The Hidden Costs of Staying with the Wrong 3PL

Is your current 3PL costing you too much money or customers (which then costs you money)?

The prospect of switching 3PLs can feel like climbing Everest. You have to vet the new 3PL, move all of your inventory to their facilities, and get your team used to working with the new partner. It’s understandable to feel overwhelmed at the thought.

But if your 3PL isn’t the right fit (or you’ve outgrown their capability to meet your customers’ expectations), the cost of staying is far greater than the effort to move. It only takes three or fewer bad experiences with your brand for most customers to give up on you and move on – and the higher your customer churn, the harder it is to scale and grow your business.

Even setting aside the hit your brand reputation can take from slow or missed deliveries, a bad 3PL relationship can cause a cascade of negative effects throughout your operation. Poor communication, inefficient processes, and rising costs all make your job much harder and cost you extra time and resources to keep putting out the fires your fulfillment partner starts.

That’s why it’s crucial to understand when it’s time to switch from your current 3PL – and more importantly, what to look for in (and expect from) a new one.

The Wrong 3PL Costs You Time, Money and Reputation

Maintaining a successful business requires everyone involved, from your internal teams to your external partners, to work together efficiently. If your 3PL isn’t keeping up its end of the partnership, it’s all but impossible to keep your customers happy and grow your business.

The most direct (and obvious) cost is in actual dollars. Inefficient fulfillment and mistakes cause your expenses to skyrocket. Incorrect shipping labels, slow or delayed shipments, and lost or damaged inventory all put a major dent in your profits. And if your 3PL is working with outdated or inefficient technology and processes, those errors and delays will keep adding up, especially as your business expands and order volumes increase.

“[The wrong 3PL] hurts any sort of momentum you might have as a company.”
Peter Davis, VP/GM of Fulfillment, WSI Supply Chain Solutions

What Does the “Right” 3PL Look Like?

Hopefully by now, it’s apparent that the right 3PL makes all the difference to your business success. But how do you choose the “right” 3PL to partner with?

While each business has its own unique needs, there are some traits you should look for in any fulfillment partner you consider.

First, look for a provider with expertise in both business-to-business and direct-to-consumer fulfillment. These two areas are very different in terms of chargeback requirements, compliance, and other concerns – and you don’t want to have to work with multiple 3PLs to serve all of your different customer bases.

Another important consideration is the footprint of the 3PL’s operation. You may only operate regionally today, but a 3PL with a national footprint will be able to continue serving you as your business grows and expands to other regions. Also, do they have a big enough footprint to handle peak seasons, demand surges, or significant growth?

Look for a partnership, rather than a transactional relationship. The best 3PLs want you to grow and scale to multiple facilities, and they have the people, equipment and technology to handle that.
Peter Davis, VP/GM of Fulfillment, WSI Supply Chain Solutions

Onboarding is another potential pitfall. Any 3PL you consider should have a well-established, time-tested onboarding process that moves your inventory efficiently and, as noted earlier, minimizes any lapse in service. Mistakes during onboarding can cause huge fulfillment problems or backups as issues get resolved, so make sure your new provider has a solid plan in place.

You should also look for a 3PL with a good technology backbone and excellent customer service to support that tech. Self-service portals are great, but if an exception occurs, you want to be able to get a human on the line to solve it fast.

Switching 3PLs that should offer a phased approach to implementing their technology, so your mission-critical tasks are handled first. For example, order creation and the shipping confirmation process may be the initial phase, while returns, inventory-specific tasks or item automation can wait for future phases.

Finally, the new provider should offer data migration assistance to ensure all of your information is cleansed, validated, and migrated to the new system properly.

Your best bet for finding a great 3PL is to talk to their references. Don’t just ask how happy they are now – find out how the 3PL handled any disruptions or problems. These issues can happen to any business, and knowing how a provider responds to them is a great indicator for what kind of partner they will be.

Look for a provider with user-friendly systems. At a minimum, they should include:

• A clear, easy-to-navigate user interface.
• Easy integration with the systems critical to your business (such as ecommerce systems or the ability to integrate with big-box retailers you sell through).
• Compliance tools like labels or packing slips already in use that can be easily scaled to your operation.

Speaking of increased order volume, another major problem caused by a bad 3PL partnership is the inability to handle your peak seasons. Even if your 3PL is great most of the year, if they’re overwhelmed by your high-volume periods, they’re going to cost you customers and jack up your rate of returns.

Other issues may feel less concrete when it comes to your revenue but are no less troublesome to your day to day business operation. For example, poor communication and slow responses to your messages are not only frustrating – they can also lead to missed information that causes shipping delays and inaccuracies in orders.

These problems also erode the trust between you and your 3PL and cost you extra time and labor to monitor operations and make sure things are getting done on time.

Challenges to Switching 3PLs

Of course, switching 3PLs comes with its own set of potential problems.

One of the biggest objections to changing your provider is likely cost. All businesses are sensitive to expenses, and this is even more true if you’re a small to mid-size, growing company with tight margins and limited cash flow. But when you compare the costs between losing revenue to bad/ineffective fulfillment processes vs. choosing a provider who’s a better match and can help you grow, the math becomes a lot more palatable.

One way to get around the sensitive topic of cost is to look for a 3PL that’s focused on building a true partnership and can offer payment options in exchange for a long-term contract. For example, a fulfillment provider may offer to amortize your startup costs over a period of months or years so you don’t have to come up with tens of thousands of dollars up-front.

Another concern you or your leadership may have is the effort required to transfer all of your inventory from your current 3PL to the new one. Here, again, the key is in finding a provider with an established, time-tested onboarding process and a project management team to help you handle the transition. A good 3PL can walk you through the whole process, including inventory transfer, interim tests, and validations to make sure everything goes smoothly. They may also broker the transportation for you – and leverage their competitive FTL/LTL rates to save you additional costs.

Worried about a lapse in service while the transfer takes place? There are ways to minimize this, too, though the methods depend on your business size. Large businesses, for example, can build a bigger on-hand inventory at their current 3PL to maintain shipping operations while they gradually move inventory to the new provider. Once enough inventory is built up at the new 3PL, they can convert and transfer the rest without ever having to halt operations.

For smaller businesses, loading up on inventory and supporting two warehouses during the transition might not be feasible. If that’s you, the best way to cut down on service delays is to be proactive. Collect all the information your new 3PL will need, stay well organized before and during the switch, and communicate regularly with the new provider to make sure everything’s moving on time.

How to Ensure a Successful 3PL Transfer

The most important thing you can do to endure a successful transition to a new 3PL is to choose the right time to make the switch. Trying to transfer your inventory and processes to a new system in the middle of peak season is going to cause frustration and headaches all around.

Make sure you understand your contract with your current provider, and allow plenty of time ahead of its end to switch to the new 3PL. Allowing enough time for the move without the pressure of a seasonal increase in demand will help remove the stress from the process.

On a related note, you should prepare an item velocity analysis (which products move faster than others) and forecast of order volumes. The velocity analysis tells the 3PL which items to place closer to packing stations to cut down on employee legwork, and the forecast ensures your new 3PL can schedule enough labor to get orders out on time.

During onboarding with a new 3PL, your business has just as big a role as your new fulfillment partner.
Greg Doering, Senior Customer Onboarding Manager, WSI Supply Chain Solutions

Another important project before you start the transfer is to get everything squared away with the old 3PL. Do a thorough inventory check to make sure there are no discrepancies, and get any billing balance cleared (or close to zero) to avoid any transfer delay due to the old provider holding your inventory until bills are paid.

While checking inventory, take note of any “dead” stock – items that haven’t moved in quite a while. Every item has a cost associated with transferring it to the new warehouse, so it’s better to dispose of non-selling items at the old 3PL instead of moving it to sit on a shelf at the new one.

In order to make everything go more smoothly, you should assemble a team that can focus on the transfer and interact with the new 3PL in case any questions come up. This team should, if possible, include an operational lead, an IT representative, and a logistics coordinator.

The most effort-intensive task on your side will be gathering all of the information and documentation your new 3PL will need to ensure smooth fulfillment from the start. This includes:

• A SKU master list with all relevant product information (including weight and dimensions)
• Historical shipping data (for at least the previous six to twelve months)
• Volume of transfer (high-level estimates of the workload, like the number of pallets to be moved)
• Specific requirements for your business/ products (such as storage/handling requirements, lot tracking needs, SDS for hazardous products, retail compliance, or other regulatory information)

IT’s Role in the Transfer

Getting all of your data into the new 3PL’s system also requires special care and attention. The first task is data cleansing and validation: making sure all of your item setup details are correct and that items are validated properly as they arrive at the new 3PL.

Coordinate with the new provider to develop a contingency plan in case an issue arises. For example, if the inventory automation process isn’t ready at the time of transfer, put a plan in place to reconcile inventory between your system and the 3PL’s until that automation is in place.

What to Expect During Your 3PL Migration

You’ve vetted and chosen a new fulfillment partner, and the day has come to start transferring your operation to them. What activities and milestones can you expect as the migration proceeds?

First, expect heavy engagement on your end up-front. This includes all of the prep work discussed above – gathering essential information, creating your SKU master list, and communicating all of that to the new 3PL.

Once IT has integrated your system and the 3PL’s, you’ll go through some training on the new system interface and how your team will work with the new partner. All 3PLs are slightly different, so you may need to learn how to use their customer portal, their order process, and navigational differences from the old system to the new one.

For your best chance at a successful transition, plan for weekly or biweekly meetings with the new 3PL to make sure the transition is moving smoothly. Having planned meetings is more reliable and requires less back-and-forth than trying to manage the process via email or phone.

Don’t cut corners. Attempting to go too fast to avoid service interruption can backfire – you lose time needed to test everything, and end up with a worse customer experience than you’d have with a short service outage.
Greg Doering, Senior Customer Onboarding Manager, WSI Supply Chain Solutions

Changing 3PLs: Benefits Outweigh the Costs

If your current 3PL is letting you down, the effort and investment to switch is well worth it. Inefficient fulfillment processes create bad customer experiences, which degrades your brand reputation and costs you money, time, and frustration.

By choosing wisely and planning ahead, you can partner with a 3PL that is better able to handle your unique business needs – now and in the future.

As a leading private third-party logistics provider, WSI has built a solid reputation for delivering exceptional warehousing, fulfillment, and supply chain management solutions. WSI’s customer-centric approach ensures that customer transitions are tailored to their unique needs, meeting deadlines and never sacrificing accuracy or quality. Learn more about WSI’s reliability promise at www.wsinc.com