Choosing a third-party logistics (3PL) provider is a high-stakes decision, which can have an immense impact on your business’ performance over the long haul.
By outsourcing your warehousing, inventory management, and order fulfillment operations to a 3PL, you can unlock opportunities to:
- Increase automation and efficiency across your logistics network.
- Improve on-time delivery rates and customer satisfaction.
- Decrease costs for storage, shipping, staffing, and inventory.
- Drive business expansion across countries, customer segments, and industries.
More than merely being a services provider, your 3PL can become a trusted business partner – working with you to implement logistics solutions that help fuel long-term business growth and development.
All of this is possible – if you choose the right 3PL provider.
You may find, however, that the 3PL you’ve been working with isn’t meeting your expectations or adapting to the changing needs of your business – and, if that’s the case, it may be time to switch 3PL providers.
Don’t worry if you find yourself in this situation: Your company is “in good company” as many organizations out there decide to change 3PLs for a whole host of different reasons.
In this blog, we will discuss the three main reasons why companies switch 3PL providers.
Reason #1 for switching 3PLs: Pricing problems
One of the most common reasons that companies change 3PLs is that they are not satisfied with the provider’s pricing strategy and structure.
When it comes to 3PL pricing schemes, we see the following issues constantly arising:
Lack of transparency
Working with a 3PL should enable your business to cut costs across your inventory management, warehousing, and fulfillment operations. But, with many 3PL providers, it’s difficult to determine if your company is actually realizing significant cost savings in these areas.
Many traditional 3PLs utilize pricing models that are dizzyingly complex, with separate charges for various services such as picking, packing, and shipping (with often inflated rates for using third-party carriers) and loads of hidden fees. This can make it hard to gain a true understanding of your total cost of ownership for 3PL services.
Some 3PLs – like Amazon Multi-Channel Fulfillment – offer simple, predictable, and cost-effective pricing schemes with fees for fulfillment, storage, and other services bundled up in one neat package. With this type of pricing structure, it’s easy to calculate how much you are spending to outsource your logistics operations – so that you can assess whether your 3PL partnership is really beneficial for your bottom line.
Lack of flexibility
Today’s business world is unpredictable, with sudden shifts in supply and demand, fluctuations in prices and inflation rates, and constant regulatory changes. To cope with this volatility, your company must have the ability to adjust your logistics operations in real-time – to throttle up or down as needed.
However, many companies discover that – when partnering with a 3PL – attaining this operational flexibility across their logistics operations is extremely difficult as they get locked into rigid, multi-year contracts or volume/throughput commitments with their 3PL provider.
There are some 3PLs out there – including MCF – that will enter into a pay-as-you-go arrangement, which allows you to pick and choose which warehousing, inventory management, fulfillment, and other 3PL services you require at any point in time.
This on-demand 3PL pricing model – which gives you the ability to ramp up, slow down, or switch off your 3PL services depending on the changing dynamics and constraints across your supply chain – can give your company a major competitive advantage.
An increasing number of companies are switching to 3PL providers that offer transparent and flexible pricing models and are, generally speaking, more cost-effective (i.e. they deliver the highest levels of service at the lowest possible costs).
Reason #2 for switching 3PLs: Subpar performance
The second key reason why companies change 3PLs is that they are dissatisfied with their provider’s performance.
When it comes to ecommerce fulfillment, customers today demand speed (with deliveries typically in two days or less) and reliability (with delivery promises being met, rain or shine) – and 3PLs must be able to “fulfill” those expectations.
To do this, it’s essential that your 3PL has:
- A global network of fulfillment centers and other logistics facilities and resources, located close to where your customers are. This will enable you to strategically position and pool your inventory, ensuring that you always have the right products in the right places at the right times to satisfy demand (at the lowest possible cost).
- State-of-the-art technology such as warehouse robotics and AI-based demand forecasting and inventory management software systems – which can help automate and optimize your logistics operations. Many 3PLs utilize out-of-date, legacy technologies, which are just not up to the task of handling the logistics challenges of today.
If your 3PL doesn’t have the global network or cutting-edge technology you need to achieve peak levels of operational efficiency and delivery performance, then you probably want to look for a new provider.
Reason #3 for switching 3PLs: Growing pains
The third reason why many companies change 3PLs is that they realize, over time, that they’ve outgrown their 3PL provider.
Indeed, as businesses evolve and look to enter into new markets and launch new product lines, they often find that the 3PL they have been working with doesn’t have the resources and capabilities to help drive these initiatives.
To support your business as it scales, your 3PL provider must have:
- Geographic coverage in the locations where you are expanding to. MCF, for example, is a 3PL with a global network of over 200 fulfillment centers, 85 aircraft, and 200,000 operations staff – meaning that it most likely has a foothold in every market where your company operates today or will expand to in the future.
- Experience and expertise in those industries, customer segments, and product areas where you are trying to grow.
Choosing the right 3PL partner
In this blog, we’ve highlighted three of the many reasons why companies decide to switch 3PLs. If you are experiencing any of the issues we covered, you may want to reassess your relationship with your 3PL provider.
The decision to change 3PLs is a major one – so make sure you take the time to thoroughly evaluate your current and prospective 3PL providers before making any moves.
If you choose the right 3PL provider, they will become a true business partner, working with you to minimize the costs and complexity of your day-to-day logistics operations, boost your on-time delivery performance and customer satisfaction, and drive long-term business growth.
