This is an excerpt from Cart.com’s newest White Paper “Choosing the optimal location for your 3PL outsourcing,” an in-depth look at unified commerce, how it compares to other commerce strategies and how to implement a unified commerce strategy. Check out the full White Paper here.

In real estate, they say location is everything. The same is true for fulfillment.

Customers have clear expectations about where, when and how they want to receive an order. Fulfillment is a trillion-dollar business: Last year alone, the nation’s largest online retailer spent 90.6 billion on order fulfillment.¹ To keep costs down, brands must consider every aspect of the cost per order, starting with how location affects it.

Location significantly impacts costs for a variety of reasons. This includes proximity to customers, transportation expenses and operational and labor costs. Warehouses located closer to customers can reduce shipping times and costs, enhancing customer satisfaction but may require higher rent expenses. Warehouses situated farther away may have lower rent, but incur higher shipping costs and longer delivery times, potentially impacting customer experience and overall fulfillment efficiency. When selecting a 3PL location, businesses must look at every nuance strategically, from access to transportation and the economic impact of an area to how close their customer base is.

Understanding the challenges of selecting a location

Shipping and delivery have become an integral part of the customer experience. The post-purchase phase leaves a lasting impression, making it an essential part of the overall journey. Consumers want to know how long it will take their order to get there and how much it will cost. To create a better experience, businesses must be transparent with shipping speed and pricing. Because retail giants such as Amazon and Walmart have set the bar high for fast and free delivery, the location of fulfillment operations has become critical. While brands might feel that fulfillment operations should be close to their headquarters, locating near customer bases or hubs where products are in demand is more important. Meeting these customer expectations is not just a competitive advantage; it's a necessity for business survival in today's market. 

Customer expectations in the era of fast and free

Large retail businesses are better equipped to handle the costs of fast and free shipping. However, current expectations affect all brands greatly, regardless of size or industry. Customers want fast and reliable shipping and delivery services, often with options for expedited or same-day delivery. Free shipping has become a standard expectation for many online purchases and customers are increasingly prioritizing convenience and affordability in their shopping experiences.

Clear communication and tracking updates throughout the shipping process are also expected. This provides further transparency and reassurance that delivery timelines will be met. According to a recent survey:²

• 82% of consumers chose free shipping as the number one factor in retailer selection
• 46% of consumers will choose longer shipping time to save money
• 59% of shoppers looked for products that were in stock and ready to ship

These heightened expectations increase the need for optimized logistics solutions, starting with strategic locations. The choice can be challenging, especially given the influencing factors and resulting considerations. This includes:

Geographic considerations

Brands should consider several factors when assessing outsourced 3PL locations. Common factors are:

• Proximity to customers
• Transportation efficiency
• Customer expectations

Operational Challenges

Operational challenges have a significant impact on retail fulfillment costs, shipping and delivery, making them important considerations when choosing a location for a 3PL fulfillment center. These challenges often revolve around:

• Labor availibility
• Infrastructure
• Regulatory requirements
• Operations

Cost considerations

When choosing a location for a fulfillment center, brands should conduct a comprehensive analysis of cost factors to ensure optimal cost-effectiveness and operational efficiency. These factors are:

• Real estate prices
• Labor costs
• Taxes
• Operational expenses

Best practices for selecting the optimal 3PL location

Selecting the right fulfillment location is a critical strategic decision for brands. The location of a fulfillment center directly impacts fulfillment costs, shipping efficiency and customer satisfaction. An optimal fulfillment location can ensure cost-effectiveness, operational efficiency and alignment with a company’s overall business objectives. Businesses can make an informed decision by evaluating factors such as proximity to customers, transportation infrastructure, labor availability, cost considerations and regulatory requirements. A location that assesses data and information better supports business growth, enhances competitive advantage and helps brands deliver exceptional customer experiences. Retailers can begin the decision-making process following these best practices:

Step 1: Consider geographic factors

Essential geographic factors to consider are:

• Proximity to major markets: Selecting a location close to major population centers and key markets reduces transportation costs and shipping times.
• Transportation infrastructure: Access to well-developed transportation networks, including highways, railways, ports and airports, improves transportation efficiency and connectivity, facilitating timely and cost-effective delivery of goods.
• Labor availability: Assessing available skilled labor in the chosen geographic area is crucial. An adequate workforce is critical for handling fulfillment operations efficiently and effectively.
• Cost of real Estate and labor: Balancing the cost of real estate and labor with the proximity to customers is essential. While lower costs may be available in remote areas, they can be offset by increased transportation expenses, a smaller labor pool and longer delivery times.
• Business climate: Consider the business-friendly regulations, tax incentives and overall economic climate of the geographic location to ensure favorable conditions for the operation and growth of the fulfillment center.
• Resilience to disruptions: Evaluate the geographic area's resilience to potential disruptions such as natural disasters, geopolitical instability or supply chain interruptions to minimize risks and ensure business continuity.

Step 2: Adhere to best practices

Adhering to best practices allows brands to make informed decisions when choosing an optimal location for fulfillment operations, positioning themselves for long-term success, customer satisfaction and sustainable growth. Best practices for choosing a 3PL location include:

Leverage data and analytics

Utilize advanced data analytics and market research to analyze factors such as population density, customer demographics, purchasing behavior and competitive landscape when evaluating potential fulfillment locations. Make data-driven decisions based on quantitative insights to identify locations with the highest potential for success and alignment with business objectives.

Take a customer-centric approach

Prioritize customer satisfaction by selecting locations that are strategically positioned to serve target customer demographics efficiently. Analyze order patterns, shipping destinations and delivery timeframes to ensure that chosen locations can meet customer expectations for timely and reliable delivery and offer multiple fulfillment methods if needed.

Develop strategic partnerships

Explore partnerships with local authorities and suppliers to access incentives, resources and support that can enhance operational efficiency and reduce costs. Collaborate with logistics providers to leverage their expertise, infrastructure and networks for streamlined transportation and fulfillment operations.

Ensure flexibility and scalability

Choose locations that offer flexibility and scalability to accommodate future growth and changing market dynamics. Assess the potential for multi-node fulfillment capabilities, enabling faster delivery and improved inventory management, especially for businesses with BOPIS (Buy Online, Pick Up In Store) or marketplace selling strategies.

Manage risk

Mitigate risk by diversifying fulfillment locations across different geographic regions to minimize the impact of potential disruptions such as natural disasters, supply chain interruptions or geopolitical instability. Develop comprehensive contingency plans to address unforeseen challenges or emergencies, ensuring business continuity and minimal disruption to fulfillment operations.

The benefits of choosing an optimal 3PL location

Fulfillment operations play a pivotal role in the customer experience. In fact, 80% of customers³ say it’s important for a company’s post-purchase experience to be positive, while 85% of online shoppers⁴ won’t reorder from an online retailer after a bad delivery experience. Fulfillment operations also constitute a significant investment for businesses. The location of fulfillment centers directly impacts revenue. In this context, choosing an optimal location for fulfillment operations is crucial for businesses looking to enhance efficiency, improve customer experience, achieve cost savings and gain a competitive advantage in the market. Some of the benefits of identifying and choosing an optimal 3PL location include:

• Improved efficiency and productivity
• A better customer and post-purchase experience
• Cost savings and profitability
• Competitive advantage

Location matters

Fulfillment location directly affects your cost per order and profit ratio – making choosing an optimal 3PL location critical. Customers prefer fast and free shipping, and brands aim to make that happen. By assessing needs, analyzing data and using best practices, you can choose 3PL locations that make your customers happy while optimizing efficiency and cost-savings.

Cart.com for your omnichannel fulfillment needs

With 14 facilities across the U.S., your shipping speeds won't be affected by facility location. Our nationwide warehouse network is strategically placed for the efficiency, scalability and speed retailers need to deliver their brand experience.