Close
Thank you!
We’ll get back to you as soon as possible.
Oops! Something went wrong while submitting the form.
Switching 3PLs can seem like a daunting task. We've create a process to make it a lot more manageable and a lot less scary.
Switching 3PLs can understandably feel like a daunting (let's fact it - downright abhorrent) task.
But this critically important process of connecting your goods with your customers in a manner that is reliable, accurate, efficient, and scalable is paramount to your brand's success. As such, tackling this problem head on can not only set up your brand for long-term success but also make your day-to-day operations a lot more efficient and pleasant to manage.
Figuring out how to differentiate among 3PL partners that will provide both smooth day-to-day operations and propel your long-term growth can feel incredibly overwhelming. Inertia is also very real. The natural tendency to ruminate on "what could go wrong?" rather than shift your focus to the question of "how much better could this be and how much value could be generated?" often leaves many retailers with analysis paralysis. Even when your current 3PL’s performance and capabilities are sufficiently lacking and frustrating enough to make you dream of upgrading to a new 3PL partner, you can often talk yourself into settling and remaining with a suboptimal solution by telling yourself that perhaps the status quo is not quite bad enough to leave.
Small annoyances can often begin to fester into larger problems, however, as a retailer grows and scales but their 3PL’s lack of sophistication cannot support their growth and holds them back. In some cases, a 3PL’s inability to keep pace with a brand’s growth will result in a deterioration in fulfillment performance that leads to significant business disruptions and customer loss, and the retailer is then forced to take action quickly, with a sudden switch to a new 3PL forced upon them while the brand is in panic mode - a less than ideal state from which to be making thoughtful long-term decisions.
The good news? At Mochila, we've created a framework and process you can use to make switching to a new 3PL a lot more manageable and a lot less scary.
Note: Much of this specific recommendations in this guide are geared toward larger companies with more inventory (e.g. companies with at least $25 to $50 MM in annual revenue), but the principles can still be helpful to smaller companies contemplating switching to a new 3PL.
When I talk with retail leaders, I often hear that many truly believe that switching 3PLs would significantly improve their business, but a deep fear of the unknown and the dread of having to allocate resources to switching holds them back. In my opinion, if you are at this point in the thought process already, beginning the process of switching is most likely already long overdue.
So when is the right time to start contemplating a switch?
The ideal time to start seriously contemplating a switch is as soon as the first of several warning signs present themselves. This is not to say that you should switch immediately upon seeing these red flags, but rather this is when you should begin the process of exploring and, more importantly, concretely developing alternatives to your current 3PL.
There are generally two main catalysts for change that lead retailers to switch 3PLs: retailer growth and technology shifts.
Retailer Growth. As a retailer grows, it is naturally adding more inventory to support higher revenue. Often, that new inventory can be sent to multiple fulfillment locations, and one of those locations can be a new 3PL. Sometimes, the new inventory is created to support new sales channels, e.g. a DTC brand expanding into wholesale or a new offering like personalization services such as embroidery. The addition of this new inventory gives the retailer a low cost way to deploy inventory closer to its customers, provide additional capacity, or both - and just as important, give the retailer the opportunity to test out a new 3PL.
Technology Shifts. When a retailer changes its technology platform or that platform offers new capabilities, switching may suddenly get easier.
For example, as some of our clients have grown, they have upgraded their ERP and order management systems. While developers are working on launching these new systems, the incremental cost of adding a new 3PL can be much lower. While the developers are working on integrating these new systems, adding a new 3PL becomes a natural part of that project.
In other cases, an existing platform provides new capabilities that support multi-location fulfillment. For example, Shopify has built-in support for this, allowing retailers to more reading add another location (and 3PL) to their fulfillment strategy.
As these technology and platform changes occur, it is also a good prompt to consider whether switching or adding a 3PL to your fulfillment network could be beneficial.
While certainty is unfortunately never guaranteed, there are many ways in which you can gain familiarity and confidence in a potential new partner through initial due diligence and then perhaps through an incremental approach to a 3PL switch, as we outline below.
There are the usual things you should consider in your initial evaluation: the location of its facilities, SLAs, technology platform and integration capabilities, account management and support structure, and, obviously, prices.
But beyond the obvious, we at Mochila believe a good fit must involve the dimensions of a good partnership.
Our first and most important piece of advice is to consider choosing a 3PL as if you are hiring a fractional Vice President or Director of Fulfillment Operations.
Too often, we see retailers searching for a 3PL using a simple vendor selection process, trying to compare lists of prices, SLAs, and capabilities to find the optimal mix. While all of these things are certainly important and a necessary part of the selection process, they overlook the often critical parts of the 3PL relationship.
Most vendors are not directly critical to a brand's success. For example, while services like accounting, tax, and procurement are important, they are not "tier 1" services - services that, if they break, can wreak havoc with the customer experience and the brand. Your website, fulfillment operations, and, most importantly, the products you are selling are all tier 1 services: If they are not working properly, the pain will be shift and impactful.
For fulfillment operations, it is critically important to find someone who you trust and with whom you think you can have a strong working relationship, just as if you were hiring a key employee directly. When challenges arise in the supply chain - and they always do - you want someone that has the experience, intelligence, and capabilities to help your brand overcome those challenges.
When you are interviewing 3PLs, this is the lens that should inform the kinds of questions you ask. Who exactly will I be working with at this 3PL? Do I like, respect, and trust these people? How difficult or easy will it be to work with them?
The second critically important thing to understand how well does the culture of the 3PL align with the objectives that you have.
For example, if, on the one hand, you have a low average order size, few repeat customers, and little complexity to your business, then finding a 3PL with really low costs and little support might be the right fit. If however, on the other hand, you have customers with a high lifetime value and lots of complexity, then you should focus on 3PLs that are able to provide a higher level of support. Similarly, you should consider whether you're are looking to grow significantly, and how could a 3PL's current capabilities support that growth.
And perhaps more importantly, you'll want to understand how has a 3PL evolved and grown its own capabilities in the past; the market is always changing, and it's hard to predict all of the capabilities you'll need in the future. Choosing a partner that can grow and evolve with you will make things easier in the future.
There are a variety of ways clients can start working with Mochila. Some clients need to launch with all of their inventory at once, but many clients find that an incremental approach can be beneficial - allowing both parties to build systems and processes for working together in a lower pressure way.
Below is a sampling of incremental launch approaches that we have found to be successful in the past, with an initial focus on the following areas:
When you have enough inventory to support fulfillment from two locations, you could engage another 3PL to cover a specific region of the country to achieve lower shipping costs and faster delivery times.
As your business expands, you'll often add new sales channels or your existing sales channels grow to a sufficient size where it may make sense to adopt a multi-location fulfillment strategy, with specific locations dedicated to certain sales channels. This becomes an especially attractive strategy when you are not able to comingle inventory across sales channels - the separate locations ensures the inventory is clearly separated.
A new 3PL to add seasonal capacity
A new location or 3PL can also be helpful in providing supplemental capacity during peak seasons. Many retailers face dramatic increases in order volumes around Black Friday. While having multiple locations may not make sense most of the year, for a couple of months around Thanksgiving and Christmas it may help to have multiple locations to handle the surge in volume while also positioning inventory closer to customers.
A new 3PL to provide specialized services like reverse logistics, EDI, or personalization
There may also be instances when it makes sense to engage a new 3PL to handle special services like processing returns (reverse logistics), providing personalization services like embroidery or laser etching, or processing EDI orders with major retailers.
While we have found much success with incremental launch approaches for many of our partners, there are a couple of potential challenges with an incremental approach:
It is necessary to have an order management system that can intelligently route orders between an existing solution and another 3PL. While this is a potential challenge worth flagging, we do note that solutions to this issue exist. For example, Shopify and other ERP has built-in routing capabilities. In addition, segmenting by sales channel can also provide a natural routing mechanism.
Whenever inventory is stored in multiple locations, there is always a possibility that an order could be fulfilled from multiple locations with multiple shipments ("split shipments"). A significant increase in split shipments obviously would increase costs significantly. To prevent this from occurring, it is necessary to have a limited number of SKUs or a significant amount of inventory for a few fast-moving SKUs that can be safely fulfilled from more than one location.
Mochila can help advise on when a multiple-location fulfillment strategy might be beneficial as well as how such a strategy might be implemented. Interested in learning whether adding a 3PL might help diversify risk, create options, and lower costs for your business? Schedule a call with us today.
.png)
.png)
.png)
.png)
.png)
.png)
