As eCommerce continues to dominate the retail landscape, a symbiotic relationship between brands and third-party logistics providers (3PLs) is key to success. This partnership extends beyond mere logistics management — it involves a deep understanding of each other’s business models, goals, and a shared vision required to navigate the online selling landscape.

Keep reading to learn more about how brands create and maintain successful partnerships with their 3PLs, leveraging insights from our interview with Steven Edelstein of Fulfillment IQ.

The growing importance of 3PLs

3PLs are critical in eCommerce because they manage logistical operations, including warehousing, shipping, and returns handling. Their expertise and infrastructure allow brands to scale efficiently, meet customer expectations, and adapt to market changes. Successful partnerships between brands and 3PLs are predicated on the alignment of business models, operational goals, and strategies to ensure seamless cooperation and mutual growth.

Common misalignments and their consequences

A strong partnership necessitates a deep understanding of each other’s capabilities, goals, and challenges. Identifying and rectifying any misalignments in these areas is essential to cultivate a productive, long-lasting relationship.

Communication gaps

Communication gaps often emerge from a lack of regular, open communication channels between a brand and its 3PL. When information flow is obstructed or ambiguous, it can lead to misunderstandings about operational capacities, timelines, and expectations.

Costly disconnects can take the form of a brand expecting a 24-hour turnaround on orders without explicitly agreeing on this service level with the 3PL, or inadequate sharing of forecasting information, which leads to inventory mismanagement.

Misaligned expectations

Misaligned expectations frequently occur when either party makes unrealistic assumptions about the other’s capabilities or resources. This can concern service levels, scalability, technology integration, and cost structures.

For instance, a brand might expect its 3PL to integrate with an advanced ERP system seamlessly without understanding the technical and financial implications for the 3PL.

Market understanding

Deep knowledge of the brand’s market, including customer expectations, seasonal fluctuations, and competitive dynamics, is crucial for 3PLs. Conversely, brands must learn their market’s logistical challenges and opportunities.

Without this mutual understanding, it’s difficult to adapt strategies and operations to sudden fluctuations. For example, a 3PL that fails to appreciate the significance of peak season preparedness for a retailer can lead to insufficient staffing or inventory mismanagement during critical sales periods.

The impact of misalignment

The repercussions of this discordance can ripple through the supply chain, affecting various facets of the business relationship and operational outcomes.

Disruption to the supply chain

Miscommunications and mismanaged expectations can lead to bottlenecks in the supply chain, such as inventory shortages, delayed shipments, and inefficient use of resources. These inefficiencies not only increase operational costs but also reduce the agility of a brand’s supply chain to respond to market demands.

For example, a 3PL underestimating the inventory needs of a brand during a holiday season can result in stockouts and lost sales.

Degradation of customer experiences

The customer suffers the most from misalignments between a brand and its 3PL. Delays, inaccuracies, and fulfillment errors directly tarnish the buyer experience, in turn diminishing brand loyalty and repeat business.

If a 3PL fails to process returns efficiently due to unclear policies or poor communication, customer dissatisfaction can spike, triggering negative reviews and decreased brand reputation.

Slowed growth trajectory

Beyond the immediate operational hiccups, persistent misalignments can stifle brand growth. Inefficient logistics consume resources that could otherwise be invested in marketing, product development, or expansion into new markets.

For instance, a business looking to scale its operations rapidly will inevitably hit roadblocks if their 3PL lacks the capacity or technological capability to support that expansion. This can lead to missed opportunities and allow competitors to gain market share.

To mitigate these risks, brands and 3PLs must invest time and resources in understanding each other’s business models, operational capabilities, and strategic goals. Regular reviews, transparent sharing of data and forecasts, and a commitment to continuous improvement can transform potential mishaps into opportunities for strengthening the partnership.

Finding the right 3PL partner

It takes time and effort to select a 3PL partner that will help you increase your scalability, efficiency, and customer satisfaction. To aid your search, here are the steps you should take to ensure you partner with a 3PL that complements your business strategy and operational needs.

Shared values and goals

The corporate culture of your 3PL partner should resonate with your own. That includes ethics, a commitment to sustainability, customer service philosophies, and overall business objectives. A partnership grounded in shared values fosters a stronger, more cohesive working relationship.

Look for a 3PL that understands your current business objectives and is aligned with your long-term goals. Whether it’s expanding into new markets, achieving sustainability targets, or scaling operations, your 3PL should be capable of and enthusiastic about supporting these ambitions.

Utilize RFPs (request for proposal), site visits, and meetings with potential 3PLs to gauge your cultural and strategic alignment. Also ask about their previous partnerships, the challenges they’ve overcome, and how they support their clients’ growth to understand their commitment to shared goals.

Communication and transparency

Effective communication is the bedrock of any successful partnership. Verify your 3PL has robust systems for regular updates, issue resolution, and strategic discussions. Services that provide a dedicated account manager are especially valuable; these individuals understand your business and so can significantly enhance the quality of communication. Other important elements that facilitate the open sharing of information are:

• Operational transparency: Transparency goes beyond open communication — it also provides clear visibility into the logistical operations affecting your business. That includes inventory levels, order status, shipping details, and any potential supply chain disruptions.

A 3PL that invests in technology to offer real-time data and analytics opens the window into your operations, enabling better decision-making.

• Set expectations: Establish clear expectations for communication frequency, formats (e.g., emails, calls, dashboards), and escalation protocols early in the partnership. This step keeps both parties on the same page for seamless collaboration.

Understanding business models

Thorough knowledge of each other’s business models is crucial for a fruitful partnership. This understanding helps tailor logistical solutions to fit your brand’s unique needs, whether it’s handling peak season volumes, managing returns efficiently, or offering value-added services like kitting and customization. In particular, pay attention to:

• Technological integration: Evaluate how well the 3PL’s technology integrates with your existing systems (e.g., eCommerce platforms, ERP systems). Seamless integration enables smoother operations, accurate data exchange, and more satisfying customer experiences.
• Investment in learning: Both parties should be willing to invest time and resources in learning about each other’s operational needs, constraints, and opportunities for improvement. This can take the form of cross-training sessions, joint workshops, or regular review meetings to align objectives and operational strategies.
• Flexibility and scalability: Ensure the 3PL can adapt to your changing business needs. This includes scaling operations up or down based on seasonal demands, product launches, or market expansion. A flexible and scalable partner will support your growth without the need for constant adjustments or re-negotiations.

Predictions for the future of the logistics industry

The ever-evolving logistics industry is on the cusp of significant transformations. Steven Edelstein’s insights into its future emphasize the critical role of adaptability to overcome these changes, especially in the face of industry consolidation:

• Industry consolidation: Steven anticipates a significant consolidation within the logistics industry that will streamline the market, leaving fewer but more robust players. He asserts, “As we move into ’24, ’25, and ’26 … the industry is consolidating. There are going to be less and less companies out there that are servicing that need.”

This necessitates a proactive approach from both retailers and 3PLs to ensure their partnerships are robust and capable of weathering the reduction in market players.

• Technological advancements: Another key prediction concerns the accelerated adoption of technology in logistics operations. From AI and machine learning for more accurate demand forecasting to blockchain for enhanced transparency, technology will be at the forefront of driving efficiency and reducing costs.
• Sustainability focus: Stephen also expects an increased emphasis on sustainability in logistical operations. Brands and 3PLs will need to adopt greener practices to meet regulatory requirements and align with consumer expectations for environmental responsibility.

The importance of adaptability

The key to navigating these predicted changes is adaptability. For 3PLs, that means being able to pivot strategies, adopt new technologies, and scale operations in response to evolving market demands.

Brands, meanwhile, will need to stay agile by continuously assessing and adjusting their logistical strategies to leverage the shifting capabilities of their fulfillment partners.

Working together to navigate changes

Brands and 3PLs can collaborate on adopting new technologies that enhance operational efficiencies. This could involve investing in shared platforms for better data analytics, automation to streamline warehouse operations, or IoT devices for real-time tracking.

Training and development

Joint training and development programs between brands and their 3PL partners serve multiple purposes. Most importantly, they ensure all team members understand the latest technologies, tools, and methodologies being deployed regardless of their role in the logistical process. This shared knowledge base facilitates smoother communication, quicker problem-solving, and more innovative thinking in the partnership.

Training programs should address a business’s specific technological needs and opportunities. For instance, training on data analytics tools can empower teams to predict demand patterns more precisely, while education on the latest warehouse automation technologies can produce more efficient operations.

This targeted training ensures both brands and 3PLs can fully realize the capabilities of new technologies, leading to operational efficiencies and enhanced service.

Strengthening strategic partnerships

Edelstein’s perspective that “this business, for all better purposes, is about three things: timing, trust, and relationship” speaks to the importance of deep, strategic alignments that go beyond transactional interactions and are resilient to industry shifts.

Regular reviews of the partnership’s direction in light of industry changes ensure both parties’ goals and approaches remain aligned. Developing service agreements that allow for flexibility and adjustments as fluctuations occur allows the partnership to adapt without constant renegotiation.

Fostering innovation

Collaborative innovation initiatives, such as pilot programs for new logistics technologies or sustainability practices, can help both brands and 3PLs stay ahead of industry trends.

Create platforms where you can share and develop ideas together to foster a culture of innovation, helping you and your provider embrace and even lead in the adoption of new practices.

Shared sustainability goals

You and your 3PL need to align your sustainability goals and work together to achieve them to contribute positively to environmental conservation and meet consumer expectations for responsible practices.

Openly sharing sustainability achievements and challenges can help you learn, improve, and communicate your commitment to environmental responsibility to stakeholders and customers.

Wrapping up — Cultivating a future-proof partnership

The logistics industry’s future presents both challenges and opportunities for brands and their 3PL providers. By focusing on adaptability, embracing technological advancements, strengthening strategic partnerships, fostering innovation, and committing to sustainability, brands and 3PLs can smoothly navigate these changes together.

This collaborative approach not only ensures resilience in the face of industry consolidation and other challenges but also positions both parties for sustained growth and success.