Questions about Outsourcing Warehousing to a 3PL Answered Here

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In this post you’ll find steps on transferring from your own warehouse to a 3PL. I’ll give you a little background on why we decided to outsource warehousing but mostly you’ll find steps on how to do it successfully.

What is a 3PL?

3PL means third party logistics. 3PL’s can do a lot of different things. What we were looking for is a team that could store inventory, process returns, Amazon prep (label, package and ship product to amazon’s warehouses) and receive shipments from manufactures.

Why did we decide to outsource warehousing to a 3PL?

Simple answer: “Alvin is starting a career in NYC and he wants Joanna on his team for help.” Our very valuable, likable, intelligent warehouse manager told us one day last April. Joanna is his wife and she’s about as valuable to Alvin as Jose was to us.

“We’re moving to NY later this year.” The words Jose spoke that stung a little more than we ever thought could.

“What are you going to do for work?” A question that read like a terrified mother sending her child off into the real world without confidence in their ability to succeed. But no, I was asking because moving operations to NYC to keep Jose as an employee was a serious consideration.

We researched warehouse space, our costs to transfer, the timing and viability of everything. Jose was offered a job and he took it, making our decision easy. We stay in LA but do we hire someone to take Jose’s place or do we outsource our warehousing? We contacted a handful of 3PL’s and plugged costs into our spreadsheets. Outsourcing was estimated to cost about as much as Jose’s income per year (at our current volume).

The First Step

  • Decide if it makes sense financially.
    • We made a spreadsheet to compare.
    • Used pricing provided by 3PL and our monthly inventory movement to estimate costs.

We estimated the third party logistics warehouse cost would equal monthly employment costs. Savings in rent for our warehouse space would be a savings bonus. We decided not to count it as savings yet in case the 3PL was going to cost more than we anticipated. We wouldn’t know exact cost until the first few bills came. Regardless, Jose leaving us was a good time to experiment outsourcing.

When we found a 3PL we liked working with, this is how we transferred:

  • We negotiated with our landlord to get out of our lease early.
  • Simplified SKU’s on Amazon’s back end by changing them from random generated number to product name and manufacture part number.
    • This is important because:
      • We had to make matching labels with products fool proof. the 3PL workers work with a lot of products and they were not familiar with ours.
      • How we did this:
        • We used a flat file. You can learn about flat files here.
        • Uploaded the new information to Amazon.
        • Sent new inventory to Amazon under new SKU while depleted inventory under old SKU
  • Create pack and prep instructions for each SKU
    • Write instructions on a google doc and share it with the 3PL
    • Create videos, posted on Youtube and gave the 3PL access.
    • For each SKU we send to Amazon.
  • Send product to the third party logistics warehouse.
  • Manage the prepping and packing until the 3PL team knows exactly what to do.

Criteria for choosing right 3PL

  • They agreed to everything we wanted with a smile.
  • It was easy. Meaning, there was no friction or lag time. It just worked.
  • Price was right.
  • They were on top of things and responded quickly to questions.

So, to wrap this all up: compare third party logistics costs to your own employment and warehousing costs. See what your options are for getting out of your lease (if you have one). In the meantime interview lots of third party logistics companies, ask them a lot of questions, make a lot of requests, get pricing, etc. Create a flat file and upload the new information to Amazon. Start building guides and instructions for Amazon prep. Send a shipment that you manage and monitor at the third party warehouse location.

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