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Sent Items #117: Sunday, August 29, 2021

Hi All!

Here I am just a week after Issue #116 where I made the promise to release these at more regular intervals. In lieu of simply syndicating interesting news articles, my hope is to address a specific topic in the eCommerce-Logistics world, followed by a few timely articles I have found interesting as well. **SKIP TO THE BOTTOM IF YOU ARE ONLY INTERESTED IN ARTICLES!!**

I wanted to start this series with a topic I spend much of my day discussing: 3PLs and eCommerce fulfillment. Here is a piece I’ve titled: Service Over Price Is the New Norm.

Service Over Price Is the New Norm

I don’t believe there are any “BAD” 3PLs. Breaking news!! Headlines! 

The fulfillment space is rapidly evolving. By some estimates there are 10,000 3PLs just here in the United States. The US eCommerce fulfillment market is expected to total $95B in 2024 as the number of retailers who outsource fulfillment activity grows by 50%.

The market is highly fragmented, replete with mostly decades-old incumbents (i.e. “traditional players”). Try Googling “ecommerce fulfillment” or “how to fulfill Shopify orders” and the first page of results are all paid ads by 3PLs and 4PLs. , many modern eCommerce-born providers, and several much younger upstarts. 

This is where Second Marathon fits into the ecosystem in our ability to provide transparency, authenticity, and wherewithal into this opaque market.

Unfortunately the reach of a people-intensive agency is limited.

All this is to suggest there really isn’t much neutral, unbiased, content or sources to help one make this very important decision. Unlike a dev shop or marketing agency, switching 3PLs (or moving to your 1st) is always messy. Significant switching costs - both operational and technical - and barriers to exit with adverse contract terms and business contingency risk on the way out. Making the right decision today is of paramount importance.

This year we are on track to conduct 3PL searches for about 40 brands. When we lead warehouse searches one of the first questions we ask our Client is what they are looking for in their next 3PL partner. Unequivocally, over the past couple of years the most important factor in what brands have been seeking with their next (or first) partner is service. 

This is a fundamental shift in what’s important to brands, where it once was price, then became price, and then moved to price :-) Today it’s account management and service. A good friend of mine, Jay B Sauceda, likes to say that fulfillment is really the business of exception management. What happens when things inevitably go awry, 1 or 3 or 5 percent of the time? What is the escalation process? How quickly are problems addressed? This is the fundamental question that emerging brands are focused on today. 

We facilitate virtual or in-person warehouse tours with brands all the time. Most warehouses are the same. They have 4 walls, a roof, Big Ass Fans, humans pushing baker racks around, occasionally robotics, conveyance, shelving, and obsolete performance metrics on disregarded whiteboards around the facility. The only nearby lunch options are Wawa, Sheetz or Waffle House. The point is they’re all pretty much the same. What is hard to see on the periphery - culture and service - is most important to a successful partnership. 

Warehousing has historically been commoditized. This is largely due to the predominant need which was B2B/wholesale which innately requires a lot less dynamism. There are literally 1000’s of providers spread across your favorite suburban and exurban getaways, moving pallets in and out at predetermined cadences. 

The demand for eCommerce fulfillment is increasing, and direct to consumer is about as different as it gets from wholesale with respect to unpredictability and client and consumer demands. Many 3PLs, particularly the “incumbents” lack empathy when working with the modern brand, its founder and operators. Heck, as a “middle-aged millennial” I find myself often out of touch with the Gen Z approach to business and need to lean on them to combat my biases. 

We find the best way to understand a 3PL’s culture, service and exception management prowess is moving beyond their sales teams and meeting the people at the facility you are considering. These individuals, operators, will be incredibly important partners to you and your brand as you will likely interact with them on a day-to-day basis, rely on them to perform the services you have aligned on, and whom you will work with to solve problems when they arise. 

To that extent, we recommend approaching this step as if you were interviewing the team at the 3PL facility to join your own internal team, applying the same principles and values of your own internal hiring process. 

While the culture fit question is something that is unique to each brand, and as a result something you will have to assess independently, we encourage brands to meet with three key groups of people - Facility Director/GM, Operations Lead, Head of Account Management - and ask the following tactical questions to help assess the operational know-how, problem solving and people skills we find important:

Facility Director / General Manager

  1. Who else is in the facility - what type of brands, size (in terms of order and storage footprint)

  2. How much space do you have for our brand to grow into? What are their expansion plans?

  3. What are your typical operational Service Level Agreements (SLAs)? How often do you meet them?

  4. What is your approach to staffing? What percentage of full-time, part-time and contract employees exist within the facility?

  5. How are you able to scale up your workforce for unexpected demand (i.e. when actual orders exceed forecasted orders)?

Operations Lead
  1. What are your general inventory management practices - how do you ensure inventory levels are accurately maintained?

  2. Who are the operators - who leads inbound receiving and outbound order processing? Will you be able to talk to these people when things go wrong? Treat these conversations as if you were interviewing a potential hire for your own operations team.

  3. How many shifts do you run?

  4. What are your typical hours of operation? Do they change during Q4?

Account Management
  1. What is your general approach to account management? 

  2. Who will you talk to when you need to take an urgent action (i.e. cancel or change an order)?

  3. What form of communication works best for you?

  4. What is an example of an unexpected problem you have faced and how did you resolve it?

  5. What hours are you available? 

Other things you can do:
  1. Ask for a demo of their Client Portal - where do you go to see outstanding orders? How do you track their performance? What reports do they offer out of the box?

  2. Visit the facility -  if possible, make a trip out to the facility you are considering to meet the team and gain an understanding of the questions outlined above.

  3. Speak with other brands in the facility you are considering - these may be different references than you are initially given and may have more insight into what your future holds as well.

This all provokes me to wonder if there is potential for a more neutral source of information, something that is both scalable and practical for operators and partners alike. Musings for another time….

Somewhat unrelated to the above, we are hiring at Second Marathon. Here’s the Job Description [link]. If being part of a crew that thinks a lot about the above topics sounds interesting to you or someone you know, please share!

Finally, here are several articles I found interesting and relevant:

  • Like death and taxes, shipping rates continue to rise. On 8/29 new USPS rates kicked in for the second time this year. This rate increase targets “market dominant” products such as stamps and letters (not packages). Christmas cards will now cost $0.58 versus $0.55. [link]

  • Timely with my piece above, GEODIS announced a new initiative called “eLogistics” targeting emerging, high growth businesses - far smaller than their typical market - and promoted as “New School Logistics with [80] years of expertise” [link]

  • Here’s a longer from piece on a Utah manufacturer of Spas that depends on a complicated network to bring materials from across continents and oceans to consumers in the United States. Great overview of the trials and tribulations of today’s global logistics. [link]

  • This last one hits closer to home as some of you know I pursued the FedEx Ground contractor model a few years back. This story follows a large broker in the space and details this very interesting “derivative” business of the growing eCommerce parcel delivery needs. [link]

- Matt

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© 2021 Second Marathon Consulting, LLC
Matthew Hertz is the founder of Second Marathon.

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