The warehousing business can be tough. With tight deadlines, unforeseen shipping mishaps, employees not showing up, you never quite know what is going to happen. The one piece of your business you can control however, is who your clients are and how much profit they bring or headache they cause.
It may seem bit excessive to let a customer go, but if they use more time and resources than they are worth, it may be time to review if they are a good fit for your business. As a best practice in any industry, it is important to perform a quarterly or yearly audit of your clients, especially in a fast-moving one like the third-party logistics (3PL) warehouse space.
When Should You Fire a Customer?
When reviewing your client list, look to some of the questions below to guide your decision on whether it’s best for your business to let a client go.
Does their product type fit your other customers workflows?
While 3PLs can often have clients that vary greatly in their business, it is best practice to identify which clients have similar workflows and which ones are out of place. For example, having a customer sell golf clubs when all your other customers sell nutraceuticals can negatively impact your workflows and accuracy, as you must implement another process in the warehouse for that specific customer. You may also have to adjust your storage areas to accommodate unusual sizes or storage types. Servicing one or two targeted verticals with similar characteristics will help improve processes in the warehouse by eliminating the need for varied processes across your client base. The fewer workflows you have for your clients, the easier it is to manage accuracy and efficiency for those workflows. If your client’s workflow is out of place, they may need to be out of your warehouse.
Are they unwilling to adopt warehouse technology and efficient processes?
Many 3PL warehouses today have systems in place that help streamline their business. Often these systems, like a warehouse management system (WMS) or an order management system (OMS), are a major investment and can greatly impact efficiency within the warehouse. While having a system in place can greatly reduce manual processes, they often require some level of buy-in from your customers. If you provide your clients with a customer portal to enter order and inbound shipment information but they refuse to use it, you may be spending too much time on manual processes for those customers. The less a warehouse customer adopts new technology and processes, the more time you will spend on manual processes to make up for their lack of adoption. When reviewing customers that are slow to adapt, gauge how much time is being spent and the opportunity cost associated with the manual processes that are involved with keeping them-including customer support which may include multiple calls or emails. You may find that by moving on from this client and finding one that embraces current technology/processes will save time and increase revenue overall.
How much customer service time is spent on them and are they a profitable customer?
Customer service resources in any business can be strained by burdensome clients, but this can have an especially negative impact on a 3PL as most individuals have more than one job function in the warehouse. Customers that take an exorbitant amount of time from your teams’ day and don’t return it with sufficient revenue may not be worth keeping. Looking at the service level agreements (SLAs) set between you and your clients can have a major impact on this number as well. Clients with SLAs that are too difficult to maintain may take up too much of your time. Look to see which clients you spend the most time on and review their SLAs to determine if it makes in keeping them.
Most importantly, if you don’t profit from that customer, you should make room for other customers who you will generate profit from.
Are they limiting your growth with slow moving items or low order volumes?
In the 3PL warehousing space, clients are often charged for not only storage but also the handling and receiving of inventory. Often, storage costs less than the core activities of picking, packing, and shipping large volumes of orders. If customers have lots of slow-moving inventory in a warehouse that is near capacity, this can inhibit the growth of your business. By having stale inventory that sits for long periods, you lose valuable storage space that could be used to take on new customers that have higher order volumes. A client with high order volumes and fast-moving inventory is going to be much more valuable to the business than those that have slow-moving inventory with low numbers of orders. Look at your slow movers and identify the opportunity cost of keeping them in your warehouse. Replacing these slow-moving clients with higher volume clients can dramatically improve your revenue and profitability.
When to Fire 3PL Customers Conclusion
After reviewing the previous criteria and looking at your clients, you may find that some clients just are not worth keeping from a business perspective. All the above indicators are major factors in whether a client is profitable or worth letting go. Take your time when conducting these reviews and let the numbers help make this decision for you. With all of the growth in ecommerce and omnichannel fulfillment right now, there are a ton of profitable clients out there, so go get them.
If you already have the right customers, consider other ways you can drive efficiency and throughput in your 3PL warehouse by listening to the Increasing Throughput with Effective Pick Strategies webinar.
-Written by Seth Zellner