Pick a 3PL That Can Grow With Your Business

Editor’s Note: Norman Katz, president of supply chain consultancy Katzscan Inc., writes a monthly column for Supply Chain Management Review. Katz’s column appears on the third Monday of each month.

Choosing a 3PL (third-party logistics provider) can be a smart decision for many consumer product companies that want to outsource fulfillment and distribution functionality rather than bear the cost burden to invest in their own warehouse operations. But where your company is today, and where it is destined to grow, can and should be part of who you pick for your 3PL partner.

Essentially, there are three types of business models that brands need to consider:

Direct-to-consumer (D2C or DTC). In this business model, the brand is selling its products direct to the consumer, either through a retail store and/or through an e-commerce website. There is no intermediary between the brand and the consumer; the brand owns the customer. A fulfillment 3PL would typically be engaged for this business model.

Business-to-consumer (B2C). In this business model, the brand is selling its products to consumers, but the customers do not belong to the brand; the customers belong to a retailer who is the intermediary between the brand and the retailer’s customers. The retailer owns the customer, and the retailer passes the customer’s order to the brand. The order can be shipped to the customer, to the retailer’s store for customer pickup, or to the retailer’s distribution center to be then conveyed to its final pickup or delivery destination as designated by the customer. Either a distribution 3PL that can also offer fulfillment, or a fulfillment 3PL that can also offer distribution would be options.    

Business-to-business (B2B). In this business model, the brand is selling its products to the retailer who then sells them to the retailer’s customers. The brand ships to either the retailer’s distribution centers (most likely) or to the retailer’s stores (less likely). The retailer owns the customer relationship just as in B2C. A distribution 3PL would typically be engaged for this business model.

When it comes to supply chain vendor compliance and adherence to technical (e.g., EDI – electronic data interchange, barcode labeling) and operational requirements, the different business models have different degrees of adherence levels.

• B2B: Highest level of vendor compliance

• B2C: Lots/some level of vendor compliance

• D2C: No vendor compliance

Some brands start off building their companies in a D2C business model, proving their products, and then winning their way into retail. While the brand may be loyal to the 3PL that got it to be the D2C success that it is, that same 3PL may not have the software systems or experience or desire/capability from a business model perspective to handle retail vendor compliance.

And then there is the geographic consideration: several retailers require product shipments to their east coast distribution centers (and possibly direct to their stores, too) to be done from east coast facilities, and likewise, product shipments to their west coast distribution centers to be done from west coast facilities. For brands that need to source a 3PL, what’s the reason? If B2B is on the horizon, does the potential 3PL pick have the locations to support growth into this business model?

For 3PLs that have only one location or have only locations in a restricted geographic area, (e.g., are only on the east or west coasts), knowing this retailer requirement shouldn’t be a growth constraining factor: find and reach out to other 3PLs like yours but who are on the other coast and form a cooperating agreement, creating integrations between your software systems, becoming strategic 3PL partners.

The use of a 3PL offers flexibility and scalability while bringing fulfillment and distribution expertise and at the ready software systems. But just like not all brands make every consumer product in their vertical, let alone in the market, not all 3PLs are set up for all logistics business models. Interview potential 3PLs just like you would interview potential employees. Sometimes it’s okay to select a 3PL to grow with now that you might outgrow later, just like your software systems like ERP (enterprise resource planning). But there is a difference between knowing and not knowing, and as long as you know before you enter into the relationship, you’ll be better positioned for your company’s growth and business decisions when the time comes to make them.

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