Some companies worry they don’t have the knowledge to transition to a 3PL. They commonly wonder what the advantage of a 3PL is and whether it’s worth the investment to make the change.
Companies that are currently using or have previously used a 3PL have an advantage because they are familiar with the transition process and have some idea of how to manage the project. For companies that are new to 3PLs, concerns run deeper because they have little experience beyond order fulfillment. The idea of trusting a relative stranger when it comes to a critical business function is frightening to say the least.
Regardless of your 3PL experience, the purpose of this article is to help you understand what a transition to a 3PL entails and how you can prepare to make the change. As Benjamin Franklin stated, “By failing to prepare, you are preparing to fail.” This simple reminder is probably the most critical aspect of your transition to a 3PL. Prepare, prepare, and prepare some more!
7 Steps to Success
In many ways, approaching your transition to a 3PL is the same as preparing for any big project, which ultimately comes down to thoughtful preparation. The seven steps below will help you identify key functions to be aware of and plan for. Using these guidelines will increase the likelihood of a successful transition and may even help you sleep a little easier at night.
Step 1: Success Starts With the Sales Process
Between you and the 3PLs you’re considering for partnership, you are the only one who understands the full scope of needs and requirements for your inventory warehousing, picking, packing, and shipping. Make sure you document a comprehensive list of these requirements, and see to it that the 3PLs in consideration can meet most of them.
If you have questions about the ability of 3PLs to meet your requirements, make sure they are resolved before signing an agreement. It may be worth your time to read “Who Should Use a 3PL?” to help you identify the factors to consider and address during the sales process.
Step 2: Make Sure the Contract Aligns With Commitments Made in the Sales Process
This step is a cautionary tale and a reminder to “make sure you get it in writing” before signing an agreement. If you and your 3PL have agreed to something in the sales process, make sure it is clearly understood by both parties and documented in the agreement you sign. Otherwise, it may be challenging and expensive to require your 3PL to perform a service that wasn’t clearly documented in the agreement.
Remember that everybody cares about money, so pay extra attention to the rates listed in your contract. Make sure you clearly understand what each fee does or doesn’t include. 3PLs will often build in price increases and automatic contract renewals that are intended to help them offset rising costs, particularly labor costs, in future years. Keep an eye out for these types of clauses — and again, make sure you understand and are comfortable with them.
If you’re evaluating price proposals from multiple 3PLs, it is likely that each of them priced things a bit differently. Understanding these differences will be critical to your analysis and appreciating the financial impact of each offer. Look to your potential partners to help you conduct an “apples to apples” comparison.
Step 3: Identify the Project Team
All of the steps in the transition process are important, but this one is absolutely vital. After all, these are the people tasked with making sure your transition is successful.
Team members must include operations leaders from your team, a dedicated project manager for you and the 3PL, an account manager from the 3PL, and representatives from your product suppliers. Your 3PL will ideally assign a dedicated project manager and account manager to manage the entire onboarding project. Keep in mind that the 3PL’s organizational structure may be such that your project manager is overseeing multiple projects. If this is the case, take time to ask and understand how much of their time your project will receive and determine a schedule of calls/meetings to ensure timelines are being met.
Suppliers are not always considered a part of the onboarding process, but they are a critical link in the transition. At a minimum, you will need to coordinate with all of your suppliers to reroute future orders to your 3PL, ensure compliance with your 3PL’s inbound routing requirements, and evaluate some supplier service costs (e.g. kitting, assembly) if these same services are provided more affordably by your 3PL.
Step 4: System Integration
When you receive orders from consumers and/or retailers, those orders need to be passed along to your 3PL for processing. Upon orders being completed, your 3PL needs to pass along inventory updates, tracking numbers, and any other pertinent information to you.
You are likely using an eCommerce platform like Shopify or Magento, an Enterprise Resource Planning (ERP) system like NetSuite or Oracle, and maybe even an EDI solution like SPS Commerce or TrueCommerce. It is critical to understand the systems you have in place today and anticipate using in the foreseeable future to determine how to effectively integrate them with your 3PL’s IT environment. This will ensure seamless order communication and processing.
There are many ways a 3PL can receive and pass back information between systems. A common approach is to use an API, which is simply a way for systems to be connected and exchange information. Other methods include uploading and downloading CSV files and developing direct integrations between systems.
Other important points include understanding what your IT capabilities are, what your 3PL offers in this regard, and the corresponding cost for this work. Some 3PLs may charge a one-time integration fee as part of the onboarding process, while others may charge a smaller, recurring monthly fee to pay for this work over time.
Step 5: Preparing Your Product for Shipment
Preparing products for shipment to your 3PL partner is often one of the most time-consuming onboarding tasks. Depending on the number of SKUs and units you have in inventory, this work can span anywhere from a few days to a few weeks.
One of the often unforeseen advantages of completing this work is an opportunity to streamline your inventory by removing slow or non-moving items. You don’t want to incur the labor, transit, and new 3PL expenses for products that you likely won’t sell in the near future. Utilizing an ABC methodology is a great way to make sure that your “A” movers are accounted for first, which ensures that you have inventory to sell while the transition is happening and immediately upon your 3PL going live processing your orders. This type of methodology can also help you streamline your resources and effectively manage your labor cost during the transition.
It is critically important that you closely coordinate with your 3PL to ensure that your existing inventory is labeled, packed, and palletized according to their inbound routing requirements. This allows your 3PL to efficiently and quickly receive your product and get it ready for sale, thus shortening the transition period. It is reasonable to expect your 3PL to be flexible with their inbound routing requirements during the onboarding, as they know it can be complex to transition your inventory to them.
Unfortunately, some 3PLs aren’t as professional as they could be when they realize they are losing a client. With this in mind, understanding your existing 3PL agreement as it relates to terminating your relationship is important. The better job your existing 3PL does, the better, easier, and less expensive it will be for you and your new 3PL to get off to a great start!
Step 6: Testing
As the planned go-live date nears, your excitement and nervousness will increase. A great way to minimize your concern is to make sure comprehensive testing is conducted at least one week prior to your go live date.
Testing should include:
- Receiving a product (this can be product already in-house)
- Storing that product
- Pulling the product to replenish pick areas
- Picking, packing, and sending product to shipping lanes as if it were going to be picked up and delivered by a carrier
A part of testing is checking the health of the systems integration. It is likely that as systems were being integrated, a lot of micro-level testing was conducted. Testing to prepare for “go live” is different in that you will want to mimic placing orders and having those orders flow through the pick, pack, and ship functions to ensure everything is working correctly and data is flowing between systems as required.
Thorough testing will allow you and your 3PL to identify any errors and is often a reminder of minor things that may have been missed or forgotten earlier in the onboarding process. Ultimately, comprehensive and detailed testing provides peace of mind for all involved and is an exciting measure of a successful start with your new partner.
Step 7: Go Live and the First 90 Days
After much work has been completed, everyone is excited to go live. Being onsite for the go live moment is something you may want to consider, but be mindful of the stress and anticipation your 3PL will be feeling. Together, decide if it is a good idea to have you onsite on the big day or to wait a week or two so your 3PL can work out any kinks that may arise in the first few days. Every situation is different, so it’s best to collaborate about what works best.
After the go live date, you should have a full-time account manager assume responsibility for the day-to-day communication with your team, while the onboarding project manager begins to phase out. The first few days will likely be full of activity and communication as the excitement and nerves are at full pitch. After a few days, a routine will start to develop, and a cadence will be established.
It is important that, during the first 90 days, both parties proactively communicate to make sure the full lifecycle of product manufacturing, inbound shipping, receiving, storing, pick, packing, shipping, and returns are functioning correctly. It is likely that a few small issues will arise, but also that these issues will be quickly resolved and largely unconcerning.
You should require a 90-day evaluation with your 3PL. This is a great opportunity for both organizations to debrief about the onboarding and first few weeks of working together. If done correctly with an open mind, much will be learned during this review that can be applied in an effort toward continuous improvement.
Set Yourself Up for Success
Making a change can be intimidating, but collaborating first with your team and then with 3PL candidates is a great way to identify what your requirements are and who can best meet them. With a thoughtful approach and a good team committed to a successful outcome, you can set your business up for long-term success with a quality partner.