When Is It Time to Switch Your Third-Party Logistics Provider?

As Q1 unfolds, many e-commerce brands take this opportunity to reassess their goals for the upcoming year. This includes not only analyzing holiday sales but also auditing operational performance, assessing inventory, and reviewing revenue benchmarks from the previous year. A critical aspect of this evaluation includes reassessing relationships with supply chain partners, particularly third-party logistics providers (3PLs).

Though the process may seem labor-intensive, it is essential for sustainable growth. Knowing when to make a switch and how to approach that decision can significantly impact your operations.

Identifying the Signs: When to Consider a New 3PL

Several common issues often prompt brands to look for new fulfillment partners:

1. Rising Customer Complaints

Your customers’ feedback provides clear insights into your fulfillment effectiveness. Frequent complaints regarding damaged products, late shipments, incorrect orders, or inconsistent service suggest the need for an evaluation of your 3PL. While occasional issues are expected, ongoing problems may indicate a systemic failure. If your provider cannot implement a clear improvement plan, exploring alternative options could be necessary.

2. Expanding Sales Channels

As brands diversify their sales channels—especially moving from direct-to-consumer (DTC) to retail—the need for an experienced 3PL becomes critical. Retail operations demand more sophisticated quality controls and execution strategies. Failing to partner with an experienced provider can jeopardize your success.

3. Outdated Technology

In today’s competitive e-commerce landscape, staying updated with technology is vital. Look for a 3PL that embraces advanced solutions, such as real-time inventory tracking, AI-driven shipping optimization, and comprehensive operational data analysis. If your current provider cannot keep up with your technological needs, it might be time to consider a change.

4. Escalating Shipping Costs

Rising shipping costs are common, but an effective 3PL should help you navigate these increases. If your provider merely passes along these costs without proposing solutions to optimize them, it may be worth investigating other options. Your 3PL should actively work to protect your margins rather than simply increasing fees.

5. Increased SKU Count or Sales Complexity

As your business grows, so do complexities in order fulfillment across various sales channels. Consider whether your current 3PL can accommodate your expanding needs, including inventory distribution and order management technology. A robust 3PL partner can help maintain efficiency, even as complexity increases.

A Practical Checklist for Transitioning 3PL Partners

Switching 3PLs necessitates planning, coordination, and readiness to face short-term disruptions for long-term gains. Here’s a checklist to guide your evaluation:

1. Review Your Contract and Goals

Before making a switch, revisit your existing agreement. Assess your progress toward current goals and evaluate if your 3PL can still meet your needs. Important questions to consider include:

• What are your sales and promotional plans for the year?
• What does your three to five-year roadmap look like?
• Which sales channels are vital, and which ones are you testing?

2. Determine Inventory and Location Strategy

Conduct a thorough physical inventory count and develop a location strategy to minimize transit times and improve customer satisfaction. Assess whether your current or potential 3PL possesses the necessary facilities to ensure timely deliveries, especially if international shipping is involved.

3. Evaluate All Sales Channels and Integrations

Omnichannel fulfillment is crucial in today’s retail landscape. Your 3PL should offer built-in integrations and have a proven track record across various channels to streamline operations. Testing new channels can be resource-intensive; ensure your partner is equipped to facilitate these processes effectively.

The Bottom Line

Before deciding to switch your 3PL provider, take stock of what support you’ll need during this transition. Selecting the right partner is essential to setting your business up for future growth. A capable 3PL will evolve alongside your needs, ensuring your operations can scale effectively.

Brian Tu is the Chief Revenue Officer for DCL Logistics.