What Should Be in an SLA for Order Fulfillment?

When you are partnering with a 3PL company for order fulfillment services, a well devised Service Level Agreement (SLA) is your blueprint for success. It specifies and quantifies your mutual understandings around service to customers, inventory management, accountability, and much more.

The fact is that not all SLAs are created equally. What should be in an effective SLA? 

Order Management and Customer Experience (CX)

How, how quickly, and how accurately orders are picked, packed, and shipped are all factors in the customer experience. Each influences customers’ perception of your brand and likelihood of repeat orders.

Order accuracy: Quantify the accuracy rate and ask your partner what processes and technologies are in place to ensure compliance with the chosen standard. At FIDELITONE, we apply technologies and processes to optimize the pick and pack process, along with process controls and checks, to support an accuracy rate of 99.9%.

Customer order cycle time: Undeniably, Amazon raised the bar in customer expectations around shipping time for orders. Increasingly, customers expect to receive orders quickly—anywhere from 1 to 5 days. The UPS Pulse of the Online Shopper survey points out that almost one-third of shoppers who go to an ecommerce marketplace go there seeking speed of delivery. They add, “Shoppers like next day delivery, but they’ll consider other options. More than half of them consider cheaper but slower shipping alternatives.” 

Whatever standards you have chosen—and communicated to customers—should be clearly reflected in your SLA. For example, your SLA might include statements like these: 

___% of orders, received by ___ (time), ship same day on (which days of the week/holidays)

___% or orders, have a standard transit time of 1-2 days to _____ (geography)

Customer communication: Automated communications with customers are critical to the CX. Your SLA can include specifications for the circumstances that trigger communications (e.g., order has shipped, order delivered, delivery delayed by the carrier, etc.), as well as the mode of communication (e.g., email, text).

Rush orders and expedited shipment: If you choose to offer rush or expedited shipping options, you can define unique SLAs and associated costs for these.

Returns and exchanges: Returns are so common in ecommerce that the CX on returns is yet another opportunity to make or break your brand reputation among customers. Some customers intentionally buy multiple items with the intention of using the returns process upon final selection. Others encounter a problem or simply change their mind. Customers want the process to be hassle-free. If an exchange is involved, they expect quick, accurate responsiveness. Your return policies need to be thoroughly mirrored in an SLA. 

Your SLA can specify the returns process and 3PL support required, e.g., returns label, free or paid shipping, pick-up or drop-off, turnaround time for replacements (if applicable), data collected, return of products to warehouse inventory, and visibility into this process for you, the retailer.

Backorders or out of stock: While no retailer hopes to deal with backorders, supply chains can be disrupted for a variety of reasons. Likewise, your sales and marketing could be more effective than ever anticipated, inflating demand beyond available stock. The SLA needs to reflect your policies around backorders, addressing how and how long the 3PL will collect orders, how the orders will be visible, whether you will ship partial orders, how the 3PL will keep the customer informed, and what (if any) options may be presented to a customer whose order cannot be fulfilled promptly. 

In addition, the SLA can address how quickly a backorder will be filled once inventory is received. Applying best practices in backorder management can tweak efficiency and advance the CX.  For example, Dave Butterly of FIDELITONE explains, “Using FIFO inventory allocation, we are able to fulfill backorders straight from the receiving dock the day the inventory arrives. This eliminates put-away and stocking time and expedites the order to ship the same day the inventory is received.”

Capacity: Many ecommerce businesses are in a major growth spurt. We hope yours is one of them. Are you ready to handle new geographies and/or soaring sales? Consider addressing how order volume will impact the SLAs when you build an understanding with your 3PL partner. Knowing their capacity to grow with you while sustaining your brand promise can be an important determining factor.   

Inventory Management 

How your 3PL company receives and stores your inventory should also be addressed in an SLA. Common factors that are addressed in an SLA may include:

• Receiving SOPs, including when deliveries will be accepted, to what specifications
• How damage or errors in inbound shipments will be identified and addressed
• Dock-to-stock time or timely put-away
• Inventory tracking and inventory accuracy 
• Timeliness of inventory updates
• Inventory rotation protocols, e.g., FIFO, and management of inventory obsolescence or shrinkage
• Storage conditions, climate control, and any specialized needs such as lot control, expiration date management, or FDA warehousing of products

Data Visibility

All of your SLAs are really only as good as your visibility into inventory management and orders. It is reasonable to expect real-time access to status of every moving part, as well as ongoing performance metrics. 

Some 3PLs can accommodate visibility more effectively and efficiently than others. Much depends on the 3PL company’s ability to integrate with the systems you use and the versatility of their technology to provide tailored views that are meaningful to your staff who use them. Also consider how long it will take to power-up a real-time view into your SLAs—and what it will cost, as influenced by the 3PL’s integration capabilities. The bottom line is that your private partner portal should apply robust technologies to provide full, accurate visibility into the specifications laid out in the SLA. (For more insights, see our blog post on order fulfillment technologies.)

ROI on the Cost of Order Fulfillment Services

Decisions you make when devising an SLA definitely impact cost. This means that simply quoting order fulfillment services without defining SLA parameters upfront does not generate apples-to-apples comparisons. The most aggressive service parameters may come with a price tag. It all comes down to achieving value on order fulfillment services. Today’s consumers have high expectations, and SLAs reflect critical business decisions. Higher quality service can pay off in customer loyalty and growing revenues.  

The Right SLA for Order Fulfillment

There is no one-size-fits-all SLA for order fulfillment. However, there is one that is a perfect fit for your business model and your customer expectations. At FIDELITONE, we invest in learning about your business. We personalize the SLA in collaboration with you to ensure we are ready to deliver on your brand promise and earn customer loyalty for you. 

Our breadth and depth in serving clients across the country equip us to build the CX you need, backed by a national network of order fulfillment centers and the people, processes, and technology to bring your SLA to life—every day. To learn more, get in touch today.