Important: Improving your margins by optimizing shipping and 3PLs

[MitchM]

This isn't a mainstream discussion, but it is a hugely important one.

Sure, you see people (like myself) bitching about increased freight costs - but for such an important topic you rarely see discussion about the details that really matter.

In part, I'm sure that this is due to the people with the knowledge being busy with the work and realizing that solutions aren't universal.

Importing logistics comes down to the individual business and universal recommendations are rarely valuable.

Sure, there are companies that offer freight services that have more broad appeal due to convenience and pricing - but that stuff is pretty straight forward.

Get a quote for your shipment and make your decision based on lead time, trust, and price.

But once your inventory hits the shore, you've got a completely new set of problems to deal with.

If you sell on Amazon, the past year and a half has probably been pretty daunting, since you can't just send everything directly to FBA anymore.

Now you have to have a 3PL that will store, prep, and send inventory into Amazon at a reasonable price. On top of that you may want to expand, so they'll also need to have international and domestic fulfillment services.

That being said, I'm making this thread to open up a window into better decision making when it comes to supply chain logistics. I've outlined my criteria below and hope that others can add on as well:

1. First and foremost, optimize your packaging and shipping efficiency. It's not likely that you'll have this optimized during your first round of inventory (if you are shipping products with an irregular size or multiple pieces). Here are the things to keep tabs on and improve:
   1. Can each individual unit be packed in a more efficient way without risking damage during transit?
   2. Are your cartons packed with as many units as possible?
      1. This can make a big difference for larger items that will be sent to Amazon. On top of the fee for sending and receiving, you will also need to have a label added to each carton for shipping to Amazon. So, the fewer cartons you have on a per unit basis - the less it will effect your margins.
         1. Make sure this doesn't put the units at risk for damage and also make sure that each carton does not exceed 50 pounds, which is Amazon's current weight limit.
2. Timing. When it comes to supply chain issues - timing is key. Using software like SoStocked can be extremely helpful in making sure that you are making your shipments in a timely manner. Cashflow is the most essential thing in a growing eCommerce business, so having a strong grasp on your inventory needs (not too much and not too little) is huge. Not only that, but once your timing is on point, you can make big money saving decisions like:
   1. Keeping a certain amount of inventory in China to send at a later date if the trend for shipping rates is better in a following period.
   2. Sending split shipments at different speeds. A slower shipment to your warehouse and a faster shipment directly to Amazon - for example.
   3. Avoiding expensive months (if it works out with cash flow)
   4. To take care of inventory management without the use of extra software, you can use a similar formula that roughly equates to:
      1. Order quantity = (Average units sold per day) * ((Lead time for supplier to produce inventory) + (freight time) + (ground transport time) + (warehouse transfer time if any) + (inbound inventory processing time) + (buffer time - which could be a month of extra inventory to hold on to or something like 2 weeks of extra inventory if you want to keep things tight))
         1. If you want to plan for growth, just multiply your total order quantity by a percentage.
         2. You can do the same thing for an upcoming seasonal spike (like if you sell 250% for the month of December. If you are ordering 100 days of inventory and 31 days of that would be December, add to your total order quantity by taking Order Quantity +((Order Quantity * 31/100) * 2.5) - (Order Quantity * (31/100))
         3. Your buffer zone with inventory will of course depend on the ROI that your inventory brings as well as potential upcoming holidays and seasonal spikes
3. Warehouse selection: This will largely depend on the size of your business, your selection of products, and your goals. If you want the convenience and less headache, sometimes you can sacrifice some margin for a 3PL that serves as a one-stop shop. These are some of the parameters to look at:
   1. Location - (if you have an active business that sells outside of Amazon with data that indicates one location will have the best average rates - that may outweigh other factors)
   2. Receiving/Shipping fees - These will be based on carton, pallet, and container. If you are doing this for FBA there will also be a cost for sending on a carton or pallet basis - as well as labeling fees per carton & pallet (very important).
   3. Storage Fees - You should be minimizing this with good inventory management but it is still an important consideration
   4. Shrinkage Policy
   5. Customer Service - Is it possible to get someone on the phone when working with this business? My experience has always been better when it is possible to pick up the phone and handle an issue on the spot.
   6. Pick Fees.
      
4. You can use a spreadsheet like this to help decide between warehouses (sometimes you may need to use multiple locations if you have products that are outliers - you just have to do the math): Copy of 3PL Comparison
   1. Go to "File -> Make a Copy" so that you can edit it
   2. I can't remember where I originally got this sheet - so if someone knows the source please let me know so that I can give credit

Off the top of my head, these are the most important things that I've considered when making these decisions and I hope this can help someone who is struggling to get a grip on all of this.

Please let me know if there are things I left out or got wrong!

 

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