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Warehousing & Fulfillment

Why SLAs – and True Partnerships – Matter When It Comes to Outsourcing Fulfillment

Warehousing & Fulfillment
July 7, 2023
9 min read
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Growing businesses outsourcing fulfillment can considerably reduce their costs, mitigate risks, and leverage fair Service Level Agreements (SLAs). Additionally, outsourcing logistics allows brands to focus on revenue drivers such as product innovation and growing sales channels- while automation takes care of the supply chain.

Finding a quality outsourcing fulfillment provider that can accommodate your product needs, service all of your sales channels, and reach all of your customers is difficult.

This is especially true if you’re not sure what “great” should really look like in the warehousing and fulfillment space. Even then, you may find it difficult to find a partner that keeps your business top of mind if you’re not yet a large merchant with substantial shipping volume.

What does outsourcing fulfillment look like?

Outsourced order fulfillment is a go-to tactic for growing businesses to optimize and specialize. By outsourcing fulfillment, retailers trust a third-party logistics provider (3PL) to be the expert in warehousing inventory, the pick and pack process, and final mile delivery. Let’s take a closer look. 

 

Here’s how outsourcing fulfillment works:

 

Outsourced fulfillment begins with the business owner or retailer sending their inventory to the 3PL’s fulfillment center, where it is received and shelved until an order is placed. When a customer places an order, the 3PL picks, packs and ships it directly to the customer’s doorstep.

 

The 3PL manages all aspects of fulfillment, including order processing, inventory management, order tracking, and returns handling. The right 3PL should utilize an advanced warehouse management system (WMS) to efficiently manage inventory, pick and pack orders accurately, and choose the most cost-effective shipping method.

 

Outsourcing fulfillment to a 3PL offers several benefits to growing brands, such as: 

 

  • Reduced labor and infrastructure costs 
  • Improved scalability
  • Faster order processing times
  • Access to advanced technology and expertise
  • The ability to focus on core business activities rather than logistics

Furthermore, by leveraging the 3PL’s existing infrastructure and warehouse network, businesses can expand their reach and serve customers in different regions or countries more effectively. Lastly, when partnering with a 3PL, retailers will likely have to sign a Service Level Agreement (SLA).

What Are SLAs?

 

A Service Level Agreement (SLA)  is a contract between a warehousing provider and its customer that defines the level of service to be provided. It outlines the terms, conditions, and expectations agreed upon by both parties regarding the warehousing services.

 

SLAs typically include details such as performance metrics, service standards, service levels, responsibilities, penalties for non-compliance, and dispute resolution mechanisms. The SLA serves as a written document to ensure clarity and transparency in the warehousing relationship and to protect the interests of both the customer and the warehouse provider.

 

The question for mid-sized brands is: What level of service should you expect from your 3PL? To get the answer, watch the video below:

 

Why Mid-sized Brands Often Struggle to Get the Best SLAs

While fast-growing companies may outsource warehousing to 3PLs, the SLAs they’re offered are often less aggressive than those provided to firms with greater scale.

 

Traditional 3PL warehouses might consider a business that ships less than 100 orders a day as a “C-list customer”. In that case, the 3PL warehouse may only guarantee 90% on-time fulfillment performance during negotiations, if they guarantee performance at all.

 

Yet the industry standard for on-time outsourcing fulfillment – one of the most important SLAs, often required by eCommerce marketplaces – is 95%.

 

Such SLAs lay out agreed-upon outsourcing fulfillment timelines. For example, if you get this order in at X time, we’ll have it out by Y time. At Ware2Go we’re strict on this: Our on-time fulfillment SLA specifies that if a customer places an order by 3:00 p.m., we can make it available for UPS pickup that same day.

 

We’re consistently at or above 99% on-time fulfillment, with expertise in fulfillment for mid-sized companies. This is because Ware2Go consolidates volumes through co-warehousing and has tremendous capacity due in part to partnering with big retailers like the GAP

 

SLAs definitions mid-sized brands should know

 

When choosing the right 3PL, ask about these SLA definitions before you sign the dotted line:

 

  • Fulfillment accuracy, which measures the extent to which customers actually receive the products they order – and in the right quantities;
  • Dock-to-stock time, which is the time between the product’s arrival in the warehouse and the time it is stored to fulfill outbound orders; and
  • Cycle count accuracy, which is the extent to which the warehouse management system reflects the products that are physically there.

Top-Tier Performance Requires Serious Partner Vetting

Strong partnerships enable emerging brands to get the best performance and experience from their warehouse partners. Finding great partners starts with decision makers doing their research – a lot of it. We often hear from merchants that they didn’t realize how much detail goes into choosing the right warehouse and outsourcing fulfillment provider for both short- and long-term needs. Learning to “talk the talk,” understand the pricing model, and planning for the day-to-day management can be an overwhelming task, especially when your main focus is on growing your sales channels and not warehousing operations.

 

It’s also important to understand and ask potential warehouse partners about their key performance indicators (KPIs) and adherence to SLAs. Understanding their on-time fulfillment performance, pick and cycle count accuracy, and dock-to-stock times helps merchants understand a warehouse partner’s ability to execute.

 

A warehouse visit is also an absolute must. At Ware2Go, our warehouse visits include completing a 100-item checklist to ensure potential customers are a good fit for a given warehouse. Objectively, we address topics such as:

 

  • Does the warehouse have thorough security processes and contingency plans?
  • Do they show indicators of being well managed and detailed in their work?
  • Do they have strong safety measures in place?

Considering culture is also extremely helpful in vetting potential partners. When we walk around a warehouse, we note whether associates are smiling or if they seem miserable. We’ve visited so many warehouses that we know what to look for and sometimes it’s as simple as asking yourself if they say hello when you walk by or look down at the ground.

 

Staff tenure also speaks volumes. High turnover signals that there are issues with management and employee morale. When you’ve got people who just don’t care handling your product, customers get the wrong items, and inventory walks away. Conversely, high employee morale leads to people taking pride in their work.

 

The financial stability of warehouse operators is also key. Merchants need to know that its 3PL will be viable for the future. Knowing how to gauge if they have solid financials is so important – especially in the current economy.

Partner Onboarding and Ongoing Communications Are Vital

For Ware2Go, once we get a warehouse certified, we assign an operations excellence (OPEX) manager on our team to oversee that partnership relationship. These managers typically have eight to 12 years of experience managing warehouses in fast-paced outsourcing fulfillment.

 

They spend ample time and attention onboarding warehouse partners, making sure they get up and running smoothly. After onboarding, they provide daily oversight of the warehouses, addressing merchant and warehouse issues as well as providing strategic guidance. It’s a consultative approach, and it includes the operations excellence managers sharing best practices with warehouse partners.

 

Finally, OPEX managers perform monthly reviews and site visit audits with our warehouse providers. That includes reviewing KPIs and SLAs, discussing performance and areas of improvement, and getting partner input.

Everybody Benefits When Outsourcing Fulfillment Partners Collaborate

Strong warehouse partnerships allow for greater responsiveness to customer needs. That can add up to new opportunities for warehouse providers and the merchants who warehouse with them.

 

Here’s one example of how that has played out:

 

A large nutraceuticals company approached us last spring with specific storage and distribution requirements. The company’s protein powders, supplements and other products require a climate-controlled environment. But warehouse facilities with temperature and humidity control can be hard to find in the United States.

 

We and one of our warehouse partners saw this as an opportunity. We helped run the economics of this request, and our warehouse partner agreed to invest significant dollars to retrofit its facilities to accommodate it.

 

Just two weeks later, another nutraceuticals opportunity came to us – and it was four times larger than the first. This company had just six weeks to get out of its existing 3PLs facility.

 

We asked our warehouse partner to consider broadening the footprint of its environmentally controlled warehouse operation. So, this effort expanded to well over a half-million-dollar investment. Within the six-week timeline, Ware2Go and our warehouse partner worked together to stand up rack space, get staff in place, and install temperature and humidity control systems. It was quite the feat, but we ended up going live a week earlier than anticipated. This is a testament to the fact that strong partnerships enable businesses to get things done.

 

We hold our warehouse partners to high standards and build relationships that work to make each other better. We approach new growth opportunities together, and this creates great benefits for our mutual clients. The business model provides merchants with economies of scale, more flexibility and better SLAs.

 

That’s why it’s so important for growing brands to select the right warehouse partners. If mid-sized businesses can’t get their products to their customers quickly, they lose business. However, by outsourcing fulfillment team members can focus on core competencies and rest assured that their warehouse partner will meet their warehousing needs. To learn more about how Ware2Go is creating true partnerships with businesses of all sizes, watch our On Demand Video Series. To learn what a partnership with Ware2Go might mean for your business, reach out to one of our logistics experts.

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