What's the Right Time to Move to a 3PL Company?
Logistics Industry July 21, 2010
Transition Our of Your Current 3PL
You've been thinking about moving your existing company to a third party logistics company but you can't decide if you should make the move or not. Rather than spend your valuable time and energy focusing on the back side of the warehouse, you're thinking that you'd much rather dedicate your limited resources to the sales and marketing that you enjoy and that brings in a much better return for the time you invest into it. So now comes the question... what's the right time to make the move from your warehouse to your new 3PL and when should you do it?!?
I can't count the number of times that I've talked with prospective customers and business acquaintances who are considering using a third party logistics company and they ask me, "when should I move" or they say, "I want to get out of our warehouse but it seems like there's no right time to do it". Rest assured that if you are thinking this way, you're not alone.
Fortunately, with the experience we have at McKenna Logistics Centres, we can give you some good tips on when to move that will make the transition a smooth, positive experience for you, your customers and your suppliers.
STEP #1: EXAMINE YOUR COMPANY'S SITUATION
Take a step back and look at how you are doing as a company. (consider these five questions and see if any of them resonate):
a) Have your revenues and inventory been shrinking and you're left with a large warehouse and way more staff than you need to run it? Given the recession we've been through, this is a common issue
b) Do you own / lease a warehouse that is packed to the rafters 3 months of the year (due to your products seasonal nature) but you could turn it into a great go cart track the other 9 months 'it's okay, we've all thought of doing that'. or maybe just having a big indoor game of hockey instead! )?
c) Has the landlord / city increased your rent, TMI, electricity, gas, etc. to the point that the scales of whether your company should stay or go are so one sided that the only logical conclusion is that you should vacate?
d) Are you tired of running a business and a warehouse facility and having your 9 to 5 efforts go to handling the minute details that come with this, such as cutting the grass, plowing the snow, regular maintenance, taking care of the staff on the floor, HR issues, etc.
e) Complaints are generally a good indicator of how well you're company is servicing your customers. Are you consistently receiving complaints from your customers and you can't figure out how to turn it around? Maybe handing this side of your business over to a 3PL is the answer?
If any of these five scenarios sound familiar to you, it's time to make the move.
STEP #2: REVIEW YOUR COMPANY'S NEEDS
Step #2, reviewing your needs, is slightly different than taking a look at how you are doing as a company. Examining what you need to be successful in the future will allow you to make the best decision possible in terms of outsourcing your 3PL services. Here are a few factors worth considering:
i) Do you need a larger facility due to the growth of your product line or product sales? Is this growth occurring outside of your existing local boundaries and into a different region of the country where you don't currently have a warehouse ( you know the old 35% West, 65% East split )?
ii) Have you landed a new customer, merged with a competitor or bought someone out?
iii) You're considering switching over your computer system as you realize it's vastly out of date. Could this be a good opportunity to move to a sophisticated 3PL partner who already has all of the visibility, reports and infrastructure that you can possibly need.
iv) Are your needs based around staffing issues? Possibly you have too many / too few employees, there have been threats of unionization, you realize that your core competency is not dealing with people, etc.
v) Cost savings are always important and this may be the biggest need that you have. Run a cost benefit analysis of the move you're looking to make and your answer should jump off the page ( a savings of 15% makes it worth while to move... anything less and forget it in my opinion ).
The various needs that your company may have are true indicators that it's time to shut your doors and leave your facility or possibly the exact opposite is true. You'll have to decide.
STEP #3: MAKING THE DECISION
After reviewing your company's situation and needs, it's time to make a decision. Be sure to consider not only the fiscal side of things but also how this will affect staff, your company's reputation in the community and on the street as well as your customers. If there are more positives than negatives, it's time to make a move.
STEP #4: TIMING OF THE MOVE
The timing of your move is critical. Generally the best time to move is when your inventory is low and you are off season. This allows the 3PL time to set your products up in their systems and on their floor/shelves without rushing. A proper set up is critical to the success of your venture with the 3PL moving forward. Make sure that the 3PL you deal with has a dedicated Customer Integration Specialist. At McKenna, we have a dedicated resource who will take you through a systemized on-boarding complete with SKU integration, aligning your system to ours, training on our systems, KPI set ups and day to day answers to all of the questions you may have ( and in a timely manner to! ).
Should you be forced to move at a less than opportune time, consider how much time you give the 3PL to set things up. Four weeks should be sufficient for a small to mid size company. We have moved an entire 50,000 square foot warehouse in one weekend though. Anything is possible if you put the time and energy required behind the effort.
STEP #5: REVIEW THE PERFORMANCE OF YOUR 3PL MONTHLY (AT LEAST)
So now you've made the move and you're closely monitoring things. At least for the first few weeks ( this is the normal trend and then things fall off the table ). Well guess what, you need to stay on top of the relationship that you have with your 3PL or they will let things slide. Be sure that you review your KPI's monthly ( demand to know your On Time shipping and Order Accuracy numbers at the very least ) and keep in touch with your CSR's and Sales Representative through monthly conference calls. Communication is the key to a successful 3PL relationship.
STEP #6: REVIEW STEP #1
As a final step, it is CRITICAL to review your 3PL on a yearly basis. If you are satisfied with their service and price and they have followed through on what they have said they will do, there is likely no reason to leave. However, you need to make sure that you stay on top of things and a yearly review is a good start to ensuring the success of your relationship and ultimately delighting your customers and making you the profit you deserve for your efforts.