveries per day is guaranteed by the operator?
  • Does the offer assume a maximum number of deliveries, above which you will pay extra?
  • Does the contract involve penalties if an inbound delivery does not agree with the delivery manifest?

#4 Storage:

The method of pricing goods storage may be of key importance to you, especially if your products have large or non-standard dimensions or need special storage conditions. An interesting example is the assignment of SKUs to specific spaces – some operators follow the principle that only one SKU can be assigned to one unit of space. Such a situation may be completely unprofitable for you if each product has a different SKU. Then one shelf will only take one product.

Be sure to check the warehouse insurance policy in the event of unforeseen circumstances (e.g. fire, flooding, theft). And it’s not just about whether the operator has it, but rather about what conditions will cover you. Most often, the fact that the operator’s warehouses are insured does not release you from your own insurance. So in the case of damage (e.g. fire), you, as the client, must make a claim to your own insurer. Secondly – usually the amount of insurance should be adequate to the value of the goods, a point you must pay particular attention to when determining the terms of the policy with the insurer.

Questions:

  • How is the volume of the goods priced? Is it calculated per box, shelf, pallet or m³? Is it possible to mix different SKUs within this unit?
  • Does the offer include an additional fee for non-standard dimensions?
  • Will you pay extra for non-standard infrastructure (e.g. special containers or hangers) or special storage conditions (e.g. suitable temperature)?
  • Is there a charge for goods exceeding the standard value (e.g. jewelry, electronics)? Do you pay extra, for example, if you store goods in a closed area?
  • Are you accounting for the maximum amount of stock throughout the year? Or from the actual occupied space?
  • What amount of the goods’ value does the operator’s insurance cover? Must you buy additional insurance? Who is responsible for damaged goods?

#5 Order processing:

This point is particularly important if you know that the processing of your orders requires special solutions – for example, you build sets or use non-standard packaging. Then nuances with regard to billing will be significant in the final cost.

Questions:

  • What does the order fulfillment fee cover? Is the service calculated per parcel or per hour?
  • Is the quantity of items in the order, the quantity of collective packaging or the number of SKUs in the order billed?
  • Is packaging calculated and how? Are there additional fees for special types of packaging or securing the items?
  • Does the offer take into account your non-standard needs (e.g. special packaging)?
  • Is it possible to pack according to your instructions and must you pay extra for it?

#6 Shipping:

In this area (as in the case of packaging) you have the opportunity to receive much better rates than by acting independently. This is because the operator has a greater volume of transactions, which gives them a basis to negotiate very competitive rates with transport companies.

Questions:

  • What are the rates with courier companies?
  • What are the weight thresholds?
  • Are there surcharges for non-standard parcels?
  • What are the shipping rates to your country and abroad?
  • Is shipping insurance included in the price?
  • How is refund handling processed? How is it different in the case of returns from your country and abroad?
  • Is there a payment on delivery option? If so, when is payment received?

#7 Accounting system:

It is very important to check whether the operator uses an automatic system for settling completed shipments. If this is done “by hand”, monthly errors and the need to explain them will be an additional cost. It is also worth checking what your invoice will look like.

Questions:

  • How does the operator issue invoices? Is it done automatically?
  • Do you get a consolidated or detailed invoice, so you can verify what you are paying for?

II. Services: Can the operator help you?

This involves evaluating the offer from the perspective of “non-numeric” criteria. For a developing e-business, the services and development opportunities by the operator offered will be very important – be it with regard to further development of the offer or your expansion into new markets. You must answer the question of whether your operator will allow you to grow further and be able to meet any new needs that may later arise.

#1 Sales model and industry

If you operate in a standard model or a popular industry, there will probably be no major problems in handling your orders. The issues begin if you operate, for example, in a cross-dock model or in a very niche industry. Then the operator must be prepared for a non-standard operation – for example, to handle cross-dock orders in order to carry out a shipment on the same day. In the same way, if your industry requires special handling of its goods (e.g. glass) – you need to check whether the operator can handle the products, e.g. has the appropriate infrastructure and experience.

How can you check? First of all – ask about the portfolio of current clients. This information should also be found on the operator’s website. Second – ask for specific solutions. If in response you hear a vague “somehow we can figure it out”, then this should sound alarm bells. An experienced operator will have a ready solution for you, which can be modified to meet your requirements. Thirdly – visit the warehouse. If the operator declares that they support clients, e.g. in a cross-dock model, they should have the infrastructure dedicated to this model.

#2 Customer service

A client once told us that they valued our company for our “non-corporate” attitude and for the fact that a small online store is supported as professionally and respectfully as a large one. Unfortunately, there are operators – often larger ones, with thousands of customers all over the world – who are not able to provide the same level of service to all, which is why they only care about their biggest clients. It is worth checking whether, regardless of your size, you can count on efficient, and professional service. Ask if you can meet the people you will be working with – such a meeting can tell you a lot about how your cooperation will look in practice.

Questions:

  • Can you count on a dedicated supervisor?
  • What will the tasks of the supervisor be, e.g. will they act proactively or answer your requests?
  • What is the standard response time?
  • Does anyone conduct onboarding?
  • Are there any maintenance packages that will provide us with additional benefits?
  • In the case of additional projects (e.g. switching to eco-friendly packaging), will someone run the project on your behalf?
  • Who deals with the complaints process to courier companies?

#3 Warehouse infrastructure

a) Equipment 

Depending on the products you sell, you might need a dedicated infrastructure to store them, e.g. dedicated containers, hangers or racks. You should check if the operator has such equipment and, if not, investigate if they are able to design elements especially for you.

The warehouse class is crucial from the point of view of online stores offering “sensitive” products, such as cosmetics or food. In both of these examples, an appropriate temperature must be maintained. Additionally, storing food comes with special conditions such as, for example, Public Health Certificate, and sometimes also special devices (cold stores, refrigerators).

  • Does the operator have the equipment (adequate shelves, cold stores for food etc.) necessary to store your goods? If not, are they ready to equip the warehouse?
  • Does the warehouse have separate zones, e.g. for packaging, which are optimized so that the process is as efficient as possible?
  • Is the warehouse equipped with WMS, code scanners or other technology that streamlines the order fulfillment process?
  • Does the warehouse have appropriate certification, e.g. a Public Health Certificate?
b) Location

Another important issue will be the location of the warehouse. Proximity to an airport, unloading point or location along main transport routes is important, especially if you import or export goods abroad.

  • Is the warehouse located close to transport nodes (e.g. highways, airports, unloading points for rail transport, etc.)?
  • Will the delivery of goods to the warehouse be hindered by the location?
  • Is the warehouse close to the border of the country to which you sell?
c) Area

Here it is worth checking not only the current area you have been assigned, but also the possibility of increasing it. As your business grows, you may need more space than you originally planned for.

  • What kind of free space does the operator have?
  • How far in advance do you need to request an increase in stock?
  • How does the operator solve a situation when they do not have enough space?
d) Security

If you have valuable goods, there are several essential things you should check:

  • Are the valuable goods stored in a special surveillance zone?
  • Are there cameras in the warehouse?
  • Is there a dedicated team to service your orders? Are employees assigned to zones? Do they wear special uniforms that are easy to identify?
  • What is the operator’s approach to the level of disappearances and shortfalls?
  • Is the warehouse insured in case of unforeseen circumstances?

TIP 1: For most operators, there is an option to visit the warehouse and see it live. Take advantage of this possibility, even if it requires traveling and a day’s work. First of all, you can check with your own eyes whether the operator’s assurance regarding the number of customers and the size of the warehouses is true. Secondly, you can see if the warehouse is kept in order – how the products are stored, whether the aisles and shelves have the right markings, how the returns are stored, etc. Thirdly – you can see the process of completing and packing orders and understand the operator’s solutions (e.g. if it has collectors that reduce the risk of errors). Fourthly – you get to know the team and make sure that your goods will be safe.

#4 System integration

Next, you should investigate if the operator is ready to integrate with your store. In the case of popular sales platforms (e.g. Shoper, Presta Shop) the integration should run smoothly and there should be no additional costs. When you use a proprietary, more extensive system, or operate in an SAP environment you should expect additional costs and extended integration time (up to several months). However, regardless of the difficulty of this project, it is better to check beforehand whether the operator has experience in integrating with your platform. If they have a dedicated onboarding team and whether you will receive the support of a dedicated manager.

Questions:

  • How does the operator enable integration of the e-commerce platform with your system?
  • Do they have experience integrating with your platform?
  • In the case of proprietary solutions, do they have experienced developers who will carry out non-standard integration?
  • How long will the integration take and what are its stages?
  • Will there be a person on the operator’s side responsible for your integration?

#5 Special services

a) Handling returns

According to a UPS report, 64% of customers decide on a purchase when checking the return policy. However, up to 15% of users opt out of the purchase if the return policies are unclear. Returns are a consumer right and should be clearly accessible. So you should find out:

  • What is the turnaround time?
  • What happens to a product when it re-enters the warehouse? Does the operator provide, for example, minor product repairs, a laundry room and an ironing room?
  • Who regulates the issue of possible compensation from the courier company?
  • Is there a policy for used packaging? Does the operator, for example, provide for their re-use?
b) Package branding or non-standard packaging

We often create positive associations with products based on our first impressions – this also applies to e-commerce clients. That is why more and more brands, especially from the fashion or design industries, care about the packaging appearance of their products. This applies especially in industries where the majority of customers are women, i.e. fashion, cosmetics, accessories for children or interior furnishings. It’s worth finding out if the operator provides the following types of services:

  • Is it possible to pack orders according to your guidelines?
  • Is it possible to use branded packaging, tissues, tape?
  • Is it possible to use ecological packaging (e.g. paper instead of plastic film)?
  • Can you add samples, gifts or small sweets to packages?
d) Non-standard dimensions

If you offer products with non-standard dimensions then it is important to ask the potential operator:

  • Can they provide a place for storing non-standard dimensions?
  • Does the contract provide an additional fee for the packaging of oversized products or non-standard shapes?
  • Does the operator cooperate with courier companies that provide appropriate transport? For example, is there an option to take a package to the client’s apartment?
e) International shipments

Firstly, ask the operator about the way in which they ship internationally. Do they ship directly, on the basis of a contract with one global transport company? Do they work in the so-called line haul & last mile model, i.e., deliver the package to the border, where it is repackaged and delivered to the target customer?

Rates for courier services which result directly from operator contracts with global companies, such as DHL, DPD, FedEx, UPS or GLS, will be important for you, as well as those with local carriers – French La Poste and Colissimo, German Deutsche Post, Czech Zásilkovna.

Questions:

  • Does the operator have contracts with local couriers in the countries you will be sending to?
  • Is the operator integrated, or able to integrate, with local, national payment solutions, marketplaces?
  • Does the operator have (or plan to open) a warehouse near the border of the country to which you sell?

TIP 2: This element of the offer is worth checking even if currently you only operate on the domestic market. It is likely that as your e-store grows, you will try to expand into foreign markets – especially with your western neighbors. Don’t close down the opportunity to expand sales.

III. Cooperation: Is the company trustworthy?

#1 Getting to know the upper management and employees

Already in the case of customer service, it was mentioned how important it is to know the people who will care about the quality of your service and with whom you will be in constant contact. This also applies to other employees, especially in upper management. You should check their attitude towards your problems and challenges during the so-called sales talks:

  • Do they want to talk to you at all? (This particularly applies to the management, not the sales department.)
  • How long has the company existed?
  • What experience do they have? Where did they learn logistics?
  • Do they understand the e-commerce industry and its challenges? Did they have the opportunity to be “on the other side”?
  • How is the operator “talked about” in the industry?
  • How many clients do they have? How many left and why?
  • Does the operator have a portfolio of clients from your category / industry? How long have they worked with them?

#2 Getting feedback from other clients

For many people, “asking” current clients about their level of satisfaction with the company you are talking might seem too drastic. After all, in every industry there are dissatisfied customers whose opinions are very subjective. To be 100% fair, you can ask the operator to contact 2-3 selected clients. Give them the opportunity to choose and avoid doing something “behind their back”. At the same time, the way the operator responds to your request will show whether you can count on transparency on their part. If, in turn, you do not have the desire or time to talk to current clients of the operator, you can at least check online forums or groups on Facebook – maybe you will find some opinions about the operator with whom you are considering cooperation.

In conclusion

If you are considering using an operator’s services, these 83 questions can be a starting point for you. They will help you to understand what to ask the operator and how to evaluate the offer in order to properly assess its value to you. However, there is no substitute for direct contact (not only with the sales team, but also with the management and service staff) and a visit to the operator’s warehouse. From our experience, this is exactly how good partner cooperation can really take off.

Checklist: How to Compare 3PL Operators’ Offers?

Download the full checklist - The 84 Questions You Need to Ask

The Checklist is available only to our newsletter subscribers.
Enter your email address to sign up and download it.

By downloading this PDF, you are joining the Omnipack newsletter.