Should you outsource ecommerce fulfillment? What are the pros and cons of using a 3PL or ecommerce fulfillment provider? This post helps you decide.
This post will help you decide whether you should outsource your e-commerce fulfillment.
It will answer the following questions:
(When it comes to e-commerce fulfillment operations)
Let’s get started.
Outsourcing e-commerce fulfillment means hiring a third-party provider to handle the entire order fulfillment process or some of its parts such as warehousing inventory or shipping orders to customers.
Typically, these companies own the tools, equipment, resources, and capabilities necessary to manage delivery logistics. That’s what makes them an ideal solution for small-to-medium businesses that lack the initial capital to build up their own fulfillment operations.
Although every e-commerce order fulfillment provider operates in its own way, they all act as management centers for order preparation and shipping.
Some 3pl e-commerce fulfillment centers have multiple facilities, which allows them to cover different geographic areas more efficiently.
The global e-commerce fulfillment market size was estimated to be approximately $77 billion in 2020.
External e-commerce fulfillment providers are companies that manage the following services, using their own workforce, infrastructure, and technology:
One way to outsource e-commerce fulfillment is to use marketplaces.
Amazon, Flipkart, and Walmart are some examples of marketplaces that offer fulfillment services.
There are more than 5 million sellers on Amazon marketplaces across the world.
If you choose to outsource to marketplaces**, they will manage your entire fulfillment process from storage to returns management.**
Your items will be stored in distribution centers across the country or the globe.
Let’s go through some of the biggest benefits of working with an external e-commerce fulfillment provider:
Outsourcing e-commerce fulfillment can help you reduce operational and overhead costs.
If the order fulfillment company is operating on a larger scale, you can benefit from them buying storage and packing materials in bulk.
When you choose to use an external e-commerce fulfillment warehouse, you only pay for the amount of space that you use.
Usually, an e-commerce fulfillment business will charge a flat storage fee for products that are warehoused by them.
On top of the flat fee, you are only charged for picking, packing, and shipping your orders.
Moreover, a fulfillment provider will offer expert management and flexible staffing solutions.
This eliminates the cost of hiring new people, training new employees, and payroll. Instead, the work is getting done by a team of professionals, saving both money and time.
When a team of experts manages order fulfillment, they are also able to optimize shipping and transportation, and always choose the best option that balances the cost and service levels.
Having a higher quality staff increases the overall efficiency and reduces excessive cost by removing waste from all segments of fulfillment operation.
Your margins could be derailed by high shipping costs if your items are stored too far from your customers.
Many e-commerce order fulfillment providers keep their warehouse facilities distributed across the country, and overseas. This helps them offer competitive delivery rates.
The proximity of warehouses to your customers helps you reduce both transportation cost and the time needed for shipping.
Most 3PL businesses have negotiated discounted delivery rates with shipping companies because of the volume of orders they send out.
Depending on where the warehouses are, outsourcing can save you from 15% to 35% of shipping costs.
Additionally, they have access to the latest shipping technologies that help them compare shipping rates from different providers and choose the most cost-effective options for every order.
If your inventory is split across multiple warehouses, it helps your shoppers’ expectations when it comes to faster delivery or even same-day shipping.
Logistics and order fulfillment are extremely important for every e-commerce business, but they are not the reason why the business was started in the first place.
It is easier to manage fulfillment while the business is small.
But once you start growing your delivery operations, it could easily overwhelm your in-house team. And this is what can make you lose focus from scaling your business.
Delegating time-consuming tasks leaves you with more energy and focus needed to pursue larger business goals.
Outsourcing e-commerce order fulfillment to a 3PL company can be crucial for the growth of your e-commerce business.
E-commerce fulfillment companies have experienced staff that can do the picking, packing, and shipping much faster than you and your team could.
More time helps you develop new products or improve the existing ones, enhance marketing efforts, grow your brand, and even expand to new markets.
Today’s shoppers expect fast and preferably free shipping at all times.
In fact, 79% of online shoppers in the United States claim that free shipping makes them more likely to order online.
Outsourcing e-commerce order fulfillment services can help you meet, or even exceed customer expectations when it comes to shipping times.
Partnering with a 3PL provider that will distribute your goods across multiple warehouses.
This will reduce the number of shipping zones your packages need to go through, and reduce the shipping time and cost in transit.
Outsourcing e-commerce shipping fulfillment allows you to offer more attractive delivery, as well. For example, this may include options such as two-day shipping.
Trying to handle complex multiple inventory stations yourself would probably lead to an increase in late deliveries, missing packages, and other issues that cause customer dissatisfaction and extra costs.
Working with an external fulfillment provider also gives you a full view of each order from the initial step until it is delivered to the customer.
This helps you answer customer questions with up-to-date information and provide better customer service.
In fact, 96% of shoppers claim that the quality of customer service strongly affects their brand loyalty.
Many 3PL companies also offer customer support through email or phone.
Managing fulfillment on your own normally includes plenty of manual processes.
When you choose to outsource fulfillment, the operations rely on advanced software.
You get the benefit of using exciting new tools and seeing different inventory reporting and distribution metrics.
Nowadays, 3PL companies offer integrations that connect the entire supply chain to your sales channels. This helps you:
Fulfillment providers rely on inventory management software to improve e-commerce fulfillment optimization that leads to fewer errors and higher order accuracy, lost items, and overall inconsistencies.
When your online store integrates with their software, you will be able to:
An efficient e-commerce fulfillment process requires strict coordination of many tasks among numerous people. This kind of complexity can make it too demanding for business owners to handle on their own.
3PL and 4PL companies operate as industry experts in all segments of e-commerce warehousing and order fulfillment.
Working with hundreds of sellers and managing a large number of orders allows them to establish shipping discounts they can pass on to business owners.
3PLs have the infrastructure to handle complex tasks as soon as they arise, and to fix issues in a faster way. This leads to more scalability for your business as it continues to grow.
Finding the right order fulfillment provider will also give you a close partner that will help your business excel by improving your e-commerce fulfillment strategy.
You will have industry experts on your team and you can rely on them to inform you on the newest industry trends and make sure your shipping and logistics stay flawless.
If your business is ready for expansion, you must make sure that your fulfillment capacity can catch up.
Fulfillment for e-commerce is a time-consuming process that can leave you with no time, or no capacity to expand your business to new markets.
Outsourcing to external e-commerce fulfillment channels that will deal with inventory management, order distribution, and staffing means more time for you to come up with ways to scale and enter new markets.
While growing, you don’t need to build new stores or rent costly warehousing space in different parts of the world where you wish to expand.
Additionally, you don’t need to worry about the technology needed to support the growth of your business.
Partnering with large 3PL companies can also help you manage tax and duty issues because your products will be stored where the shoppers are.
On the other hand, many fulfillment providers have established frameworks in place to deliver orders to every part of the world.
Using their capabilities, you could extend your reach globally.
However beneficial outsourcing can be, it has some drawbacks, too.
So in this part we take a look at the cons of outsourcing e-commerce fulfillment.
Here are some of them:
When you outsource e-commerce order fulfillment, you are giving up most control over the process.
If you are not comfortable with a third party being in complete control of this aspect of your business, this might be an issue.
Moreover, when issues with shipping and delivery happen, it can be challenging to solve them if fulfillment is not in your hands.
The customer will reach out to you, not the 3PL company, expecting you to react and fix the current issue, and you might not have access to the resources needed to do so.
Finding reputable e-commerce fulfillment solutions with great reviews is a way to minimize the risk of experiencing such issues.
E-commerce order outsourcing can help you cut down on costs when your business is well-developed and you are overwhelmed with the number of orders.
However, if your business is in the early development stages, outsourcing could initially require more money than you are comfortable investing at the moment.
Outsourcing fulfillment pays for itself long-term, but the initial cost might be too high.
Once you start cooperating, e-commerce fulfillment pricing will include paying for inventory storage, picking and packing, and shipping.
If you have a lot of products that are selling great, you might be able to cover the costs and stay profitable, but if you have a lot of products sitting on shelves, it might be too expensive.
Careful calculation of fees will help you determine whether your business could benefit from outsourcing or not.
Although experienced 3PL companies will do everything they can to tailor their e-commerce fulfillment services to your needs, they are still external providers.
3PL and 4PL companies tend to have their own practices and restrictions on how far they are able to go to satisfy a single client.
If your branding includes unique packaging that requires customization with every order (e.g. a handwritten note or a personalized label), this may be beyond your 3PL’s capabilities.
Many fulfillment providers do offer custom packaging including branded boxes, kitting services, and more, this could raise the cost of fulfillment.
In fact, 80% of shoppers are more likely to order from a brand that offers personalized services and experiences.
With in-house fulfillment, you will always have the ability to provide custom packaging and extra services such as gift wrapping.
When a 3PL company takes over your e-commerce order fulfillment process, you are also creating a gap between yourself and the people moving your products through the supply chain.
If it happens that you need to communicate with the staff that deals with your products, there will be a middleman that you need to go through.
With in-house fulfillment, there are no gaps and barriers in communication. You are always able to reach everyone directly.
If you decide to outsource fulfillment, here are some services you should look for and expect:
Whether you choose to outsource fulfillment or to handle it internally, using software to track your operations is highly beneficial.
The right delivery software can improve your e-commerce order fulfillment experience and cut down your costs with more efficient inventory management.
Optimizing e-commerce fulfillment with the use of software will make your operations run more smoothly, with fewer errors and customer service issues.
Here are some of the features you should look for in order fulfillment software:
So if you’re looking to improve the efficiency of your operations, we can help you.
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