Outsourcing your order fulfillment can free up time and resources to propel business growth. Here’s how to determine if it’s the right choice for your company — now.
In ecommerce, there can come a point when you face the question of whether doing order fulfillment in-house is bogging the business down and preventing growth. Outsourcing this function to a 3PL (third-party logistics) provider can free up time and other resources that allow you to concentrate on increasing revenue and moving the business forward.
So, let’s take a look at what exactly a 3PL fulfillment provider does and how to determine if outsourcing this function would be the right decision for your business.
What is outsourced order fulfillment?
Think of outsourcing order fulfillment as delegating. Essentially, you’re hiring experts to do the tasks that aren’t within your core competencies. By delegating the packing and shipping of orders, you free up yourself and your team to concentrate on the activities that require your expertise, knowledge, and higher level thinking. These can include product selection, sourcing, design, sales, marketing, and of course the planning and strategizing needed to move the company toward Big Picture goals.
How does it work?
There are two basic parts to outsourced order fulfillment:
- The fulfillment service provider warehouses your goods.
- The provider fulfills orders on your behalf:
- The fulfillment provider integrates their software with your ecommerce store;
- When an order comes in, the provider picks, packs, and prepares the product for shipment;
- The provider coordinates and schedules shipment pickups with carriers such as FedEx, UPS, and the USPS.
The pricing also has two parts. To warehouse your goods, fulfillment providers typically charge a flat monthly storage fee that’s determined by the number of bins/pallets you warehouse in their facility. Then, there are additional per-order fees to cover picking, packing, and shipping.
Benefits and disadvantages of outsourced order fulfillment
As with everything, there are benefits and disadvantages to delegating your order fulfillment to a third-party provider. Here’s a look at the main pros and cons.
- Cost reduction — This comes mostly in the form of labor cost savings. Order picking, packing, and preparation is a time-consuming process that is likely not making the best use of your team’s abilities. There can also be savings on the actual shipping costs, because 3PL fulfillment providers typically have close relationships and well-negotiated agreements with the major parcel carriers.
- Scalability without fixed costs — Your business can grow without your having to worry about logistical aspects such as warehouse space and process efficiency or negotiating new shipping agreements. You also don’t need to worry about fluctuations in order volume — the fulfillment provider can scale up or down as you need and your costs increase or decrease accordingly.
- Shipping expertise — As mentioned above, thanks to the volume they handle, fulfillment providers are usually able to get better rates with the carriers than you could. They also typically have strong relationships with the carriers and understand all the tricks of the trade.
- You can enhance your service proposition — Do you want to offer same-day or two-day shipping? That’s likely to be much easier to do when working with a fulfillment provider, in terms of both process and cost.
- Someone else handles inventory and returns — The provider will audit the inventory in their warehouse and integrate the data with your ecommerce inventory management tools. Your fulfillment partner will also provide support for your customers and manage the time-consuming task of processing returns.
- Better utilization of your time — You and your team can focus on tasks that require your strengths, such as marketing, sales, product selection and design, and other key business tasks that require higher-level thinking.
- Loss of control — The whole of the order fulfillment process is out of your hands.
- Inability to personalize — When you outsource packing, you can potentially lose out on the marketing and customer service component of creating a Wow experience when the customer opens the package.
- Potential increase in mistakes and returns — Although they will typically have strong processes and checks in place because fulfillment is all they do, fulfillment providers will still make mistakes. There can also be greater potential for breakage and other damage.
- Potential reduction in customer service — Because you’re handling neither the packing and shipping nor the returns, you are ceding control over those two important customer touchpoints. A fulfillment provider is not going to have the loyalty to your brand that your employees do.
- Potential hit to brand loyalty — This stems from all of the previous factors. Anything that goes wrong in the first four categories will detrimentally affect customer satisfaction and brand loyalty.
- It can be costly — If your products move well, then you are likely to save money by working with a 3PL for order fulfillment. But if your products sit on the shelves, the storage space charges can become prohibitive.