Handing your inventory over to someone else requires that you trust a warehouse full of people you’ve never met to handle product you’ve spent money, time, and energy getting right. So the question that keeps a lot of shippers up at night isn’t really “will my 3PL make a mistake?” It’s “what happens when they do?”
I’ve been in the logistics space for thirty years, and no matter how careful a 3PL is and how many processes they have in place, mistakes happen. Anyone who tells you their warehouse has never lost a single item is either brand new or not being straight with you. What matters isn’t whether a mistake ever happens — it’s how it gets caught, how it gets handled, and whether your contract protects you when it does.
Why does inventory go missing at a 3PL?
In my experience, when inventory goes missing, it’s almost never a technology problem. It’s a human one.
Our warehouse management system does exactly what it’s supposed to do. It tracks every carton, every unit, every location. But at some point, a person still has to walk to a shelf and physically pick the right item. And people have off days.
Here are a few of the most common ways a pick goes wrong:
- An operator scans a barcode correctly, but instead of opening the carton and pulling out a single unit like the order calls for, his hand grabs the whole carton. The system shows one unit shipped. Thirty walked out the door.
- A carton gets bumped off a pallet while someone’s moving through the warehouse, slides under a rack, and doesn’t turn up again for years.
- Product arrives from the shipper mislabeled — the paperwork says one item number, the box says another — and the discrepancy doesn’t surface until someone goes looking for inventory that was never actually received the way it was recorded.
- Two similar items sit in neighboring bin locations, an operator gets distracted mid-pick, and reaches into the wrong box.
Every one of these is the kind of small, human slip-ups that happen in any warehouse, at any company, staffed by real people. Mistakes happen when humans are involved – period. However, there are systems that can help mitigate these errors.
What your Warehouse Management System (WMS) can and can’t prevent
Good scanning technology closes a lot of gaps. If an operator scans the wrong barcode, the system stops him — it won’t let him pull from the wrong box. That catches a real percentage of potential errors before they ever leave the building.
But the system can only verify what gets scanned. It can’t reach into the box for him. If a hand grabs more than the scan accounted for, the technology has no way to know that happened until someone notices the count is off. That’s the limit of what any WMS can do, no matter how good it is.
What’s “normal” to expect in your contract
Because mistakes are a reality of the business, most 3PL contracts include language for it — usually called something like a “mysterious disappearance” allowance. It’s a small percentage, agreed on by both sides upfront, that accounts for the handful of units that go missing in a given year despite everyone’s best effort.
If your contract doesn’t address this at all, that’s worth asking about. Not because you should expect chaos, but because a 3PL that’s willing to put a number on what they will be responsible for and stand behind that number is telling you something about how they operate.
Here’s an example of how we addressed this for one of our clients.
A real example: solving a chargeback problem with camera-verified pallets
One of our clients came to us after their previous 3PL kept getting hit with chargebacks from a major home improvement retailer. Product would show up at the retailer’s dock, and the count would be off — a pallet built with ten different SKUs was supposed to have 47 cartons, and only 45 would arrive. Their old 3PL had no way to prove what actually left the warehouse.
When we started working together, they wanted contract language around mis-shipments before they’d sign. So we proposed something simple: we build every pallet for that account in front of a camera. The footage gets saved and tied back to the purchase order. If a discrepancy ever comes up, we can pull the recording, count the cartons going onto the pallet, and know exactly what left our building.
Since we started that process at the beginning of the year, we haven’t had a single mis-shipment on that account.
Not every 3PL will be willing to accommodate a solution like that, but it’s an example of how you can build a great partnership to get ahead of common problems. Even with proactive problem-solving, mistakes will still happen. The next question you should have for your 3PL is how those mistakes will get handled.
What to expect from your 3PL when a mistake happens
Here’s the piece I’d encourage any shipper to think through before they sign with a 3PL: it’s not really about whether a mistake will ever happen. It’s about what your 3PL does the moment they realize one has.
Does your 3PL call you, or do you find out when your own customer complains first? Do they own it, or do they look for reasons it wasn’t their fault?
A recent mistake in our operation is a good example of what that should look like — one of our operators caught his own error, walked straight to our operations manager, and said, “I messed up.” Our team called the client within the hour, before the client even knew there was a problem.
That’s the standard I’d want from anyone handling my inventory.
You can cover your bases with a solid contract, but before you sign with a 3PL, ask them: what happens when you make a mistake? Their answer will tell you more than any sales pitch could.
Lost inventory is part of doing business. But it shouldn’t be the norm.
If you’re evaluating 3PL partners and want to talk through what should be in your contract around accuracy and accountability, I’m happy to walk through it with you.
