Marketer, social media influencer, and CEO of Bella All Natural, a vitamin store chain in Los Angeles.
One of the most important decisions you can make in online business is picking a fulfillment center. Fulfilling orders yourself isn’t always scalable; it quickly overwhelms individual entrepreneurs and small businesses as the business grows. It’s beyond the realm of most small businesses to build or buy a warehouse and set up large-scale fulfillment operations.
A solution is third-party logistics companies, or 3PLs. A good 3PL handles inventory tracking, order fulfillment and shipping, leaving the rest of the business to you. There are plenty of companies out there offering these services, from Amazon to Rakuten, so picking the right one for your business is a critical decision.
Step 1: Organize your data.
The biggest problem many small businesses encounter is disorganized data. When you’re looking for a fulfillment center, you need to provide the company with information so that it can give you a proposal for its services, fees and features.
Brent Dykes published an article a while back explaining the problem and how to solve it at a conceptual level. Essentially, you need to make sure that you’re always pulling your data from a single authoritative source and using that source to sync across other locations that use the data.
What kind of data will you need to give prospective fulfillment centers?
• Your SKU list: The number of different SKUs you sell determines how much storage space the fulfillment center needs to dedicate to your products.
• Your order volume and history: The volume you sell on a daily, weekly and monthly basis can be important data for the fulfillment center to know what scale it’s facing. It doesn’t need extremely granular transaction histories, just something that shows a distribution of which SKUs sell in what volume over what period.
• The weight of your products: Products under 16oz have the same shipping rate anywhere in the U.S. Over 1lb and things get crazy. This will tie into step two as well.
When you compare proposals from several different fulfillment centers, you’ll want to make sure you’ve given all of them the same data to form their proposals, so you’re comparing apples to apples.
Step 2: Determine a fulfillment center location.
Where do you ship most of your orders? For example, I run a business in California and primarily ship to the West Coast. It makes sense for me to find a fulfillment center located in the western U.S. If you ship mostly to the East Coast, you may want a fulfillment center somewhere like Virginia or Kentucky.
Once you know where your orders are mostly going, you can start looking for fulfillment centers in that area. Some national logistics companies have distribution centers across the country (and around the world), while others are located in specific zones. If a smaller fulfillment company with only one or two distribution centers has a good proposal, that can be a great option, at least until your brand grows beyond its scope.
Step 3: Find fulfillment centers in your niche.
Some fulfillment centers work with specific kinds of products. It wouldn’t make sense for me to use a company that primarily ships heavy machinery, since my products are mostly small health items. Likewise, I wouldn’t want to work with a company specializing in large volumes of single items, since my store contains dozens of products.
When you identify fulfillment centers that fit your criteria, contact them for a proposal. Ask what data they need, provide them with that data and analyze their proposals.
Step 4: Analyze the proposals.
What you’re looking for is an alignment of benefits. It’s best if the company works in your niche, but it’s also okay if it operates in the same broad category of fulfillment.
Additionally, I recommend checking what company the fulfillment center uses for shipping. Often, a fulfillment center will have a contract with a specific shipping provider. If that provider doesn’t have full coverage over the area where you sell and ship products, it won’t be a good fit for you.
With the data provided to you on rates and fees, run sample calculations. How much would it cost you to use this center over what you’re currently using, for the previous month of sales? How much will it cost if you continue to grow, and at what point do the fees increase? Are there thresholds you want to stay above (or below) in terms of sales volume to keep the best pricing?
If you’re using any specialized tools for order processing, make sure the fulfillment center integrates with its data feeds. Just about every center will handle your typical Shopify data, but more niche platforms might have a harder time.
Step 5: Make your selection.
Once you’ve checked out the proposals you’ve received, it’s time to make a selection. Just remember to be realistic with your expectations. You don’t necessarily need a global company with worldwide coverage when you don’t expect to expand beyond the southwest U.S. any time soon.
Make your choice and work with that company through its onboarding process. With luck, you’ll have a long and fruitful relationship.