The secret is out — eCommerce is on the up. Digital buyers have soared from 1.3 billion in 2014 to 2.14 billion in 2021, and sales are set to reach $7.3 trillion by 2025. But a lesser-known fact is that supporting services like 3PLs are also expanding and elevating, with the 3PL industry set to reach $1.78 billion by 2027.

Put the strengths of these two expanding industries together, and you have the materials to build an online selling powerhouse. But as you traverse the eCommerce road, there may come a time when changing 3PLs is the best move.

We’ll admit there’s much to plan and execute to make a 3PL switch successful, but don’t despair. We’ve compiled everything you need to know about making a seamless jump and up-leveling your fulfillment services.

In this guide, we’ll:

• Uncover the top scenarios jumping ship from one 3PL to the next makes sense.
• Explore the fulfillment choices available and how to set the stage for success.
• Reveal some things to watch out for along the way to help your business stay on track.

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7 Eye-opening signs it’s time to switch 3PLs

If you’re questioning whether it’s the right season to move on from your 3PL or if their actions warrant such drastic action, you’re not alone. Timing and objective reasoning are essential to making the right decision. To help answer the burning questions on whether it’s time to cut ties with your 3PL, let’s explore some common issues eCommerce entrepreneurs have encountered that inspired them to pull the plug:

1) Constant inventory and shipping errors and inaccuracies

Did you know great customer experience is so important that 86% of shoppers are willing to pay more to get it? If your 3PL’s lack of service negatively impacts your brand experience and reputation, causing one too many sleepless nights, change is imminent. Without shift action, loyal customers may turn elsewhere and, worse still, tell their friends about their poor experience.

2) Fast yet unsupported business growth

Say your business has exceeded its growth targets and shows no signs of slowing down. It’s a great scenario, except your 3PL can’t cope with your growth rate. Their internal processes become overwhelmed with no remedy. If this sounds like the challenge your business is experiencing, it could be time to say goodbye.

3) A need for increased efficiency

As your eCommerce business scales, you may notice inefficiencies holding back its profitability, productivity, and smooth running. If your 3PL isn’t trying to upgrade their services and performance, you’ll soon outgrow them, dampening your business’ potential.

4) Your logistics and fulfillment are too expensive

Perhaps your 3PL has had a few price hikes; warehousing has become more expensive in the network your 3PL uses, or a change in couriers has caused charges to shoot up. Either way, it could be time to go if the margins no longer make financial sense.

5) Lack of technology-enabled solutions

In today’s digitized, hyper-competitive market, basic systems, and old-school technology hold your brand back from its potential. Soon, missed opportunities and threats, haywire order management, and lack of supply chain visibility become the norm, wiping away your competitive edge. So, if it feels like you’re running your eCommerce business’ operations in the dark ages, it’s time to move on.

6) Poor communication

Does your fulfillment provider disappear for days and sometimes weeks, only to reach out in a panic with an emergency? This setup puts your business on a fast track to costly disasters that will obliterate all of your hard work and progress. Don’t wait for issues to arise; get out while you still can.

7) Limited services stifling growth and expansion

Perhaps you run an international store and ship orders around the clock, yet your 3PL only has 8 hours of customer support at one timezone. While this may seem harmless on a good day, when issues arise outside of these service hours, you’ll be left to fend for yourself, which could spell huge trouble for your business.

Fulfillment and logistics: What are my options?

Once you’ve decided to part ways with your existing 3PL, the next task is to examine the replacement fulfillment options available. Let’s cover some of the best services for a growing eCommerce store along with their advantages and drawbacks:

1) Choose another traditional 3PL

A 3PL takes over the management of critical tasks in your supply chain to drive optimal productivity and efficiency rates. While the 3PL assists your store with fulfillment-related tasks, you’ll maintain control of your supply chain. Such tasks include:

• Stock distribution
• Inventor management
• Storage
• Transportation
• Fulfillment (picking, packing, and shipping)

There are 3 kinds of 3PLs you can explore (note some 3PLs may combine these services):

• Distribution/warehousing-driven 3PL: Concentrates on storing inventory, shipping, and managing returns.
• Transportation-centered 3PL: Focuses on the movement of goods for your store. E.g., shipping the stock from manufacturers to warehouses and from storage facilities to customers.
• Data/finance-focused 3PL: Assesses your industry’s trends and helps you optimize operations and finances accordingly. Some services they offer include cost accounting, inventory management, and freight auditing.

Pros of traditional 3PLs

• Maintain flexibility: Unlike a fixed logistics setup, most 3PLs allow you to scale services up or down quickly without much trouble, helping your brand stay nimble. So, whether your store has slow seasons that require reduced fulfillment operations temporarily, or has plans to expand overseas, a 3PL can help.
• Improve specific fulfillment tasks: Since you can cherry-pick which fulfillment tasks you hand over to a 3PL, you have the opportunity to optimize select parts of your supply chain. This way, you can maintain any strategies or processes that produce positive results, while upgrading any underperforming areas.
• Track inventory easily: One of a 3PLs greatest strengths is inventory tracking. From the moment your stock enters the 3PL’s ecosystem, you can get (sometimes live) information on where the product is. This trait is especially beneficial if your store holds many SKUs or high volumes.
• Going pro can lead to quicker growth: Access to professional help from an experienced and reliable 3PL allows you to focus on your core competencies and scale faster. In other words, you’ll get the chance to work “on” instead of “in” the business.

Cons of traditional 3PLs

• Costs may rack up: Depending on your business’ size, you’ll spend significant cash during the switch. This is due to things like needing a new order processing set up, backorders, and admin.
• 3PLs are restricted to optimizing logistical operations: You can’t depend on a 3PL to optimize your entire supply chain and may have restrictions in their tech capabilities. You’ll need to seek additional fulfillment solutions elsewhere to boost productivity and efficiency.
• It can be difficult to distinguish between different 3PL services: When you’ve been burned by 3PLs promising stellar results with similar services but don’t deliver, it can be challenging to know what solutions will work for your business and who you can trust.

2) Opt for a modern, all-inclusive fulfillment service

Modern fulfillment services offer everything 3PLs provide and more. Some call themselves 4PLs, while others opt for names like an all-inclusive fulfillment solutions provider, helping you to execute your supply chain and fulfillment quickly and easily.

These service providers have expansive warehousing and fulfillment networks, allowing them to offer ancillary services from marketplace prep services to freight forwarding for direct-to-consumer and B2B retail goods.

Most modern fulfillment providers’ tech-backed structure enables them to compile large data pools. These help them spot potential threats and opportunities in your supply chain and global markets.

Pros of modern fulfillment providers

• Access to more growth-fuelling solutions: Modern fulfillment services offer a wider selection of services than typical 3PL providers. These allow you to uplevel your whole supply chain instead of just operations involving packing and shipping goods to customers. For example, you can get help with tasks like customs clearance, access to warehouses in key locations, shipping networks, and faster, more cost-effective transportation.
• Optimize operations to fit your brand mission and goals: The possibilities are endless when you team up with a modern fulfillment provider. For example, if customer satisfaction is your top priority, you could work with the fulfillment provider to offer services like paperless returns, same-day shipping, and pick-up. In short, you’ll get all benefits from a 3PL plus more.
• Keep your store in everyone’s good books: From Wish to Amazon, selling on marketplace platforms comes with specific requirements and strict rules. These duties tally up to a considerable amount of work for a fledgling eCommerce business. Handing over the reins to a fulfillment house will help you avoid mishaps and provide exceptional service to customers.

Cons of modern fulfillment providers

• May not be cost-effective for low volumes: Many modern fulfillment providers have high minimums for fulfillment services to ensure their services make financial sense for their business. As a result, even the lowest service tier may be unprofitable if you can’t guarantee your brand will hit the minimum units you sign up for.
• Cutting ties is no easy feat: It can be challenging and expensive to move on from a 4PL because they weave into your entire supply chain, and you hand over oversight of key supply chain management duties.
• Loss of control: While you will have strategic input and overall power since modern fulfillment services take over the management in key areas in your supply chain, you’ll lose the ability to make day-to-day decisions on your inventory, transportation, and fulfillment.

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How to switch fulfillment services seamlessly

While changing your fulfillment solution can be a long and winding road, you can still ensure the process runs smoothly. For this, you’ll need a plan and a can-do attitude to execute it. Here are the steps to take:

Understand your business needs

No eCommerce has the same circumstances. So, gaining clarity on your store’s existing and upcoming needs is critical. So, examine how the following areas impact your fulfillment requirements:

• Monthly orders: Crunch your numbers to find an average order amount. This number will help you filter through the set order minimums from fulfillment providers.
• Seasonality: Do sales drop suddenly in the summer? Or maybe you experience accelerated sales velocity in the fall? Map out your sales peaks and valleys to understand how much fulfillment supports your store’s needs and when.
• Supplier relationships: Take note of which suppliers are easy to work with as well as the unreliable ones that need replacing to make a switch over successful.
• Manufacturing timelines: Jot down how long it takes to create and package each SKU and how this impacts restocking times and shipping options.
• Growth projects: Compile all of the projects you have underway or in the works that will help your business scale, e.g., cross-border expansion and going multichannel.
• Scaling goals: Define where your store will be in the next 1-5 years and the revenue goals you intend. Observe how many units you’ll need to hit these targets to share with potential fulfillment partners.
• Marketing: If you have any seasoned ad or influencer campaigns that generate large orders, observe how many orders they produce and how it’ll impact your inventory and fulfillment needs.
• Sales channel(s): Understand how the results each store you have produces each quarter, and the setup needed to maintain fulfillment speed, cost-effectiveness, and customer satisfaction.

Tip: Distinguish between nice-to-haves and essential services to keep solutions and costs lean.

Define your obligations under your existing 3PL contract

Legal troubles can slow down your 3PL switch over or even bring it to a screeching halt. Checking your duties to your current 3PL is essential to avoid legal disputes. Some questions to ask include:

• Does it make more financial sense to cancel the contract or see it through to completion?
• Will we need help from a lawyer to terminate the contract early?
• How much will it cost to enlist, and how long will it take?
• Does your contract require the services to end immediately, or is there a defined handover period?

Vet potential fulfillment providers

Once you know where your business stands strategically and legally, it’s time to sift through fulfillment providers to find your match. While no solution will be perfect, the right provider will tick the right boxes, considering your business goals, needs, and circumstances. Some traits to look for in your fulfillment provider include:

Experience

Your new fulfillment provider should have the knowledge and skills needed to serve fast-scaling online stores and facilitate the necessary pivots you’ll undertake. They should also know how to handle the products you stock or intend to carry, and the channels you plan to sell on.

High-grade technology

It’s essential your fulfillment provider has high-spec technology that sharpens your execution in key tasks from order delivery to cost minimization. For example, it has tech tools that allow for budget preservation through shipment bundling and shipping box optimization. These solutions will help you maintain a competitive advantage and boost ROI.

Full supply chain visibility

Having a fulfillment partner that allows you to monitor your supply chain from end to end is a must-have for long-term success. It’s also helpful if they can provide alerts on any potential issues or needs, e.g., restocking and shipping delay alerts.

Transparency

From pricing to processes, transparency should be part of your prospective fulfillment providers’ culture. This information will help you keep operations profitable and effective.

Fair pricing

Nobody likes surprises on their monthly invoice from costly fulfillment services. Big bills can not only wipe away your margins but can also cause you to dip into budgets set aside for growth-related projects. However, it’s also not a great idea to opt for the cheapest solution, leaving you questioning what you should do. The answer is to work with a fulfillment provider whose service quality matches their pricing and doesn’t leave your business operating with slim returns.

An expansive fulfillment partner network

Fulfillment doesn’t exist in a vacuum. Your provider will need to lean on other providers for things like warehousing, freight services, couriers, and more. So, they should make a continuous effort to improve and expand their network.

Varied and expanding capabilities

eCommerce is constantly changing, and as a result, your store needs to stay ahead of the curve with its tech stack and strategy. Consider each potential 3PL or 4PLs best skills and how they fit into your eCommerce business plans. For example, say you run a coffee-growing business and want to launch a new product collection each quarter in different countries. Your chosen fulfillment provider would need to:

• Have temperature and moisture control storage and shipping
• Adequate warehouse availability in key regions within each country
• Enough staff to serve orders on the existing and new products

Reviews and references

No matter how accomplished a fulfillment provider appears, always do your due diligence. Obtain references and recommendations from trusted sources such as people in your network and trade journals. This approach will help weed out fulfillment providers that are a poor fit, lackluster performers, or scammers. Don’t forget to look at their disaster recovery plans to make sure they have the procedures to stay operational if trouble strikes.

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Create a realistic transition plan

To ensure your store switches successfully while maintaining good operations, establish the project scope in terms of time, cost, and effort required. You should also consider how you will monitor the budget, key milestones, and deliverables to stay on track. As a guide, some tasks to complete during your handover are to:

• Conduct internal risk assessment
• Create a detailed project plan, including each phase and target launch date (plus time buffers)
• Schedule meetings with a potential solution provider
• Conduct an onsite analysis
• Share product profiles
• Sell off overstocks
• Write off and dispose of deadstock
• Pack stock for relocation
• Arrange transport for stock removal
• Ensure adequate stock distribution for each key location
• Test run your potential fulfillment providers with one location or product
• Test your systems
• Ensure equal service quality across locations
• Confirm onboarding targets with the new fulfillment provider
• Validate Statement of Work agreement details with your new fulfillment providers
• Understand billing requirements and put them into the new contract
• Negotiate your billing schedule to maximize your cash flow
• Move stock from your existing to the new solution
• Communicate with customers that there may be some backorders and delays as you switch

Top tip: Don’t clear out your entire stock from your existing fulfillment provider as you make the switch. Keep enough units per SKU to avoid stockouts during the transition period (plus a few additional pieces as a buffer).

6 Things to watch when switching 3PLs

With global supply chain issues, changing customer preferences, and evolving market trends, it’s important to stay in the know on the latest information to keep your new 3PL partnership on track as you change over. Here are some scenarios to consider:

1) How changes in service requirements impact fulfillment costs

Most eCommerce businesses don’t stay with the same strategy they started out with. However, a turnaround in your product type, shipping carrier preferences, or market can cause pricing to fluctuate. So, monitoring how adjustment impact will impact your fulfillment profitability is vital.

2) How communication impacts inventory protection during transportation

To protect your stock investment, it’s critical you communicate the transportation and storage requirements for every SKU in your product portfolio. Highlight any items that require temperature control, gentle handling (e.g. fragile and flammable items) along with any specific dunnage, boxing, and unloading required to get your plan together for the safe transportation of your stock.

3) The time needed for adequate tech and systems syncing

Your dashboards must be properly configured to share sales data and supply chain information accurately. So, you’ll need to think about how long it will take to onboard each product SKU and ASIN. Also, you’ll require time estimates for integrating your 3PL or 4PL’s warehouse, inventory, and transportation management systems with your supply chain’s tech solutions.

4) The way product loading styles affect costs

Shipments requiring extra attention can become costly and slow to process. To keep your supply chain running efficiently, work with your manufacturers and suppliers to pack goods in a way that will avoid hefty unloading and processing charges. Some tactics to implement include are:

• Avoid floor-stacked containers. Opt for single or double-stacked pallets
• Separate boxes on a per SKU basis
• Ensure each product has a scannable barcode (unless you have requested prep services)

5) How new warehouse locations will impact fulfillment speed

It’s unlikely your new provider will have warehouses in the exact locations of your existing provider. Consequently, shipping speed can change from what you’re used to. Ensure your new warehousing and fulfillment sites can meet the service speed and quality levels your customers are accustomed to, map out new warehouses and distribution centers and formulate a plan to move goods. For example, suppose your new warehouse locations are further out than your existing 3PL or 4PL. In that case, you could pool top-selling goods in optimal areas within each warehouse and increase the number of delivery pickups for faster dispatch.

6) How adequately do your contract terms protect your business

Trust is important in any relationship, but when you consider things like inevitable management changes, market shifts, and business shakeups, it’s easy for responsibilities to become muddled without guidance outlined on paper. It’s wise to have detailed contracts outlining your 3PL or 4PL obligations and your store’s responsibilities. Some key information to add includes:

• Shipping targets (speed, accuracy, cost)
• Service terms and conditions
• Who will pay for damaged and lost goods
• Insurance coverage given
• Product safety and quality assurances

Wrapping up – Changing 3PLs the right way

When you’ve become comfortable with a 3PL, yet its results start to wane, it’s easy to go back and forth on whether switching will harm or hinder your progress. However, when done correctly, moving on from a 3PL can supercharge growth, customer satisfaction, and financial rewards.

Making the switch will take hard work, strategic planning, capital, and detective-like vetting of prospective service providers. Take the opportunity to implement new services that will help you grow and be prepared to stay the course to iron out any kinks in your new partnerships. Soon, fulfillment issues will be headaches of the past, and your store will have a 3PL partnership it can rely on for its next growth phase and beyond.

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