1PL, 3PL, or 4PL? How to Choose the Right Fulfillment Model | (ft. Maggie Barnett, COO of ShipHero)

What does it really take to choose the right fulfillment model for your business? When should brands keep fulfillment in-house, and when does it make sense to move to a 3PL or 4PL partner?

In this episode, we sit down with Maggie Barnett, CEO of LVK Logistics and COO of ShipHero, to unpack the realities behind modern fulfillment operations and what businesses need to know before outsourcing logistics.

Here's what you'll learn:
→ The key differences between 1PL, 3PL, and 4PL models
→ When in-house fulfillment starts to break down
→ The pros and cons of outsourcing fulfillment
→ What makes a strong 3PL partner
→ Why 4PL models can struggle operationally
→ How fulfillment strategy impacts customer experience
→ The future of logistics technology and AI in fulfillment

If you're trying to scale fulfillment, improve operational efficiency, or figure out the right logistics strategy for long-term growth, this episode offers a practical, experience-driven look at what actually works.

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0:00 - Teaser
0:21 - Intro
1:29 - Maggie’s Background in Supply Chain
3:06 - Juggling Roles: CEO of LVK Logistics & COO of ShipHero
4:41 - Defining the Fulfillment Landscape: 1PL vs. 3PL vs. 4PL
6:40 - How to Choose the Right Fulfillment Model
7:36 - When In-House Fulfillment Starts to Break Down
8:29 - Real Growth vs. Temporary Operational Chaos
9:36 - Red Flags in the 4PL Model
13:03 - Where 4PLs Break Down Operationally
13:43 - The Impact of Peak Season Demand Spikes on 4PLs
14:55 - The Reputation Risk of Outsourced Execution
15:45 - Do 4PLs Have Better Tech?
17:52 - Evolution of the 4PL Model
19:15 - Impact of ShipHero’s Pivot from 4PL to 3PL
22:01 - Pros and Cons of a 3PL Model
23:52 - Top Qualities to Look For in a 3PL Partner
25:30 - Do Companies Use Multiple 3PLs?
26:06 - Cost Comparison: 3PL vs. 4PL
27:09 - Biggest Takeaways from ShipHero’s 3PL Pivot
28:24 - The Exact Breaking Point for ShipHero’s 4PL
29:17 - The First Metric to Improve After the 3PL Pivot
30:26 - The Future of Logistics Tech and Fulfillment
31:56 - Could AI Eventually Fix the 4PL Model?
32:45 - Extending In-House Operations Before Outsourcing
33:52 - Which Brands Should Stay In-House Longer?
34:22 - Fulfillment Strategy for Multi-Channel Brands
35:05 - The Absolute Best Time to Move to a 3PL
36:13 - How to Diagnose a Struggling Fulfillment Partnership
38:01 - Core Principles for Long-Term Fulfillment Success
39:13 - Outro

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Transcript

0:00

If it's Friday night and your orders can't get out and you need to have people over to help you pick and pack your family, your friends, and you have to buy them pizza to help you pack those orders Yeah. It's time to look at a 3PL. Yeah. Hello, everybody. I'm Jared. Hi. I'm Melinda. And welcome back to The Secret Life of Inventory. This is a show where we dive deep into the unseen world of inventory management, revealing the hidden mysteries that help businesses like yours optimize their workflow and succeed. Today, our guest is a superstar in the complex of world supply chain operations. Please welcome Maggie Barnett, the CEO at LVK Logistics and COO at ShipHero. Maggie is the driving force behind the operational, legal, and administrative core of these organizations. She's best known for her leadership, her risk mitigation, and driving major business transformations. One of the most impactful moments of Maggie's career was reshaping ShipHero's strategy from purely a 4PL model towards a 3PL, even going so far as to say that the 4PL model will never work. So if you're wondering which fulfillment model is right for your business and when to outsource, stay tuned. Because in this episode, we are gonna be breaking down all of the fundamentals of in house fulfillment, 3PL relationships, and we're even gonna talk about why a 4PL actually might cause more headaches than you might think. Thanks so much for being here, Maggie. So excited. Thanks for having me. Awesome. So, Maggie, before we dive into all the logistics, can you tell us how did you get into the world of supply chain? You know, I wish it was a more interesting story. I'm a I'm trained I'm a trained lawyer. I think I'm a and I'm I'm an entrepreneur by birth. I've always been, like, consulting, building businesses my entire life. Mhmm. And I was set up with one of my friends, and they had put me in charge of a meat and seafood company. So it was meat and seafood similar to Omaha Steaks. So it was frozen foods direct to consumer. But it was cool because it was, like, organic and grass fed. Okay. So my first d to c warehouse experience was in a freezer. So Oh, that's so cool. So in Hunts Point, New York. So I felt like I had I could only go up from there. Yeah. Starting at Truly the Bottom. Truly the Bottom, and it was freezing. And I was there with my friend Mark Anderson packing out boxes. We were able to triple sales. So Oh, wow. That's, you know, obviously, there's two sides to that. Right? We were so excited. Then we're like, how are we gonna get all of this out? So that's where I started. I ended up meeting Aaron about six years later, Aaron Rubin, the CEO of Ship Hero. And we did a pilot program together at that time. I was running a concierge business in New York City, so I had some storefronts. And one of the things that we did was we would accept packages for people, similar to, like, a UPS drop point. Oh, okay. Because in New York City, there's, like, no doorman, and people would always steal packages. Oh. Right. So that was part of the service offering that we did, and I ran a project with him. And, you know, after that, I guess about a year later, he hired me. And I've been at Ship for eight years now. Oh, wow. Oh, Yeah. So I've learned a lot. Yeah. So fast forward today, you're now the COO of Ship Hero and also the CEO of, LVK Logistics. So do you wanna walk us through, like, what your day to day kinda looks like? I'm sure it's pretty hectic. It is hectic. But I I'd like a lot of variety. Mhmm. And I think so a a few of my days, like yesterday, I got to meet with clients. I'm very much client facing on both sides. Mhmm. And I I love that because I can actually hear from them about what they want. Right. Because it's so easy for us to be like, oh, we need to we need to pack this out faster. We need to do this faster. Mhmm. And many times, we're like, I just need to be able to understand my business better. Give me the tools to do that. Okay. So most of the time, I'm customer facing on both sides of the business. So, you know, with LVK, I can help with pricing, strategy, working through customer agreements, and those interactions. On the Ship Hero side, I work through all the commercials. So for example, two days ago, we're working with some cross border partners. Mhmm. And they're like, how do we integrate with Ship Hero? So I walk them through that process. So I get to do a lot of stuff, and it's exciting. So what are, like, the major challenges that you face having to juggle those two things? You know, it's all about time management. Mhmm. And I think the most important thing is not having someone else rush me for their own needs in the sense of, you know, for example, a business partner. If they really want that integration, great. But is that what our customers need right now, or can that be postponed for three months, four months? Right. So it's really prioritizing my time and prioritizing the needs of our customers versus the needs of the partners sometimes. So that's where the push and pull comes from. Oh, very cool. Okay, Maggie. Let's say I'm a brand new business owner, and I'm trying to figure out fulfillment for the first time. There are three main paths to choose from. Number one, operating fully in house. Number two, outsourcing to a three PL. And number three, attempting a four PL. Can you walk us through what these terms mean in simple everyday language? Absolutely, Melinda. So so A lot of l's. Yeah. It's a lot of l's. It's it's all logistics. It's, you know, it's one, two, three. It's it's so one p l. Mhmm. You're just doing it yourself. And if you're a new business and you're just starting out and you're still trying to get that product market fit, absolutely self fulfill. I always tell people to kinda do that when they're first started starting out to really get the customer feedback, see how the product's coming in. Mhmm. Say you're using a new supplier. You wanna make sure that it's actually you're touching and feeling the quality of the cotton or whatever. It Right. How do the the bottles seal? So I I think as a new business owner, that one p l, like, doing it yourself. So one p l defined, you're self fulfilling. One party logistics. Exactly. Party logistics, it's you. You're printing out labels and putting them on. Third party logistics, again, speaking mostly just ecommerce Mhmm. Is you're using a third party to fulfill. They have their own warehouse. You ship your products to them. They ship them out on your behalf. Okay. They'll help they'll help store the product. They'll receive the product, store the product, ship it out, and they'll usually arrange for the carriers as well. Mhmm. So that's that's the 3PL. 4PL is when there's an another layer above the 3PL that will manage 3PL's for you. So this is for much bigger or organizations, usually multinationals that have, you know, hundreds and hundreds of millions of dollars in revenue, if not billions, and they will need what they have is a 4PL layer that will manage those 3PL's underneath them. So they might manage a 3PL in Germany, a 3PL in Memphis, and a 3PL in in Asia. So, like, it will be a whole A lot to do. Whole lot to organize. So, yeah, so it's basically the the architect of the 3PL's. Okay. How do businesses typically decide which one is right for them? I think it really you have to look at your business. Look where you are. And a smaller business, self fulfilling is okay. If you're doing a couple hundred orders a month, like, self yeah. It's manageable. Mhmm. I I like to say you have to have the pizza party problem. And I know there is a pizza party problem with Amazon that, you know, meeting shouldn't be bigger than two pizzas can feed. I don't know if you've ever heard that. Like, that's that's how Amazon looks at it. I have a different pizza party problem. Mine is if it's Friday night and your orders can't get out and you need to have people over to help you pick and pack, your family, your friends, and you have to buy them pizza to help you pack those orders, it's time to look at a 3PL. Yeah. Like or to, you know, get into a bigger space. Mhmm. So that's what I'd always say is when you're starting out, understand each part of the business. I think it's great. And you have to understand when to let it go and let a more professional organization take over parts of it. Right. So when these companies are running, just doing self fulfillment, what are some signs that it's time for them to move on? Are there any red flags for them to look out for? Definitely the pizza party. If you can't get these orders out, that's a problem. If all of a sudden you start moving your content calendar around because you can't get orders out, that's a problem. If you start dictating the rest of your business because orders aren't getting out and you're taking on more customer complaints because, you know, it's taking four or five days to get label on boxes, then you know that you need a change. Like, it and sometimes too, what I always tell people is, like, you need to look within and be like, what do I like to do? Right. Yeah. Do I wanna, like, figure out all the ins and outs, where I put my inventory Mhmm. Where how I print these labels out, what carriers to use, or do I wanna build better products? Do I wanna grow the community around my products? Like, lean into your strengths. Right. So are there any, like, false flags, like, that you maybe there's, like, a seasonal fluctuation and there's, like, a blip that people think, oh, it's time for me to move on, but it's really more of, a process failure and inventory management failure? Definitely. I think there's well, when you're using new tools, like, most of our customers will be on Shopify. So everything moves pretty quickly. So Right. They need to make sure, like, are they using Shopify and just printing those labels? That's an easy thing to do. Right. So a false flag could be like, okay. An influencer that maybe you didn't pay to to see your you know, to to get your product promoted Right. Drops a video. And now all a sudden, you have ten thousand orders. Like, that's gonna take a while. Your community is gonna understand that, and I think you need to know that that might not be the norm. So that's kind of like a false flag to me. Also, in when you just can't find inventory, like, you maybe just made a mistake. one If of your friends who is helping you do things and putting things away Right. Like, that could be a false flag too. You don't wanna start to go into a 3PL if you're not ready to commit to that 3PL for at least a year. So that's the other piece too. Like It's good bull. You have to make sure you have enough inventory to make it worth your while and for the three PL. So earlier, we mentioned how you were instrumental in moving ShipHero away from a four PL towards a three PL model. Can you take us behind the scenes of that decision? What were the early red flags that made it clear that the model wasn't working? It's a it's a good question. And so so it starts out because you try to think back, like, what were we thinking? Like, what, you know, what what were we doing at that time? And Mhmm. Ship Hero was very innovative. We're always trying to create the next thing. Mhmm. And when we thought about the 4PL model, it's very seductive in the sense of you're like, we're a tech company. We can just be that tech player. We don't need to own warehouses. We don't need to hire the employees. We're just gonna be we'll face interface with the customers, and these other people will do the work. That's basically what a 4PL said. I know. I'm being a I'm being a little facetious, but it's like I mean, finance people love this. Right? It's light. It's like we're just gonna make all this money by aggregating all this volume. Like, it sounds brilliant. Yeah. Yeah. And it for many people, especially, like, with international needs when it comes to, like, having a place in Australia, a 3PL in Australia, like or or, you know, in Europe again and in you in the US, it makes sense to have a 4PL. But for the for the up and coming brand, it's very difficult. So we were so coming back to ShipHero, we're like, this 4PL will be great because we'll just be the tech layer. And I still send my my my initial three yeah. My my my 3PL partners, you know, Randall and Tyler in Salt Lake City, Alana in Columbus, Ohio, and Andrew in Dallas. They were our 3PL partners, and they were amazing to work with. They were the actual ones doing the fulfillment. Mhmm. But the things that we sent into them, we didn't know what we were doing at that point too. We were just like, it doesn't matter how big your brand is. Send us your things, and we will help you fulfill. We didn't have any guardrails. And at that point, what we realized was if if we wanna go after an ICP of, you know, brands that ship under ten thousand orders a month, they need to have special handholding on that way on the way through. You have to onboard them correctly. They just can't send in things without barcodes. Oh. So a a big part of the 4PL to 3PL strategy the was following. One, we really needed to understand what the warehouse needed. Like, you just can't throw them customers. Because that was the idea of, like, oh, we'll just we're gonna bring you more volume. We're gonna bring you more volume, and they were excited about But when that volume is just inventory that is not clean, you know, it's mixed all different SKUs mixed in boxes, not barcoded, and you have some unsophisticated sellers, it can get really messy really quick. Can imagine. So at that point, we said, you know what? We need to get back into the warehouse to make our WMS better. We also need to get back into the warehouse because if we wanna service these customers, we have to be able to deal with the exceptions. Right. Period. Like, it's just one of the other pieces about the 4PL that we saw was that there's so many layers. When something goes wrong, it's like a game of telephone. Yeah. I don't know if you guys ever played telephone, but, like, after by the third person, the fourth person Mhmm. The message is so diluted. You're like, well, what was the problem? What what are we fixing? So I think that was a few of the things that came to mind. We just we thought this was a very exciting opportunity to run a four PL. It sounded nice. Yeah. It sounded nice, but then we actually we needed to do the three PL first. So what was the biggest, like, operational breakdown in your opinion? Was it the communication, or was it, like, inventory, like, fulfillment? Like, what was it exactly? So inventory hitting the dock Right. And trying to if it wasn't if it didn't follow perfect routing guides Mhmm. Like, fixing those exceptions was very, very difficult Right. To communicate that. Right. Because you have a ticket with four different people going back and forth talking about this. Easiest thing is for the brand to talk about to talk to the person at the dock receiving this to walk them through what might have happened. Happened. Mhmm. So that was the biggest part that we found. Like, exception management in general, anytime something went wrong, and then the communication to try to fix that. Right. Like, it it was just very difficult. Yeah. And what about, like, demand spikes, like seasonal fluctuations? Like, how do those kind of like, those pressures reveal you know, what do they reveal in the four PL system? In the four PL system, many folks in a warehouse that in a three PL that do four PL services Mhmm. So they don't have direct interaction with that brand. They're just they're just outsourcing it. Right? They're just they're just doing the work. It's it's faceless. It's like, I'm just I never met the person who made this mug Mhmm. But I'm just shipping it. Right. And, usually, I'm making a little less on this shipment than I do on all of my other shipments. And the reason for that is the 4PL has to make their money. Right. So if there's a big spike in volume, I have my other customers I have to deal with first that I will prioritize over those other customers. Like, it's just human nature to to make sure that the customers you directly impact and interact with, would protect first. Right. So if you can only get, you know, eight thousand orders that day, but you have this huge spike, who are you gonna prioritize? You know, sometimes so that's that's a and I'm not saying that always happens, but that is a rub when it comes to the the 4PL model. Yeah. Mhmm. It's like, what orders are gonna get out first? Right. Fair enough. So does that mean, like, the brand carries the risk of hurting their reputation even if they're not the ones controlling the execution? And I think exactly. That's bingo. And and what they're trade I I don't think the trade off is always that well known. And sometimes people don't even realize they're working with a 4PL. They think that, oh, I'm interacting with this brand, this logistics brand that feels like a 3PL, and maybe they have a couple of their own warehouses, but then they're outsourcing a lot of this work. Mhmm. Mhmm. It I would always caution people to really understand, like, are you owning and operating the execution at each one of your warehouses or not? And just having that be very transparent from the jump because, otherwise, you you just don't know. You might you might sign up for something, but you you don't realize they're outsourcing. Mhmm. What are some other downsides of a four p l that businesses should be aware of? Definitely the spikes, the communication lag, just the overall risk. Because who you signed up to work with at that 4PL, maybe they're well funded. But if they've outsourced to a 3PL that Oh. Might not have the cash flow to stay open, and we've seen a lot of 3PL's go under recently, you know, with inventory sitting on their shelves, orders to be shipped, and they just they didn't open for business that day. Oh, wow. So I think that's some of the unseen risk right now, especially where we are with tariffs and the economy and kind of seeing where we're going, especially in the US, like, where we're going. You need to be very careful about actually who you're working with. So on the flip side, I'm gonna play devil to advocate a little bit. Yeah. So some of the major benefits that we hear about 4PL even from you is that communication, you know, having that single point of contact that is, like, kind of tied into the supply chain. They're often thought to have the better technology, as you spoke of as well. In your perspective, is that true? How true is that? So for PL, for, again, multinational conglomerates, absolutely. I think having that control tower to do all of that work Mhmm. Is very important. SMB mid market, I I see it can be helpful, but some of the let me say how it can be helpful. Plain dead devil's advocate. I love I mean, the I hate it's a horrible horrible saying, saying, but, like, the idea that you have one person to go after if something goes wrong because they're responsible for everything. Right. You know? So that's that is nice. You have one person to to deal with. Mhmm. Some of the other things, you can get better carrier rates with all of that volume. So one of the ideas with four PL is that they're aggregating all that shipping volume so they can get the highest tier and pass that along. So there are some really good benefits to four PL. Also, I really like four PL if you're going into other countries. I kind of talked about it before, but you're if going into Europe, you're going to Australia, like, that's great. Use those because there's experts there, and having someone kinda control that flow makes sense to me. And have they evolved at all over time, or have they kinda just been, like, the same since their inception? I think some are getting better with technology. I think, overall, the access to technology is so much better. Like, if you just think the last fifteen democratized. Yeah. It's democratized Mhmm. From twenty fifteen, ten years ago, five years ago. Like, that everything people are building now with, like, like, Claude, it's like Oh, no. It's unbelievable. So I feel like the technology interface is it's almost like table stakes now. Like, you have to be able to have those things. Most three PLs will leverage someone like a WMS, like Ship Hero, so you have the portals to log into, and other WMSs do that as well. Mhmm. So, like, you have all that visibility. Right. Where it used to be c CSV uploads and emails and things like that, like, almost everyone has a portal now. Right. They should. So that piece, I feel like, used to be a huge point for the 4PL's, and I just I don't see that as much anymore. So as technology is spreading out a little more, it's making them a little more obsolete by the day. Sounds like yeah. Agreed. Exactly. It's just and and, again, when it comes to the scale and if you're really moving everything, if they're doing all of your ocean, all of your air, not just, like, your pick and pack d to c Mhmm. And you are you know, the DHL ecommerce's of the of the world working with multinationals, like, that makes sense. Like, but for most of the brands, I feel like we're we're talking about, like, self fulfilling and going to a great 3PL is probably an excellent solution. Yeah. So after ShipHero made its move from a 4PL to a 3PL, what actually changed day to day? How did taking back ownership of the supply chain impact the quality of service and the overall customer experience? It didn't happen overnight. And, you know, we kinda phased it in. We opened up a warehouse in Las Vegas. Aaron opened up a warehouse in Pennsylvania. So I was in Vegas for about four months, and we were on the ground. So all of a sudden, those issues that we were hearing about in tickets, you know, second and third hand Mhmm. We really understood. Because before, I would call someone up at one of our partners, and I'd be like, why haven't you received this product? Like, I'm really interested. Like, I'm curious. Like, why is it taking two, three weeks Mhmm. To receive six palettes? Like, I can't wrap my head around it. Then I saw what six of these palettes looked like with, you know, thousands of SKUs all mixed together. Just it was almost impossible to try to understand and receive these things unless you feel it and see those problems. Mhmm. So right away, we thought we have to be much more direct with our customers on what they can send in and guide them through that process. And so it was a lot of learning at first. Mhmm. And I think it took months to actually help our customers because we had to we had to learn Yeah. About, like, what was truly going on because you only hear bits and pieces. You have to feel the pain Right. I believe before you can really try to fix it. So was that something that boots on the ground was it, like, really gave you the opportunity to Absolutely. And I think it made the ShipHero product so much better because we had to learn how to onboard clients. We actually saw everything in real time and, again, feeling that, like, oh, the system is working this way. Why do I have to back out of this screen to add this? You know, just those little things where a count is off. Why am I starting the count all the way over? Mhmm. So I I really appreciated that time in the warehouse because the learning is daily. You can't help. Right. You know, you're working eight, ten, twelve hours in a warehouse. Like, you're gonna see a lot of problems quickly. Absolutely. Thrown right into the thick of it. Right into the thick of it. It was like COVID at that time too. Oh, wow. People were just throwing stuff at us. Like, everyone needed more warehouse space. I was like, oh, it's easy to sign people up. Yeah. Keeping customers is a different story, but, like, it was very easy because people there was not enough capacity. And our I feel like logistics was probably incredibly different too because that was the the kind of the the it wasn't the start of it, but curbside pickup became very popular at that point. So it kind of added this whole extra layer. It's a great point. It's a great point having all of these different mediums. And, like, you know, all of a sudden, it used to be just like UPS, FedEx. Now all of a sudden, I've got, like, Uber rush coming to pick something up from the warehouse. I've got DoorDash. You know, I have people coming to the warehouse on their own. There were so many different ways that people were were trying to get products out and picked up. So great learning, though. Yeah. Yeah. So in your opinion, what are, like, the major, like, pros and cons of working with a 3PL? Well, biggest pro, I think, is variable costs. Like, if you wanna have your own warehouse, you have to pay that lease whether sales are coming or going. You have to pay that staff November sales are coming or going. Like, those fixed costs add up quickly. Mhmm. And they're there whether it's your peak season or not. Right. Having that variable cost for brand, I think, is key. You know? Only having to pay when stuff ships, obviously, for storage. But I I just think that's a huge benefit with with the 3PL's. Mhmm. And then also just the idea of lower cost because carrier. Like, when we're a 3PL's gonna get better carrier rates than any one brand can on their own Mhmm. Usually depending on volume. So that's huge for brand. The third thing, I think, is just focus. Like Right. You can focus on building your brand, building your community, not worry about, like, why isn't this order coming up on the iPad? You know what I mean? Like, it's just such a different. Like, I feel like people really lose sight of that, like, what they should be focusing on when they wanna build their company. Right. Yeah. So there's no cons then? No cons. It's absolutely like, just come with us. No. I think the biggest con is, like, you lose control. Yeah. Can see some see like, some of those branded experiences that you might want, or they're gonna be very costly. Like, you can find a 3PL to, you know, put pixie dust into the box, but it's gonna be more expensive. So you're gonna lose a little bit of that touch and feel and that control and also just seeing your product day to day. Right. You know, if if especially if you're do using multiple suppliers and testing out new suppliers. Mhmm. You know, it's like, how does the product look and feel? So you're gonna lose a little control and, like, a little closeness to the product. But to me, usually, the trade off is worth it. Absolutely. Yeah. So when a business is ready to actually make that step and just switch to a different fulfillment model, you know, what are some things that they should really look for in a three PL partner? Like, what are some major attributes? Technology. Mhmm. How easy is it gonna be to get integrated with this 3PL? If, again, if you're sending them a CSV of your orders, like, a hard stop. No. They can't be doing that. Like People People do that still. Yeah. People do that still. Like, I I I was on a couple sales calls, and they're like, yeah. My current 3PL is doing this. I'm like, that that is not normal. Mhmm. Like, it is too easy now. There are too many great WMSs that these 3PL should be using. Like, if you're a three PL, you should have a WMS that is easy to use for for the brands. Yeah. So I think that's number one. It's like, what's the technology in their warehouse? Number two, transparency around pricing. Like, what are you charging me for and how? Yeah. And knowing that it's okay. The three PL should make money. Like, you want the three PL to make money. Yeah. So I think that that part about transparency Mhmm. Is really important. Then looking at scalability. Do they have one location versus two locations? You know, if you wanna to just do the East Coast, that's great. But can they open up on the West Coast? Right. Right. Can they grow with you? Or do you know that once you get to that next level, you're gonna have to find someone else? Right. Okay. Are you willing to move again? So those are the things that I always look for is, like, that scalability, the location. Are you okay that if you live if you live in Memphis, like, why aren't you using a Memphis 3PL? You can get everywhere pretty quickly. You know? Right. Why are you using someone in upstate New York? Not that there's anything wrong with that, but I just like that you're you're very you're limiting your your options. Have you ever like, do companies use more than one 3PL? Is that common at all? Or Bigger companies do. Yes. And sometimes we'll see certain companies, they'll use a 3PL for their b to b, like, just, like, quick turns, and and then they'll use another company for their d to c. Oh, okay. So we do we do see that. And they'll use multiple three PL's maybe, again, if they have a three PL in Germany versus the US. So they'll use multiple three PL's. I don't see many midsize brands using multiple three PL's for d to c in the US. Like, that's just too much to manage inventory wise. Right. And it's just very costly, and there's just a lot of yeah. Makes sense. Yeah. So when it comes to cost, how do 3PL and 4PL models typically compare? It's a good question, and I think you would think that the four PL model would be a little bit cheaper because, like, part of their idea is, like, we're aggregating all this volume. We're able to work with them. It's it's very you know, we'll be able to lower cost. your Mhmm. But I find that the four PL model, you end up paying a little bit more because there's someone else eating at the table. Right. You know, they they have a whole team under them, and they're interacting with other teams. So I find the four PL model I've seen to be a little bit more expensive. Again, this is SMB mid markets when they try to do it because there's more people to feed. Yeah. Period. Yeah. Like, when you're dealing directly with a three PL that maybe has one or two locations, they don't have as much overhead. Yeah. And they'll be able to get you better rates on, like, the pick and pack, and you'll get more of a feel for it. So I hate to say that it depends, but it does depend. Okay. Yeah. And it depends on what your products are like, how much inventory you can hold on to, how many orders you're doing a month. Mhmm. Yeah. Because all that plays a little bit of a difference. For sure. Looking back on Ship Hero's pivot from a four PL to a three PL model, what were the biggest takeaways? The biggest takeaway was that we always if we're building products that are used in the warehouse, we have to test them in the warehouse. We have to be in the warehouse. It's not just about picking and packing things faster. It's about how do we figure out to manage this business, manage the workflows, manage help manage the customers. So because, again, I think with technology democratizing, as you said, like, it it's very easy to build stuff. Like, are you building the things that customers need? Right. So I think that was one of the biggest takeaways is, like, we were building a lot of cool stuff, but, like, what are three PL owners and brands that run their own warehouses? Like, what tools do they really need to manage the business? Right. So I thought that was, like, a huge takeaway of, like, you can build a lot of cool shiny stuff, but, like, what do people need and use? Right. Yeah. That's a great point. That's such a great point. Yeah. The flashy features rather than the useful ones. You know? Yeah. And it's like because it is really cool when you can do do something flashy. Like, it's fun. Yeah. But, also, does it really help move the needle? Like, will that drive EBITDA for that three PL owner or not? Right. Fair. Yeah. Was there a specific moment or trigger where you're like, oh, this isn't working and then made it undeniable that the four l wasn't working? There are so many moments when we had a 4PL where I thought, wow. This is not working. Yeah. Like, there were so many of this. It was a bit I was just like, this game of telephone constantly happening. Like, people are not happy. The our partners aren't happy. The customers aren't happy. We're not happy. I'm like, this is not working. And there was ways that we could have cleaned it up and maintained that 4PL model. Mhmm. However, I think to best serve the customers, going back to going towards a 3PL was the number thing one because we really heard their complaints straight from their mouth. We were able to understand the warehouse's complaints and how to address those to say, like, hey. Like, we can actually fix all of this. So I think it was just it was a cumulative effect, and it was time for us to get it back in the warehouse. Yeah. What was the first metric or customer signal that improved after the model changed? I think I didn't have to work on a Sunday because I knew there weren't there weren't complaints. You know what I mean? Like, it started it was it was working. And I think sometimes one of the things about running a 3PL, everyone doesn't give you, like, a high five when everything gets out on time. Usually, you only hear when something goes wrong. Mhmm. And that's okay. That's part of the business. Right. And I think all of a sudden when there was, like, those quiet times, I I could see on our dashboards, a lot of volume is going out, and the tickets aren't going aren't going up. The tickets are closing faster. So I guess the metric would be tickets being closed faster because when something was happening, we were able to address it very quickly or address it before the customer even need to note even needed to notify us. To me, that was the win. Like, that we're servicing them better at a better price. Right. Right. So things just started getting boring, essentially. Yeah. I was like, what else I was like, what else are we gonna work on? No anxiety. Yeah. Good problem to have, for sure. To have. Like, I felt like like there was definitely a tonal shift on that. Yeah. Mhmm. I'm glad you got your Sundays back. Yeah. Was great. It it was nice. Yeah. So when we think about the future, you know, and all the technology, and we talked about Claude and all this stuff, would you say, you know, how do you think that these fulfillment models are gonna change? Are they gonna evolve along with it? Like, what do you foresee the future's gonna look like for, like, a 3PL? I think three PL's are gonna get really good at leveraging their WMS's APIs. Like, can build everything all of our three PL customers at ShipHero always want different features. Yes. And right now, we keep doubling down on opening up our API so that they can build those. Right. Because they wanna use their own interfaces. They wanna create their own workflows. Like, let them. Mhmm. And I think empowering them where we have that core platform, that trusted, you know, inventory management system, order management system, that can be the trusted core, and then allow them to build things off of it. Right. I think that's gonna be kinda like the biggest shift is, like, we're not trying to eat every feature. Like, we're not trying to just, like, build the worlds because people wanna build their own worlds. And if you ask ten people who run warehouses to, like, go set up a warehouse, they will tell you ten different things. Yeah. Of course. So I think it is one of those professions that it's like, we all have opinions. So being able to give them that flexibility is what we're gonna lean into. Yeah. That's great. Because I Yeah. Feature bloat is such a it's such a bad thing, and it can make products so hard to manage because there's, like, ninety percent of the things that are there are kind just of messing up your interface and stuff. I one feel where you're coming from on that, making things a little more personal for each individual. So going back to 4PL just really quick. I'm curious, actually, if there is technology, maybe say AI, for example, that you think will help improve the 4PL model or if it's just kind of Yeah. I think, again, 4PL for the right type of company can be awesome. Mhmm. You know, I I really think when products are simple, guidelines are followed. Like, it works. Like, it can work. I think trying to work at scale with SMBs is very different than, you know, working with a handful of multinational corporations. Right. So I and I think they'll leverage AI similar to how, you know, the SMB bid markets will. Again, it's just everyone needs their own has different needs. Right. Fair. And I think that's really where it comes down to where we've really leaned into SMB bid market. And I just don't believe the 4PL works as well there. Fair enough. Yeah. So for businesses that are kinda hesitant to do any of the outsourcing, and they're did they kinda just wanna keep it all in house? Do you have any, like, maybe tips for them to kind of, like, extend their in house, you know, before they move on to a three PL? I think if you wanna run your own operation as a one p l, I think it's fantastic. Over fifty percent of our customers at Ship Hero are brands that run their own warehouses. Okay. So just get a great WMS. Mhmm. You know, get the tools that you need. I think if you're good at hiring for those positions and people are excited about it and I think there's certain types of products that lend itself to that. Like, if you're trying new suppliers all the time Mhmm. Or doing, like, apparel, embroidery, you know, any sort of customization, like, it is really good to run your own warehouse. And I think sometimes we think about o one p l. It's like I kinda joked about, like, the garage and the pizza party before. Right. But, like, there's there's people who self fulfill that have five warehouses, you know you know, across across the US. And you're like, oh, these, they're very good at what they do. So I think too, those are kind of the outliers, but, always just get a great WMS. Keep it in house. I totally think that can be great if you have the right team. Awesome. Is there any, like, specific type of company or brand that you think that should stay in house longer than they might think? If there's a lot of complexity and if you really haven't found, like, product market fit, like, you're still trying to figure out what exactly you want, I think that's where you're, like, keep it in house. If you're still, like, doing some testing and really if it's not fully packaged yet, I'd keep it in house. Okay. Because you're gonna have more flexibility than signing a year contract Fair enough. Yeah. With With a partner and committing to minimums and things like that. And for companies that are doing a lot of multichannel fulfillment, they're doing to direct consumer. They're doing wholesale retail, all the things. Like, is there anything that they should really be kinda, like, aware of when they're moving over to 3PL? Definitely make sure they have b to b chops, and they understand retail compliance. We've seen all of our brands making big a push into omnichannel. I think we all know it's harder to sell directly to consumers right now and Mhmm. Going to the Targets and the Walmarts. You have to do it. Yeah. So find a 3PL that has a good technology stack that can support b to b and understands retail routing. Okay. Because chargebacks are, like they're real. Yeah. And I think, like, it's so many of our d to c brands. Like, this is a brave new world when it comes to that, so to really understand what they're getting into. So when it comes down to it, when is the best time to move into a three PL or consider more complex models, or is it about understanding your own operational limits first? There's a lot there. There's a because I was just gonna say February. February, do not do not try to change anything during peak season. Oh, no. You know, I think if you're gonna do this, it's always like a q one. Yeah. You know, q one, you know, put out the RFP, start looking. Never be in a rush to do this. I know people wanna be in a rush. Find the right partner, visit that warehouse, understand the pricing. Those types of things go a long way. I think people who don't do their homework up front end up 3PL hopping. Okay. And it's not because of the 3PL necessarily because the 3PL just didn't answer questions that they weren't given. You know, there there was just a misalignment of incentives there and a misalignment on on what was being provided. So I think that's the thing. I'd say just don't rush it Yeah. Mhmm. Because where that's you're gonna spend a lot of money moving inventory multiple times and not having that inventory available for sale. Right. So Yeah. And you're gonna lose focus. Yeah. So for business owners who are listening right now that are struggling with a 4PL or a three PL, what advice would you give them to start diagnosing what's going wrong? You really have to see why well, first, like, what's the problem? Like, is it a receiving problem? Like, if if if things are taking too long to get received, you need to to the manager of that warehouse and be like, what is wrong with my product? Like, what can I do better? Mhmm. Like, why is this not happening? Are is it a capacity issue? Is it a labeling issue? I think truly understanding the issue first. So is it receiving? And if it's receiving, do a deeper dive on, like, what is actually happening. Why aren't my orders getting out? You have to you you need to get someone on the phone at that warehouse to be like, is this a capacity issue again? Like, are you not getting them out because you don't have people to ship them? Are you not seeing the orders on the iPad, you know, on what the device you need to? Can you not find the inventory? So that's where you start to do some of that diagnosis of, like, why can't you ship this? Like because because it could be a tech problem. It could be a personnel problem. Like, you need to understand those pieces first before you, like, jump to any conclusions because people have bad days. Like, 3PL's, even though they're tech enabled, will have a bad day. And sometimes just understanding what happened at that moment. You know? Maybe there's an ice storm in Dallas. Yeah. Like, don't know you know? Like, those are all the things that you have to start. That's true. You have to really take the time to dig in and kind of understand it. Yeah. And get the right people on the phone, and keep calling until you do. Yeah. I was just gonna say, that can be hard sometimes. Yeah. A hundred percent. And that's where I think too, like, that first part when you're when you're onboarding a 3PL or when you're interviewing 3PL's is like, who is my contact? Yeah. What is my escalation path? I hope I don't need to use it, but I need to understand that Right. To diagnose these problems. Otherwise, there's just gonna be frustration on both ends. Yeah. Yeah. Lastly, for someone trying to build or refine their fulfillment system for the long term, what's the most important principle or mindset you'd want them to focus on? I think the first thing whenever I'm speaking with someone that's asking questions about, like, the a brand that comes to me, I'm like, what is long term for them? Is that, like, getting through the next year? Like, are they thinking in quarters? Are they thinking in years? Are they thinking in decades? Like, what are they really trying to achieve? Because some folks are like, oh, I just wanna, you know, hit this many sales and then flip it to private equity. Okay. There's a different path for that Right. Than, no. I wanna build a generational company. And that from there, you can kinda say, okay. Well, here are some great technologies that you can use because you only need a one year agreement. Here's someone that you could build a relationship for the next five years. So I think first understanding their goals and when they wanna exit in a sense. You know? Like, what is the vision? Yeah. The big picture. The big picture. And because it's because long term is different for everyone. It's because people now, it's like, I wanna sell a company in a year. No. I wanna hold it for ten. Yeah. You know? So I think that's really understanding what their goals are and then plotting a path. Did not think of that. Yeah. And that's a wrap for today's episode. Thank you so much, Maggie, for coming in and explaining all these different fulfillment models. Honestly, I don't think there'd a better guest to really have them to discuss this. So thank you again for coming. Thank you, Mega. We learned so much about operating in house, working with three PL and four PL partners. And before we let you go, where can our listeners go to find you and stay updated on your work? Oh, you can find me on LinkedIn, so we can probably just add my actual LinkedIn at the bottom. And then also, I'm just Maggie at LVK and Maggie at Ship Hero. We've got some great events coming up. We have our Ship Hero insider event, which is for 3PL's. So if you own a 3PL or run a 3PL, reach out to me. I can try to get you a ticket. And then if you're a brand in September, we're doing an amazing event in our Las Vegas warehouse. So if you're a brand and you wanna attend, reach out to me on LinkedIn or send me an email. Awesome. Awesome. Yeah. Everyone, be sure to check out Maggie on LinkedIn. We'll leave all her links in the description box below. If you like this episode, please leave us a like, comment, subscribe, do all of the things. We have some great guests coming up, so stay tuned for that. Thanks again everyone for tuning in and we'll see you in the next episode. Bye.