Does it make sense for you to outsource fulfillment?
For Part One on whether you should outsource your order fulfillment (click here)
This decision is entirely dependent on elements specific to your business and operations, both tangible and intangible. Here are some key factors to consider:
- Your in-house operations can’t keep up with the pace of your order volume.
- The cost of order and warehouse management technology is becoming prohibitive.
- The cost of warehouse space is too high and impacting margins.
- Spikes in order volume are negatively affecting your customer service.
- Order fulfillment is sucking all the time out of your team’s day and other important business areas are suffering.
- Compliance and reporting paperwork and requirements have become cumbersome.
Asking these questions will help clarify the decision:
- Would the cost of using a 3PL be less than the internal cost?
- What is the opportunity cost of doing fulfillment in-house?
- Which parts of the order fulfillment process would it make most sense to outsource?
- Which parts would it be best to keep in-house?
- What would be the time savings?
- What would be the cost savings or increase?
- What would be the net benefit?
After you do this analysis, you might find that partnering with a fulfillment provider is not the right decision now, but it could be in six months or a year or two. Determine the tipping points (e.g., an order volume threshold) and note them so you can monitor when those thresholds are crossed. Then, you can take another look at outsourcing order fulfillment.
How to select a fulfillment partner
The right fulfillment partner for your business will depend on your specific needs, but there are some important elements to take into consideration.
- What are your needs in terms of warehouse space and services — warehousing (volume and location), order placement (email, phone, API), courier collection (daily, hourly), order volume?
- Do they offer bulk discounts and/or other cost-saving options?
- Do they have the capacity to scale if your business suddenly takes off or if you get a sudden flood of orders?
- Do they have a focus on customer service and a reputation for customer satisfaction?
- Will they accept and fulfill urgent orders that come in after the cutoff time?
- If you import or export goods, can they handle the customs and clearance requirements?
- What percentage of orders that they fulfill suffer breakage or damage?
- What percentage of orders are shipped incorrectly (wrong address, wrong service level, wrong product or amount of the product)?
- How long have they been in business?
- How big are they and what geographical locations do they serve?
- Where do they have warehouses and distribution centers?
- What is the cost per order and per volume of warehouse space in relation to your specific needs?
Once you’ve looked at all the measureable factors and have a shortlist of potential 3PL providers, carefully consider each vendor’s experience, capabilities, and integrity. Ultimately, you want your outsourced fulfillment partner to be a good fit for your organization, especially if you will be trusting them with the final touchpoint with your customers.
Analyze and periodically reassess
Track the metrics that you determined were the key benefits of outsourcing your order fulfillment. What quantifiable (and qualifiable) benefits are you gaining from freeing up that time? Is your business leaping forward because you now have the bandwidth to concentrate on marketing, sales, and strategizing? Have your per-package shipping costs decreased? Can you quantify the cost of ceding control over branding and customer service? Are the costs less than the gains?
Track these elements over time and periodically reassess. But don’t be too hasty to say it’s not working if at the end of three months the numbers and other results aren’t great or what you expected. It can take time for the full benefit of any major change to make itself known. In any business, it’s important to streamline every process you can. For ecommerce companies, delegating order fulfillment to a 3PL can be the streamlining needed to propel business growth