#logistics-operations
Thread
HELP! looking for advice on handling a tough situation with my 3PL.
After months of research, we partnered with a highly-rated 3PL and started onboarding six months ago. I provided clean documentation—8 SKUs, UPCs, all neatly organized in an Excel file—which they praised.
Things were going smoothly until this week’s call, where they dropped a bombshell: they mis-shipped 54 products to the wrong customers, depleting the stock in that warehouse to zero. To fix this, we’ll have to ship the correct products, leaving us with an estimated $7k–$9k loss between the error and correction.
When I asked if they’d reimburse us for the lost products, their response was, “No, we only cover shipping fees.”
So here I am asking:
• Has anyone dealt with this kind of issue?
• Is it normal for 3PLs not to cover the cost of their mistakes?
• Or am I crazy for thinking this shouldn’t even be up for debate?
@Chad Michael Carleton @Matt Hertz - ThirdPerson.co can y’all help?
Ugh that’s so tough. Sorry to hear that!
So if you stick with the actual language of the contract they are probably right, but this is where you might try to negotiate that they cover something although realistically there’s probably very little that you can based on your contract. At the very least they shouldn’t get paid for those shipments (shipping + fulfillment)
A few questions/thoughts for you
• what is the implied error rate now? If they messed up 54/60 shipments then that’s different than 54/10,000 (although still sucks)
• Have they completed a root cause analysis of the issue? Do you have assurances that they have identified and corrected the root cause so that it doesn’t happen again?
• since your product is on the expensive side have you looked at having those customers return things and seeing if they will cover the return fees?
• you could look at adding in tighter performance language into the contract to cover yourself next time
• You could move 3PLs but I’d say this is a last resort. You picked these guys for a reason and it will be cheaper to get things fixed than starting over.
TLDR would focus on how they learn from this and prevent it from happening again. I know it’s tough but try to stay future focused vs reactive if you can.
Ouch. This sucks.
I’d second every point @Aaron Alpeter made.
On the merit of recovering your cost from your 3PL:
Mistakes happen, and sometimes really fast. When 54 items are sent out wrong, it’s 54/10,000 or it’s closer to 54/54.
At some point up the chain something happened where a whole batch of actions was messed up: they labeled a ton of product wrong, they binned it wrong, or maybe they printed a bulk-shipment of orders for that same item and accidentally grabbed all of the wrong one.
Likely one small mistake led to a ton of damage.
The 3PL is paying postage and labor to fill the orders.
Postage is at least 80% a pass through cost, so their real net margin is probably 20-30% of your total fulfillment bill. Usually just $2 or so per order.
When margins are this slim, you can imagine how many orders it would take to recover $7-9k in losses.
In your case, just reimbursing the postage, fulfillment, and returns postage is likely exceeding their net margin in fulfilling the order by a huge factor.
Similar to parcel carriers, which only cover the value of the goods up to a limited (if any) amount, 3PL’s can’t cover the actual product value. Outside that, they recommend insuring the goods.
You shouldn’t pay fulfillment for the mistakes, nor the outbound postage. Anything in excess of that is generosity from your 3PL.
Some ideas:
• reduced fulfillment cost for X period until the cost of goods (at your cost) is recovered.
• Some other concession like account management that they can discount for a time.
• Some probationary period to ensure gross accuracy is above a certain high percentage, otherwise they assist you in finding a new partner
Open to answering other questions on this front, and wishing you luck.
Thanks @Aaron Alpeter & @Chad Michael Carleton for the insight this breakdown really puts things into perspective. It’s frustrating when mistakes like this happen, but I appreciate the realistic approach to resolving it. Definitely a tough situation, but your advice helps clarify what’s reasonable to expect.
Check your contract for loss allowance. Let's say they have a 0.5% loss allowance - this means anything over 0.5% they have to reimburse you for, usually at cost or landed cost. If it's not in the agreement, they are likely an inexperienced 3PL.
Mis-picking/ mis-shipping products create inaccurate inventory. I'd be pushing for them to reimburse for the loss. You outsourced to a fulfillment provider for a reason, trusting their expertise as a service provider. They messed up at no fault of your own, so they are liable.
My comment for Aaron and Chad - why use a 3PL if they do not have responsibility for errors? Every 3PL I have worked at has had some sort of policy around covering losses if caused by 3PL idiocy.
We reimburse cogs over 2% variance.
Lots of reasons to use a 3PL aside from transferring liability of accuracy though.