Using third party fulfillment (3PL) partners for your distribution logistics needs can provide tremendous benefits for your multichannel and e-commerce business. One way some companies use 3PL is as an additional node in their distribution network. A strategically located warehouse can reduce time in transit to customers as well as lower shipping costs.
After completing the search for a 3PL partner and making the final selection, you must now plan out this major transition. This means coordinating between a number of your company’s departments and the 3PL, as well as merchandise vendors, transportation vendors, and IT.
Here are 20 tasks, divided into four major categories, that are critical to a smooth implementation:
Third party logistics project management
It takes a lot of time and energy to develop a thorough transition plan and then manage the execution. But, this effort will allow you to complete the project within budget and schedule, and minimize the risks to the business. Here are 7 important tasks to consider:
- Develop a project plan and schedule: Your plan needs to include details for all tasks and milestones to get you up and running at the 3PL. This includes who is accountable for each task; the start and end dates to accomplish the task; and any costs associated to complete the task such as transportation costs. Coordinate efforts across all organizations from the start to make the project a success.
- Setting the Go Live date: Minimize interruptions to your business and help ensure a smooth transition by planning out your Go Live date. We recommend making the move at the end of the season or at a point when your inventory is at its lowest point. Also, review the long lead time tasks, such as inventory movement and IT programming, before setting dates.
- Project timeframe: It depends on the number of SKUs, the volume of inventory being moved to the 3PL, and any complexities/uniqueness's of the fulfillment process and systems. Simpler projects may only take 90 days while complex projects may take upwards of four to five months.
- Control of plan and status updates: Updating the transition plan requires frequent communication with all parties and stakeholders. Delegating plan updates to the vendor sounds like a way to save you time, but the downsides outweigh the benefits.
A vendor doesn’t know all of the parties and stakeholders. Some things that sound elementary to them, like coordination with buyers on new deliveries or liquidating overstocks, may be difficult in your company. The 3PL vendor isn’t going to control costs that are not directly part of their startup tasks or on-going contractual costs. You should remain in control of the project, the schedule, and the plan.
- Full-time project manager: Because of the size, costs, and risks of the project, implementation will require a full-time Project Manager (PM). Select a team member who is not only knowledgeable of your fulfillment functionality, but also has a good overall understanding of key company departments and responsibilities such as Marketing, Merchandising, Purchasing, and Inventory Control. The PM needs to have the confidence and authority of management to direct the project, make decisions, and review periodically with management.
- Establish liaison position: Once the conversion is complete, many companies have a liaison person (part-time or full time) that interfaces to the 3PL account management on a daily or weekly basis. This liaison will manage the work and report results and issues to your company. Select that person early and give them major responsibilities in the project. The experience will be invaluable in working with the 3PL in the future.
- On-site visits: You will want to be at the 3PL site for at least the first week of the Go Live to answer any questions and ensure that all processes, systems, and inventory is ready.
After the implementation, we recommend visiting the 3PL site frequently to strengthen the relationship and monitor key performance metrics. Regular visits are also a good opportunity to update the provider on strategic directions and changes you’d like to make.
Moving inventory accurately
Major time and expense are involved in moving inventory – tasks of counting, preparing and palletizing, transporting and establishing an accurate inventory. Here are 5 considerations:
- Quantities to move: Start by evaluating how much inventory you will need to keep at your existing warehouse when you get ready to move inventory to the 3PL. In many businesses, the fast sellers are 70% to 80% of the revenue and generated from 20% to 25% of the total SKUs. One way to determine the quantity is to base it on the average unit demand for the last “X” weeks or from the previous year’s unit demand for the same time period forward. Give yourself a few weeks buffer in case there are any delays in Go Live.
- Don’t move dead stock: This is an excellent time to evaluate aged or obsolete inventory and liquidate it. Remember there is a high cost associated with moving slow sellers - costs to prep inventory to move, transportation costs, and monthly costs for storage at the 3PL.
- Inbound new receipts: Depending on the move-in date at the 3PL, you may need to modify existing purchase orders’ delivery addresses. Typically, this includes product arriving within a week or so of your scheduled 3PL Go Live.
- Receipt of inventory at 3PL: To minimize 3PL receiving costs on the initial inventory, discuss how the 3PL wants to receive inventory. Having accurate inventory counts and documenting the inventory needing moved will greatly assist the 3PL’s receiving process.
Palletizing back stock with a single SKU per pallet or a slip sheet to separate SKUs will reduce the effort and costs at the 3PL when this initial inventory is received. Before putting any stock on a pallet, inquire if the 3PL has a maximum pallet height they can accommodate. Once you know what the warehouse can fit, build your pallets accordingly. Identifying and barcoding cartons will also help the process. Items that require lot numbers or expiration dates will benefit from having GS1-128 barcode labeling.
Identify every pallet going out of your fulfillment center to the corresponding bin/slot location in the 3PL. The objective is to map out inventory in advance and minimize the time required to receive on the dock and put away at the 3PL. Additionally, with the inventory counted and palletized in advance, the starting inventory should have high accuracy.
- Arranging truck transportation and scheduling: Transportation is generally a major expense during a transition. For larger fulfillment centers, it may take far more trucks to transport inventory to the 3PL than you anticipate. Getting an accurate estimate early-on of how many pallets need to be moved will help minimize underestimation. Use this information when negotiating pricing and truck schedule.
Systems considerations during 3PL implementation
Many 3PL projects provide an all-new array of systems functions and platforms requiring integrations and interfaces. All of these will require a lead time and several testing iterations to ensure that data is loaded and communicated accurately. Test sessions can take more time than you realize and may require coordination with outside parties. Here are 3 types:
- 3PL data map: At a minimum, you need to supply the 3PL with your SKU/item file with all of its data fields. 3PL vendors will have an Excel template of how to map data types for easy uploading. Provide your 3PL vendor the dimensions and weight of all of your products, including dimensions with inner case pack and full case sizes. This will allow the vendor to calculate their forward pick locations sizes, also.
- System interfaces: With what systems do you need to integrate? If your website will interface directly to the 3PL, you need the 3PL’s order format for mapping your web order and other data. Are there other corporate systems such as accounting or inventory that you need to consider?
- Other 3PL systems to outside services: Are you implementing Amazon’s Fulfillment By Merchant (FBM), EDI, new credit processors or “big box” or sales portal interfaces that need programming, data mapping, and testing? Do these interfaces require test and compliance certifications that must be completed before implementations? Add realistic timeframes to the schedule for these complex systems.
Setting up 3PL processes and requirements
As part of the implementation, the 3PL will do a thorough analysis of your fulfillment processes. Here are 5 essentials:
- Define processes and procedures: Any training and procedure manuals you developed will assist with training the 3PL. If there are none, you will need to fully document your procedures and convey written requirements to the 3PL so that they can replicate your processes. For pre-assembled kits, we recommend the 3PL visit and understand how you create these kits. They may have recommendations which can make the process more efficient.
- Shipping orders during the transition: In order for your 3PL transition to have minimal risk to sales and customer service, you will need to ship during this transition. Every attempt should be made to reduce downtime during the startup.
- Added labor cost: What additional labor will you require for counting, palletizing, and transporting merchandise? If you are shutting down your internal facility, what labor is needed to complete the facility clean out?
- Stay current with inventory updates: In order for you to monitor your inventory, receipts, and shipments, you need to have access to your data and the transactions that affect it. Use the 3PL vendor’s client portal to access your data and all transactions. Don’t wait until the last minute to review these reports and queries. You will use this portal to manage the inventory at the 3PL, so learn it early in the implementation process.
- Processing returns: If the 3PL is processing your returns, coordinate with Marketing or Creative for any content changes to the website and printed materials for the change of address and effective date.
Moving your fulfillment to a 3PL is no small task. A well-developed transition plan becomes your roadmap. The status and updating of key tasks and schedule will need to be closely monitored and distributed to all stakeholders weekly.