Peak season is just a few weeks away, and brands are looking forward to a profitable holiday season. You have been preparing for this over the last few months. Did you know that your 3PL partner can make or break your holiday season success?
As your sales increase during peak, you should closely monitor how your 3PL is performing, and then as peak ends, conduct a post-mortem evaluation of your fulfillment operations. This evaluation can help quantify the stress that your operation is under and highlight areas for improvement.
You can also decide if it is time to switch 3PL providers. Issues like order accuracy can lead to extra fulfillment and shipping costs, lost revenue, or harm to your brand's reputation. Long turn times and/or delivery times also jeopardize your customers’ satisfaction.
By measuring your 3PL's performance and holding them accountable for mistakes, you can improve your order fulfillment and remove inefficiencies that could seriously affect your business.
Why should you measure your 3PL's peak season performance?
Peak season can bring a brand back to profitability (hence Black Friday). For some brands, the holiday season represents up to 34.5% of total annual revenue, according to Statista. While peak represents a significant portion of revenue, e-commerce holiday sales make up a larger portion.
In 2023, retail e-commerce accounted for 19.3% of total holiday spend but contributed 45.4% of growth contribution. (Source: eMarketer)
Meeting your customers' shipping expectations during the holiday season is significant. Your 3PL is critical to your customers' satisfaction. The performance of your third-party logistics (3PL) can be the determining factor for your holiday success or failure.
Is your 3PL partner meeting your requirements?
You should frequently monitor if your 3PL is meeting their SLAs, at least quarterly. An excellent way to do this is with quarterly business reviews (QBRs). QBRs give you a good sense of how your 3PL performs throughout the year. Hopefully the numbers look good in Q1-Q3, because Q4 will present more challenges with the increase in volume.
More importantly, QBRs may uncover potential issues that can be addressed before peak season starts. Not every 3PL conducts QBRs though.
You may not have benchmark data if you haven't had a QBR or are with a new 3PL. However, you should have some idea of what to expect. You can base your expectations on historical SLAs.
When you outsource to a 3PL, you play a significant role in the partnership. During QBRs (or the onboarding process), you should be asked what your current fulfillment looks like, what your pain points are, and what your expectations are. This is your time to educate your 3PL. Communication is key for a 3PL partnership to work.
What's your role in the 3PL partnership?
Information and communication with your 3PL is vital to their success. One of the main complaints from 3PLs is lack of information and communication from their clients. This is especially true for forecasting sales, particularly during peak season.
When planning your holiday sales, looping in your 3PLprovider is critical. This helps the 3PL plan labor, inventory accessibility, supplies, and more. Communication is important. During peak season, sharing information far in advance helps everyone involved.
Establishing Key Performance Indicators (KPIs)
Key performance indicators (KPIs) are a group of metrics that measure performance. For a 3PL, your KPIs should reflect your business needs and requirements. Once you have identified the KPIs that matter to you, you can assess your 3PL's performance.
Let's say that FEFO (First expired, first out) is an essential metric for your supplement business. FEFO can be tracked by expiry date or lot tracking. For the supplement industry, FEFO is a method of inventory management that many 3PLs can measure. If done correctly, your 3PLwill always ship products with the closest expiration date, ensuring that your inventory is always "fresh."
Another example is order accuracy. From your QBRs, you should have visibility into your order accuracy throughout the year. If your3PL provider has had a high order accuracy rate during the year, that’s a great sign, but again, everything is under stress during the peak season, and you need to be watching.
If that accuracy rate drops during peak season or busy times, it may show that your 3PL is having trouble. They might struggle with extra volume, labor, or poor warehouse management.
Watching how your 3PL handles seasonal changes can be an indicator of risk and if you have outgrown them.
6 Key Performance Indicators to evaluate 3PL efficiency during festive periods
- Lead time is required for an order to complete the fulfillment process. According to Contimod, 80% of shoppers want same-day shipping. As this consumer demand increases, lead time becomes more critical to customer satisfaction. This puts an enormous amount of pressure on 3PLs. They need an optimized warehouse to receive, pick, pack, and ship orders same day.
- Fulfillment cost per order is the total cost of producing, fulfilling, and delivering a completed order. Many factors go into this metric, such as labor, inventory management, packaging, storage, and shipping costs, to name a few. Understanding this metric is essential. It helps you set the correct cost per unit. It also shows where your 3PL may have missed cost savings during the holiday season.
- Inventory Shrinkage is a phenomenon where the stock levels at your fulfillment center decrease due to damage, mistakes in receiving/picking, or even potentially due to theft. The loss or damage of units leads to missed sales opportunities and irrecoverable capital investments. Many companies experience a rise in shrinkage rates during the festive season. Make sure that the 3PL is staying within their shrinkage allowance.
- Order Accuracy measures the 3PL's performance in shipping the correct product in the correct quantities. Monitoring this crucial performance metric enables you to establish explicit expectations with your service provider and comprehend the reasons behind any mistakes.
- Dock-to-Stock Time refers to how long received inventory take to be booked in and "put away" in their intended warehouse picking locations. This measurement often takes a hit during festive periods, as increased frequency of inventory deliveries may lead to pallets lingering on the loading dock awaiting processing. A holdup in readying stock can lead to order fulfillment delays. This highlights the significance of Dock-to-Stock Time as a crucial metric of 3PL efficiency during the festive period.
- Return rate typically sees a significant uptick in returns during and immediately after Peak Season as consumers take back unwanted gifts. Nonetheless, it's crucial to understand that all returns are not the same. Companies must determine the percentage of returns during the holiday season due to mistakes made by your 3PL, such as customers receiving the incorrect size or color, instead of returns due to a simple change of heart. Order mistakes like these can harm your brand's image and must be prevented at all costs.
Conclusion
Now is a good time to review your 3PL’s baseline performance for the year and start really watching how the stress of the peak season affects things through the remainder of the season.
If you need to make a change
If you’ve been thinking it may be time to change 3PL’s, or if this holiday season cements pushes you in this direction, move as quickly as you can. Many brands move fulfillment in Q2 and Q3. Beat the rush and make the move earlier if you can. This will give you peace of mind that you are well situated prior to next peak season.
About a2b
When you outsource your fulfillment to a2b, you gain an experienced 3PL with over 20 years of proven metrics and success, including during peak season. As a tech-forward 3PL, a2b leverages a combination of systems, automation and robotics, allowing us to more easily scale during peak periods. Contact us today to begin a conversation.
