DTC #102: Reduce operational nightmares with 3PLs
Processing orders is an operational nightmare. Products are manually picked up, packed, labels printed and stuck, and shipping arranged. It is the single biggest hurdle to scale up order volumes.
👋 Hola! Welcome to Out of Singapore. This newsletter is a behind the scenes view of setting up and scaling a business. I talk about DTC brands and growth marketing.
Four months back, our supplements brand started scaling rapidly. 10x-15x more orders daily. We had started Tiktok livestreams, and it did majestically well. But, it made my life hell. Some orders were missed, some orders were delayed, and some orders didn’t have inventory to fulfil. I had recently onboarded a 3PL service and it turned my life into a living hell for 1.5 months.
I engaged another 3PL to help with all these problems. I had been wary of this new 3PL since they work like a corporate, responding between 10am-6 pm and using tickets and emails to talk. However, I took the chance and engaged them. After all, how worse could it get?
This is how we will go about the story today
What is a 3PL service?
Why are 3PL providers necessary evil?
When 3PL providers fail?
How much do they cost?
Which 3PL service do we use?
Before we get started, let me give you a step by step view into order processing
Order is received on Shopify. Email notification goes to fulfilment staff.
Fulfilment staff will print the orders every morning - packing list, invoice and shipping labels (more on this in next point).
Shipping labels - Two ways of doing this. One is to manually book shipments on shipping carrier websites such as DHL, Ninja Van and Qxpress. Second is to use a third party such as OneShip (in Singapore) and Shiprocket (in India).
Items are picked and packed into cartons. Bubble wrap and other customised packing instructions are implemented at this stage.
Shipping labels are pasted on the cartons ready for dispatch.
Pick up or drop off - Items are either picked up by the shipping providers (if you have decent volume) or you have to drop them off at specific locations.
Issues with delivery are handled on email. Urgent calls to their offices makes no difference. Address update, change and wrong delivery are handled on email.
Lost and damaged shipments are eligible for claims from the shipping provider.
With this background, let’s get started.
#1 What is a third-party logistics provider?
If you read the order fulfilment steps, you know it is highly manual task. Everything has to be done by hand, everyday.
When order volumes spike, either the same person has to work more or we hire new people. Both situations has people problems (overtime or training new staff and monitoring errors).
Third party logistics come in handy to help with fulfilment operations. They take care of these -
Warehousing - Store your goods in specified conditions.
Pick and pack the items for each order and pack as per instruction.
Book shipments with shipping providers and hand them the boxes.
Liaise with shipping providers for any issues with shipments.
In short, all work an order confirmation is handled by a 3PL provider, except customer service.
#2 Saves brand from daily operational nightmares
DTC brands by nature of business (cash flow) are lean, operated by 5-10 staff. 3PL save the day by
Save warehouse leasing costs - 3PL share the warehouse space with several small brands to save on large fixed cost of leasing a warehouse. We pay less than 500 SGD per month on storage.
Reduce daily operations - 3PL shield the brand from daily fulfilment operations by taking care of entire process from order receiving to delivery.
3PLs provide better shipping rates. 3PL provide get bulk discount from the shipping providers, a part of which is passed on to the brands.
3PLs provide flexible selection of shipping providers - Shifting to new shipping provider is whole new pain. With 3PLs, one can achieve this is one email. Sometimes, you can change the configuration on their web platform without need for emails.
Inventory monitoring becomes super simple. Stock levels are shown in a simple dashboard, which would otherwise mean purchasing an WMS (warehouse management system). WMS systems are beyond the means for DTC brands.
All of these services, streamlines the fulfilment process. The staff on the ground are trained well. All due processes are followed (generally).
Finally, outsourcing fulfilment to a third party reduces people friction in the office and keeps the brand staff sane. Imagine fulfilment staff coming to you everyday complaining about extra volume they have to process. Or discussing overtime charges with the CFO every few days. I would rather outsource this (headache) part of business.
#3 When 3PLs fail?
Remember the 2 month hell in October and November? Let’s see how 3PLs can be a hellish experience for a brand.
To start off, the brand loses control over the inventory and fulfilment process. 3PL serves multiple brands, meaning processes are standardised to reduce time spent on each order. You cannot ask orders to be processed at 4 PM, they will be processed only in the morning.
Customisation is time consuming and expensive. Imagine you want to send an apology letter to a customer for delay in shipping. A 3PL will charge you at least a dollar to do this. If you want to change the shipping method for an order, it is near impossible since you communicate via email. Want to ship out gifts or attach different gifts for different types of orders - god save you 🙏.
Order monitoring is responsibility of 3PLs. Unfortunately, time and again you will face issues with orders just lying packed in the warehouse and not handed over. This means, even when you outsource to 3PLs, someone from the brand has to monitor orders almost everyday.
Finally and most crucial - integration with ecommerce platforms and shipping providers becomes a bottleneck while working with 3PLs. If you are Shopify, you will be mostly be fine. However, if you are using any other platform, god won’t save you. Our current 3PL doesn’t have integration with the best shipping provider in Singapore and our order delivery time is 3 days instead of 1-2 days. Imagine!
#4 How much 3PL cost?
3PLs don’t charge a fixed fee. They have a cost structure for the services provided by them. Here is what most 3PLs structure the cost
Storage - They charge basis per cubic metre space taken on the warehouse floor. This is variable and depends on how many cartons you store with them. This cost can be low or very high depending on how much you store with the 3PL.
Receiving cartons or pallets - Each time you send them your goods, they will charge a fee per box or per pallet.
Pick and pack of orders - This is interesting. They charge a high amount (2-3 SGD) for picking up the first item of an order. From second item onwards, they charge a lower amount (0.5 to 1 SGD). This is the 30-40% of 3PL cost for a brand.
Shipping fee - This is the price 3PL pay to shipping company such as DHL. This is about 40-50% of 3PL cost for a brand.
Promotional inserts - Sometimes you receive a flyer or promotional insert inside your order. 3PL charge a fee for each insert (only some do not).
Special projects are charged by hourly fees. This covers gift packing, special packing for some SKUs and seasonal packing requirements such as new boxes or box sleeves.
#5 Which 3PL do we use?
Haha, so finally you are here. Let me spill the bean here. We have used 5 different 3PLs across markets.
For Singapore
LOCAD - This is our current trusted 3PL. They were very slow and we requested for a Whatsapp group for more attention for our brands. They obliged and we are happy now. Their UI and systems are unnecessarily complicated, however the service is best in South East Asia. You can use them in Singapore, Malaysia, Philippines (home market) and Vietnam (maybe).
OneWarehouse - They have a good UI but pathetic tech integration and operations. Nobody monitors the orders and you will end up crying each day. I pulled out within a month after I started working with them.
For United States
Shipmonk - US has tons of 3PL companies. However, they all impose a minimum order volume of 1000 orders per month. Shipmonk was the only decent 3PL provider which did not have order limit and instead has minimum billing of USD 250 per month. They are present in US, UK, Europe, and Australia. The tech is good and issues with orders are well handled.
Other 3PLs - ShipBob and ShipHero are the most famous one. You can find more on this list I created few months back. Most of them operate in US, Canada, UK and Europe.
Are you looking for 3PL from other markets? Email me and I can help you find a trusted one.
That’s a wrap for this week.
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