Photo by Andy Li
TL;DR: What to Expect from this Episode
Are you ready for third-party logistics? 3PL services like Outerspace manage all of your operational needs, dealing with inventory, warehousing, picking, and packing.
You can move from your garage to a professional environment without worrying about staff costs and eyewatering commercial rents.
But it’s not for everyone.
The purpose of this guide is to help you understand when you’re ready for 3PL and when you should wait. I spoke with Ricky Choi, the co-founder of Outerspace, to address questions such as:
How does 3PL work? What is third-party logistics, how does it work, and how can companies in this sector help you with your operational needs?
When is my business ready for third-party logistics? At what point should you stop trying to make do with the limited resources you have and start looking for outside help?
What sort of benefits will it provide? What are the benefits for small, medium, and large companies and how do these benefits differ across different sectors?
What should I look for in a 3PL company? Price is the thing that most businesses focus on above all else, but there is something much more important, something that could make or break your business…
What about Amazon? There are a few questions to address on the subject of Amazon and all will be covered here, including how Amazon FBA differs from other 3PL services and whether or not you should seek to offer 2-day, 1-day, and even same-day delivery just like Amazon Prime.
What sort of questions should I ask? Ricky Choi knows what it takes to run a successful 3PL company and he lists a series of questions that you should ask a company like his to know if they are right for you.
To finish everything off in style, Ricky Choi has some priceless advice for companies looking into 3PL. It’s advice that could earn you over $100,000 in value, so make sure you read to the end.
Whether you’re an entrepreneur thinking about launching a business or an established business owner desperately looking for assistance, this could be the guide you’ve been waiting for.
Keep reading for more information.
Understanding 3PL: eCommerce Operations and Order Fulfillment
Ricky Choi is the CEO and co-founder of Outerspace 3PL, a third-party logistics company that works with several growing businesses across the United States, including some of my own clients and personal projects. He is an operational guru, and I was delighted when he accepted my invitation to come on the show and discuss DTC fulfillment, Amazon FBA, and general omnichannel 3PL.
If you’re a growing business struggling with existing operations, it’s an episode that you won’t want to miss.
You can watch the full interview with Ricky Choi below. In this accompanying guide, I will address some of the points that we discussed, highlighting the importance of eCommerce order fulfillment and why you should consider using omnichannel 3PL in your business.
What Is 3PL?
3PL stands for “third-party logistics”. It refers to a company that deals with eCommerce order fulfillment for brands that are unable or unwilling to do it themselves.
A 3PL company is experienced in areas such as inventory management and warehousing, along with order picking and packing. It allows a smaller company with limited space to sell, distribute, and store just like a much larger company.
3PL DTC fulfillment is something that Ricky Choi provides through his company, Outerspace 3PL, and we’ll discuss his company and its operations in this guide. But if you’re new to 3PL, one of the best ways to understand it is to look at the Amazon FBA model.
If you sell through the Amazon FBA platform, you just need to send all of your stock to Amazon, and they will arrange the order picking, packing, and shipping. Rather than struggling to manage hundreds of weekly orders out of your garage or basement, you’re letting Amazon do all of the work for you.
It has the infrastructure in place to manage everything effortlessly and while it will take some of your margins away, it will also free up your time and leave your eCommerce order fulfillment in good hands.
3PL is not just useful. In some cases, it’s essential.
Let’s go back to that example and imagine that you’re creating hot sauces out of your kitchen. It’s a part-time business for you and as you work full-time through the week, you devote all of the weekend to making and bottling your sauces.
Initially, you sell them through eBay and Amazon, relying on their infrastructure to promote you. You devote an hour of your evening every Tuesday and Thursday to packing the orders and begin to ship 20 to 30 packages a week.
Eventually, things pick up and so you decide to create your own Shopify store, invest in a marketing team, and start to push your brand. Before you know it, you’re shipping 300 orders a week and are devoting every minute of your evenings and your weekends to creating, bottling, and packing.
At this point, you really only have four options.
Quit your full-time job, devote yourself to your business, and hire someone to help you with the orders.
Reduce your sleep, cut back on your hours at work, and devote every holiday, weekend, and evening to your business.
Purchase a warehouse, hire staff, and assume a more supervisory role.
Work with a 3PL company to manage DTC fulfillment.
In reality, the first two options are not viable. If you have an established career and your business isn’t generating a significant profit, it would be reckless to quit your job. And I don’t need to tell you why it’s equally reckless to work yourself to the bone every day and sacrifice your mental and physical health!
Working with a 3PL company or doing it yourself are the only two viable options and it’s a decision that all successful small business owners will need to make at some point.
When Does 3PL Make Sense?
One of the biggest problems with small business owners is that they’re prone to overestimation. They make predictions that rarely turn out to be true and usually get ahead of themselves.
The same is true for eCommerce order fulfillment.
If you’re shipping a dozen products a day, it might feel like things are going well and it’s time to consider fulfillment, but it’s probably too soon.
Unless you have the experience and infrastructure in place, or your margins will allow for it, there shouldn’t be a need for 3PL at this point.
It becomes more important, however, when you start shipping several dozen orders a day and find that you just don’t have the time to manage them yourself.
At this point, you should consider working with a local 3PL, a mom & pop fulfillment operation, as Ricky called them. They are local and may offer a more dedicated and friendly experience. They are also set up to deal with companies that have up to 200 or 300 orders a day and will give you what you need until you exceed this amount.
Once your growth exceeds their limitations, look into multi-location or institutional 3PLs. These companies manage eCommerce operations for brands with up to 1,000 orders a day. They have middle management infrastructure and multiple locations, and this facilitates a smooth process for small businesses shipping products throughout the United States.
When you break this level, you can opt for a more dedicated and managed process or go and do it yourself.
Outerspace was created to provide somewhat of a middle ground between these choices and to offer another solution for companies at other levels. I would definitely recommend looking into them if you find yourself with more orders than you can manage and you are ready to scale up.
Whether you should do it yourself or opt for a DTC fulfillment company is a massive decision to make. On the one hand, doing it yourself will give you more control, limit outside involvement, and allow you to keep more of the profits for yourself.
But to reach a point where it becomes cost-effective, you’ll need to make a massive initial outlay, and that’s an expense that some businesses just can’t afford.
Unless you have rapid growth, lots of profit, and/or some generous investors behind you, it’s best to stick with 3PL.
What Should You Look for in a 3PL Partner?
The cost of pick and pack is the thing that most people focus on, but according to Ricky, this is a mistake and there are more important considerations.
One company might charge a few cents less than another, but if you look at the difference it makes to a monthly bill, it could be infinitesimal, and what have you sacrificed to make such an insignificant saving?
Under-promising and overdelivering is the biggest issue with omnichannel 3PL companies.
Many companies are built to run cheaply. They promise the world with regards to attention, care, and customization, but they hire inexperienced staff, cut costs at every turn, and deliver a problematic service that ultimately costs you more than it’s worth.
To ensure you’re getting a company that will actually do what it promises to do, ask for a sample bill.
They can remove the client’s name and other identifying information. There should be no issues, and a legitimate and honest 3PL company will be happy to provide you with it.
A sample bill will give you a detailed overview of what the company actually charges.
Some companies charge low pick and pack fees but add a bunch of hidden fees that will cost you more in the long run.
It’s common, but it’s easily negated. Just ask for that bill, and if they refuse to send it, it’s a bad sign and suggests their bills are loaded with hidden fees.
Don’t listen to their excuses, no matter how valid they seem. If you don’t see the bill, you can’t trust the service and should look elsewhere.
How do they Deal with Holidays?
eCommerce operations aren’t consistent throughout the year. Demand may slow down during the Summer months before picking up sharply in the Winter. There may be a lull in the Spring and a rise in the Fall. And regardless of the product or niche, nearly all companies will experience a short-term surge during the holidays.
It’s important, therefore, to determine how capable the omnichannel 3PL is during Q4, when it’s not uncommon for 1,000 sales a day to turn into 10,000 sales a day.
What is their shipping like and are the packages making it to customers on time? If not, you’ll be the one left to pick up the pieces as angry customers query what happened to their Christmas presents and why their orders are taking so long.
Many 3PL companies will define a package shipped when the label is printed, so don’t ask them about holiday shipping times. Ask them what the carrier pick-up percentage was like. A package can be printed, packed, and prepared, but if it’s not picked up quickly, it could miss the holiday shipping cut-off deadline.
How do they Scale?
Can your chosen omnichannel 3PL grow with you? You don’t want a company that is pushed to its limits because you will outgrow it fairly quickly. Once you do, the operations will struggle, customers will be left disappointed, and you’ll be forced to pivot lest you miss out on a big opportunity.
If they can handle a maximum of 1,000 orders a day and you’re currently on 50, that’s fine. You have plenty of room and it’s unlikely that you’ll need to scale anytime soon. But if your current operations are already pushing them to their limits, it’s time to look elsewhere.
What About Customer Service?
Outerspace 3PL handles customer service, in addition to typical 3PL services. It means that it can handle some of the most common queries, the biggest of which is “Where is my order?”.
If your chosen 3PL company doesn’t handle customer service, it means that you need to liaise with the warehouse to answer this question. In simple terms, a customer asks you where their order is, and you have to ask someone else before you can answer them!
If the 3PL handles customer queries in addition to order fulfillment, it will be a massive burden off your shoulders and will leave you with more time to focus on product creation and marketing.
Should You Worry About 2-Day Delivery?
Amazon has raised the bar with Prime, but that doesn’t mean you need to deliver within 2 days. Customers might expect 2 days when ordering essentials from Amazon, but they tend to be more forgiving when ordering specialty products from smaller companies.
You can’t keep pace with Amazon. 2-Day guarantee is tough now, but soon it will be 1-day and then same-day. In fact, that’s already true for a lot of locations.
We’re talking about a massive global company here. Amazon does more sales in a day than the average small company will do over the course of its lifetime. You can’t compete with them and customers understand and acknowledge that.
Of course, that’s not true for all customers. Some will email you after 2/3 days wondering where their order is. Some may expect overnight shipping. But the majority will understand that it takes several days to get their order.
Why do Modern Brands Struggle so Much with Operations?
A few decades ago, the average founder was an educated individual with experience in their field. Tech founders were former developers or managers of tech companies. Commerce founders managed or worked within the retail space.
Just take a look at some of the experienced business owners I’ve had on this show in the past.
Kristina Bucaram spent years selling direct to customers in parking lots and college campuses, before eventually launching a business based around events and social media.
Nick Aldis was a pro wrestler with many endorsements and a wealth of industry experience before he focused on his own companies and brands.
Today, many founders are in their late teens or early 20s. Most are fresh out of school and they simply don’t have the operational experience.
The playbook for these entrepreneurs is to reach a certain point within the business and then hire an experienced operations manager, but by that point, it’s often too little too late.
As Ricky noted, there is very little operational horsepower within these companies, and it puts them on course for major disappointment.
That’s not to say that all young entrepreneurs are doomed to fail and need prior experience, but that they should plan better, think more about operations, and make sure those boxes are ticked before the business takes off.
Omnichannel 3PL can be a massive help to entrepreneurs in this position, but it can’t do everything and it’s not feasible to hire these companies when you’re only selling a few products every week.
The $100,000 Question
At the end of my discussion with Ricky Choi, I asked him for his $100,000 advice.
Whether you’re a young and inexperienced entrepreneur or an established business owner, it’s advice that you need to hear.
Ricky said that it all comes down to the perception of logistics, which needs to change.
Right now, it’s seen as a necessary evil, one that people only venture into when they feel like they have no other choice. They focus on doing everything themselves and maintaining control, even if it means they’re turning into factory workers when they should be focusing on marketing, public relations, and creative endeavors.
They don’t see it as an opportunity, but as something that they can fall back on if their initial approach fails, and that needs to change.
Operations is not just about managing the things that you won’t or can’t do. It’s about improving efficiency and retention; it’s about providing an optimum level of service on an operational level.
A good 3PL company won’t just make life easier by packing orders. It will also help to increase your customer lifetime value by providing the sort of experience that makes them return week after week.
Stop thinking about operations as a necessary evil and start seeing it as a direct link to a customer’s lifetime value. Once you tap into that, 3PL will start paying for itself and allow your business to grow and reach its potential.
If you want to learn more about logistics and how it can benefit your company, I recommended getting in touch with Choi’s company Outerspace 3PL. It’s a service I have used myself and one that I can personally vouch for.
If you need a little more info about starting, running, and scaling a business, take a look at some of the other episodes of This Week With Sabir.
With Matt Higgins, for instance, I talked about raising capital to launch your business or take it to a new level. The Shark Tank investor is perfectly placed to provide advice on sound investments and told This Week With Sabir listeners exactly what he looks for when seeking new investments.
If you’re struggling to get to grips with SEO-optimized content and product pages, check out my discussion with the SEO guru himself, Neil Patel. Neil Patel is a true master of SEO and used our 60-minute discussion to outline his process, the same one that has helped him to rank at the top of the search results for some of the most competitive keywords on the web.
And as always, make sure you stay tuned for future episodes of This Week with Sabir, as there are many more great guests coming in 2021.