15 December, 2023

Switching 3PLs — No Aspirin Required

As a concrete wall tore through the back of my van, I realized there’s nothing worse than moving homes. I was relocating from Los Angeles to San Francisco. There was a time rush to get out of the old apartment and figuring out the logistics of getting to the new place was a nightmare. As a result, I didn’t pay enough attention and cut a corner in the parking garage, creating a terrible start to the transition.   

In many ways, switching 3PLs creates many of the same headaches as moving houses. It’s potentially time consuming, expensive, and laden with risks of misstep. Worst of all, it’s never certain the new place will be better than the old one.   

Why is switching 3PL partners so difficult?  

Successfully changing providers is part science, part art. Though there is no magic formula, I have found the following factors tend to cause the most pain:  

No one at the 3PL truly “owns” the transition.   

Instead, the customer deals with a morass of people who each have accountability for part of the transition, but not the whole thing. The customer deals with too many people, none of whom have a complete picture. Communication and overall clarity suffer, and if anything goes off track there’s no one who feels it’s their sole responsibility to drive resolution.     

Insufficient time is devoted to system integration.  

Not allowing enough time to build out and test systems integrations prior to go-live can be a serious problem. When the operation begins, the data exchange between the customer (or its retailers) and the 3PL is faulty, causing issues like orders getting “stuck” in the system or improper confirmation back to the customer.   

The cost of the transition is significant.  

Between paying the old 3PL for moving materials out, carriers for transporting the products, and the new 3PL for receiving in the new product, there is a real cash hit when you decide to move. Of course, the intent of switching providers is to generate long-term ROI through better service, rates, etc., but there’s no getting around the upfront cost.     

The initial inbound process is a mess.  

The initial inbounds to the new 3PL are disastrous, and not enough attention is paid to course-correcting. When a customer leaves a 3PL, the incentive for that 3PL can be to pack up the product as quickly as possible. This means disorganization — SKUs commingled, misplaced, mis-labeled, etc. When the new 3PL receives this disorganized product, extensive time and expense must go into fixing the issue.  

There’s poor alignment on the scope of work required.  

The old 3PL may not provide great service quality, but typically the relationship is established enough where the 3PL and customer are on the same page about what the customer’s true needs are, and what the 3PL will charge for it. The customer goes to the new 3PL and there is a gap in the two parties’ assumptions about what work is required and what the pricing covers, causing cost expectations and trust to falter.   


Managing successful 3PL transitions.  

Factors like those above cause the 3PL relationship to be sticky — “My current provider isn’t great, but I’d rather not deal with the headache, expense, and risk of moving.” That thought process is rational and, in many instances, may be the right choice. However, there’s a real opportunity cost. To state the obvious, if a merchant’s operations arm isn’t effective, the company won’t be able to grow profitably.   

I’ve found that merchants and the new 3PL can take several concrete steps to grease the wheels on a transition.   

On the 3PL side:  

  • Assign an experienced project manager to oversee and coordinate the transition. While the customer may need input from several departments at the 3PL to appropriately setup and integrate the account, it all flows through this “owner.” If there are ever questions or issues that require course correction, there is clarity as to who is responsible.  
  • Create a robust implementation project plan with timelines that appropriately build up to the desired go-live date. It is shocking how many components must come together to successfully operate a new account at scale. Though seemingly simple, a plan that is easily accessible (we use a cloud-based tool), thorough, and updated regularly is critical to avoid things falling through the cracks.    
  • Devote time to fleshing out account requirements. The merchant and the 3PL should spend time truly understanding what is needed, and then documenting those needs as part of the contract. The merchant shouldn’t be surprised by the invoice when the account goes live. If the merchant’s business requires a shift in scope down the line, this will also help keep the parties aligned.  

On the merchant side:  

  • Pursue a balance-sheet-healthy 3PL that wants to partner and amortize the cost of the merchant’s move. In the right circumstance, a 3PL may be willing to serve as a pseudo-bank, covering the transition costs initially and allowing the customer to pay the obligation down over time. This alleviates the cash flow crunch associated with moving. Note that 3PLs may only consider this for customers they view as having long-term prospects — customers looking for short-term transactional relationships will likely be out of luck.   
  • Pay to verify shipments from the prior 3PL at the smallest tracked unit of measure; minimize the amount of product coming from the prior 3PL. The safest assumption is that product receipts from the prior 3PL will be disorganized and you can’t trust what the packing list or cases say. If that messiness isn’t dealt with upfront, it will cause problems for months to come that will threaten to bring a merchant’s fulfillment to a screeching halt. The cost of this doomsday is much greater than the cash outlay for fixing the problem during onboarding. In addition, if possible, the merchant should drain down inventory from its current 3PL prior to making the move such that the new 3PL is receiving mostly product from manufacturers (which are more reliable).   

In the complex world of 3PL transitions, the challenges are real, but so are the opportunities. While switching 3PLs can be daunting, it doesn’t have to be a headache. The “magic sauce” is finding a 3PL that has experience piecing together the factors above and that you feel is honorable. Neither alone is sufficient. Every merchant is different, creating a certain peculiarity to every onboarding that can only be tackled effectively through rigor, expertise, and trust.   

 About WSI  

At WSI, we specialize in understanding the intricate logistics needs of our customers. Our dedicated customer onboarding team is committed to ensuring a seamless transition, guiding you through every phase with expertise and precision. We firmly believe in the power of partnership and are always open to exploring innovative financial solutions to ease the burden of upfront costs. Whether your goal is optimizing your supply chain or enhancing fulfillment operations, you can trust WSI to be your dedicated partner in this journey.