6 Biggest Mistakes 3PLs Make in Their Warehouse Setup

As a service provider to multiple clients at once, 3PLs have some additional responsibilities when it comes to warehouse setup. Maintaining SLAs and profitability means steering clear of these 6 common mistakes that 3PLs make in setting up their warehouse.

A 3PL’s success is intertwined with that of its clients. A company’s whole reason for outsourcing warehousing and fulfillment to a 3PL is to help their bottom line. If the 3PL can’t do a good job for them, both businesses will suffer.

We’ve written extensively about the role that warehouse setup plays in efficiency. (Check out our series Warehouse 101 for small, medium, or large warehouses.) Designing and organizing a warehouse as a 3PL is very similar to any owner-operated warehouse space. But as a service provider to multiple clients at once, 3PLs have some additional responsibilities when it comes to warehouse setup. 

Why Warehouse Setup for 3PLs is So Important

For a small business with a limited number of products, managing the flow of orders through a warehouse is relatively straightforward. But complexity naturally increases with the number of orders to be processed and the number of different products offered. Multiply that by the number of clients serviced by a typical 3PL, and you start to get an idea of how much can go wrong.

Warehouse setup is not just about what goes where. It also includes business practices and operations. So while some of these mistakes involve the physical space and its layout, some are more fundamental organizational issues.

Here are the six mistakes to avoid with a 3PL’s warehouse setup:

1) Ignoring the Basics of Warehouse Layout

The basics of warehouse setup are all about creating an effortless flow of people, products and machines throughout the space. Common mistakes like not allowing sufficient room for receiving and returned stock, not optimizing picking procedures, and not using technology to its full potential will have a detrimental effect on productivity.

While looking for best practices that are specific to 3PLs, managers must be careful not to overlook the fundamentals of warehouse design and setup. 

2) Disregarding Special Storage Requirements

Shared storage is one way that outsourced warehousing saves its clients money, but storing a diverse list of product types can get complicated. Special care must be taken to ensure the safety and integrity of each and every item on the shelf. 

Not only must things be kept in a way that makes picking and fulfillment easy, but mistakes like breakage, spoilage, or contamination must be kept to a minimum. For example, a 3PL that handles both food and chemicals must be sure that they are not stored in close proximity to one another. 

This also means dealing with each client’s individual processes regarding LIFO, FIFO, expiration dates, temperature requirements, etc. A warehouse management system geared toward the needs of 3PLs will help see to the specific storage needs of all products kept in the warehouse. 

3PLs must also be aware of the appropriate designations needed to handle certain products. For example, FDA, pharmaceutical, or hazmat certifications might be required.

In addition to specialized storage options, don’t forget how important it is to have clear, easy-to-read signage and labeling too. Workers need to be able to find what they need when they need it.

3) Not Making Room for Value-Added Activities

Some 3PL clients have simple needs. They want storage, order fulfillment, and shipping. But don’t make the mistake of assuming that this will always be the case. A change in an existing client’s offerings, or adding on a new client might mean finding room for value-added activities. 

Value-added services can include kitting, assembly, customization, bundling, or re-branding. Being able to offer clients these services in a 3PL warehouse can provide a valuable revenue stream. But it might mean finding square footage to dedicate to this step, as well as adding equipment and personnel to make it happen. 

4) Nonresponsiveness to Scaling and Customization Needs

Just as with value-added services, a 3PL can’t always predict what their clients will need in the future or what new opportunities will present themselves. What they can count on, however, is that every one of their clients is trying to grow their business and that they want to partner with someone who will work with them to do it.

Clients will outgrow their 3PLs if they are not forward-thinking. As 3PL clients scale their business, the 3PL must be ready and able to accommodate their growth. They must also be willing to customize their operations to fit the needs of their clients. This means remaining flexible in terms of things like daily order cutoff times, accelerated delivery schedules, or weekend and holiday hours. Obviously, a 3PL can choose how they wish to operate their business, but it must also be understood that inflexibility could lose a star client.

5) Defying the Data

Real-time data provided by warehouse management software is invaluable to a 3PL. Not using it is a big mistake. Coordinating the 3PL’s KPIs with those requested by each individual client is the best way to anticipate and plan each day and also assess productivity and success. 

For a 3PL, things like seasonal sales and velocity will help organize products among multiple fulfillment centers. For example, bathing suits might be in stock at a Florida warehouse all year long. But data analytics can help you determine the best time to start stocking up in your Minnesota fulfillment center. 

Inventory management software gives 3PLs the tools to make sure clients never run out of a product. Stock levels, as well as each product’s location within the warehouse, is known at all times. 

6) Failing to be Transparent

While not a setup issue, per se, transparency is essential to 3PL operations. Clients must be able to trust that their products are in a safe, clean, well-organized environment. They need to know that their customers will receive orders in a timely manner. 

Clients need to be able to make business decisions based on the analytics they receive from their 3PL partner. For these reasons, 3PLs must have software that provides real-time data and interfaces with their clients in a clear, concise manner. 

3PLs Can Be the Hero

It is best to keep in mind why 3PL clients outsourced their warehousing to you in the first place. They are looking for a partner in their growth who cares as much about delivering quality products to their customers as they do. 

3PLs are faced with the challenge of not only multiple products, but product types, for numerous companies, sometimes in entirely different industries. Those companies entrust you with their livelihoods. Mistakes in your warehouse setup can make them regret it.