Chad Rubin is an Entrepreneurs' Organization (EO) member in New York and CEO of Think Crucial, which provides a convenient, affordable way to replace crucial items in your home. He's also the founder of Skubana, a platform for multichannel brands and retailers that powers orders, inventory and business intelligence. We asked Chad what factors went into the decision to change from in-house warehousing to outsourcing this function. Here's what he shared:
Boxes tumbling off shelves. Hours hunched over inventory spreadsheets. OSHA compliance issues.
This wasn't how I envisioned spending my workdays!
It all started with my parents' vacuum cleaner store. I helped them establish an online presence--and tripled their order volume year-over-year.
Building on that experience, I established my own direct-to-consumer brand, Think Crucial, which started to grow exponentially.
However, our warehouse was crumbling under the workload. I spent more time trying to manage 30 warehouse employees than capitalizing on the momentum of our business growth. Our warehouse structure was no longer sustainable for scaling, so I made the critical decision to outsource fulfillment to a third-party logistics warehouse (3PL).
Many brands run into these issues because they take the same approach I did:
- Launch your business with an in-house warehouse to get off the ground.
- Grow your business and generate profit.
- Expand to a 3PL to scale and reduce costs.
The timing of the last step can be a challenge--most don't realize they need to outsource fulfillment until their process is failing. Or, they won't consider using a 3PL because they are so ingrained in inefficient practices that the transition becomes a daunting task. But proactively outsourcing fulfillment to a 3PL in the early stages of your business helps reduce overhead costs, provides a runway to scale, and most importantly, gives you back your time.
When selecting a 3PL, you want to ultimately partner with one that is equipped to support your goals, but defining this requires you to align on specific aspects of your business before starting your search.
Here are five factors to consider before choosing a 3PL partner:
1. Know where you are and where your business is going
Identify which channels you want to expand to, how many SKUs you plan to have, any new product categories you plan to develop, and your forecasted monthly order volume. These are all factors that build your set of business requirements for choosing a 3PL partner.
Before I went looking for a 3PL, I outlined the problems I was trying to solve and the problems we could potentially face in the future. It helped whittle down my initial list to a handful of 3PLs that could meet those challenges.
2. Detail the diversity of your shipping requirements
The name of the game today is "direct-to-everywhere"--strategically expanding and selling on every online and physical retail channel your customers are buying on.
The challenge is that each channel--including e-commerce platforms, marketplaces, B2B, wholesale, retail and pop-up shops--has its own shipping complexities. Know which channel is most important to you, and use that to determine your 3PL partner.
Our company sells on 15 different channels, so I prioritized diversity in shipping services with my warehouse mix. We couldn't find one 3PL that checked every box, so we use multiple 3PLs to fit our needs (which is also an option to explore).
3. Dig deep on pricing
There's a price for everything when shipping through 3PLs: the number of orders shipped, the number of items picked, pallet storage, packaging, inserts--the list goes on. Use your requirements to outline storage and service needs with each 3PL, calculate anticipated costs, and determine your potential savings with each partner.
Price was a major deciding factor in our 3PL selection. Our products don't require a lot of handling, but we have high order volumes and require Fulfillment by Amazon (FBA) prep services, which influenced our pricing discussions.
4. Get zonal with your warehouse footprint
Identify which cities and states the majority of your orders originate from and prioritize 3PL partners with warehouses in those areas. Strategically picking these locations across the US will keep these cities within lower-priced shipping zones, get products to your customers quickly, and provide two-day shipping without incurring two-day shipping costs.
For me, it was vital that we could quickly fulfill in the Northeast but were also prepared to address the increasing demand we were seeing in the West. Our current distribution helps us reduce freight time and shipping rates across the US with just two warehouses.
5. Don't forget about data
If you are outsourcing to a 3PL, you still need to have some fundamental warehousing processes in order:
- Master SKUs set up for all products
- UPC codes and barcodes tied to all products
- Careful tracking of inventory costs for costs of goods sold (COGS) and profitability reporting
The last point is especially critical. You want to have a system that can combine the data from your 3PL with your sales channels, manufacturers, and any other warehouses in your network.
I couldn't find a system that met all of our needs, so I created my own--which led to my starting a new company. Ultimately, this system enabled us to accommodate the multichannel and multi-warehouse setup we established. Make sure you have the right tech stack powering your business, or you might run into challenges establishing a new warehouse model.