Q: I need a local fulfillment operation in Canada to effectively grow my business there. How would I proceed to develop an external fulfillment operation in Canada?
A: First and foremost, you have to develop a business model for the designated selling area. This is a three- to five-year strategic plan comprised of historical data and a projected forecast. A few pieces to the model are:
– Three to five years projected sales as orders, detailed to a weekly/daily (where appropriate) plan
– Average units and lines per order shipped
– Seasonal or peak volume increases as orders shipped, average lines per order, average units per line, average cartons per order
– Method of shipment and percentage of volume by type for purchase orders (small parcel, LTL, T/L, container)
– Preferred method(s) of shipping by percent of total volume
– Average weight per order shipped
Second, identify where your projected concentration of sales will be and determine the most advantageous physical location within the new selling area for a fulfillment operation for your projected business model. Site selection is critical to managing shipping costs and to assuring there is an adequate labor pool.
Third, decide whether you should handle your own fulfillment or contract a third-party logistics provider. You must identify any tax implications related to opening a new business as an employer. Normally the least-cost method of establishing a new operation is with a 3PL provider. Unless tax concessions for new employers are significant and long-term, it will likely be more economical to operate for the first two to three years with a third party. You can use the Internet to identify potential 3PLs. However, we definitely recommend a visit to prospective partners as a preliminary to any further conversation. It is much better to have a visual image later as you review respective proposals.
If you do decide to explore contracting with a 3PL, you must develop a request for proposal. The primary content of the RFP is your business model. The more accurate the information you supply about your business, the more effective the proposals from 3PLs will be. Send the RFP, with a clear deadline, to three to six 3PLs that you believe are stable, industry-proven, and can effectively handle the volume from your business.
It is important to identify clearly every statement of what the candidates propose to do and not to do, and every requirement and cost within a proposal. Establish a spreadsheet so you can compare proposals and details. If your team does not possess the experience to review and negotiate agreements, pursue the services of a consultant. Next you have to negotiate all the standards of work and contract terms to assure that the 3PL can actually provide the service you expect.
Your work is not complete even after you have negotiated an agreement. Developing a successful 3PL partnership requires a significant amount of time, effort, and follow-up by the client company. You need to make clear that you have relinquished only the physical handling of your product to the 3PL, not the responsibility to manage your business.
Identify key client contacts and decision-makers who will be issuing direction to the 3PL. The 3PL provider needs to clearly understand who will provide direction and who is responsible for resolving problems.
Remember that the 3PL is proud of how it manages its business. Use the same consideration communicating with the 3PL that you would extend to your most valued associates inside your own company. Never ignore issues or problems, but be firm and respectful in resolving them. The 3PL is normally quite aware of who is paying the bills and who owns the inventory. The 3PL exists to serve; you should be a gracious ruler.
Communicate daily with 3PL management and visit the site as frequently as travel restrictions permit. Discuss the basics of the previous day’s operations-receiving, shipping, inventory management-and always inquire what you can do to assist them to achieve their goals and objectives. If possible, visit monthly, but no less than quarterly. This sort of relationship can become a classic case of “out of sight, out of mind.”
The client has to be diligent in managing the 3PL through daily reporting. You are now managing a remote location, and therefore your best source of information is the 3PL’s daily reporting and invoices. This is no different than managing your own operation. Master the information reporting so you can identify trends and immediately spot issues as they appear.
Inventory management is the most important reporting in managing a 3PL. The client has to know where to look for issues such as lost or damaged inventory, out-of-stock, and when the inventory records indicate adequate supply. These are indications of performance concerns requiring the client’s follow-up and resolution.
Receiving performance reports and inbound scheduling are next in importance for daily follow-up. The client has to know if there are vendor delivery problems or 3PL receiving issues that will affect the customer service level. This is also where the daily phone follow-up will indicate any “carry-over” receiving issues on a purchase order.
Normal daily shipping follow-up is important, but the most important point is to know what did not ship.
Returns reporting is crucial not only to identifying customers’ satisfaction with your product, but also to discovering any 3PL -related performance issues. Detailed reason code reporting is imperative, and cumulative graphing is valuable in discussions with the 3PL.
Growing a business by expanding operations to Canada is an exciting and challenging prospect. If you take the time to lay the groundwork by developing a comprehensive business model and researching site selection and possible 3PL involvement carefully, you will significantly reduce the challenges and increase your chances of success.