Ecommerce Fulfillment: Why Outsourcing Might Be Right For You (And What Your Other Options Are)
Fulfillment is one of the most important areas of your ecommerce business because it dictates your customers’ experience once they’ve clicked the “Purchase” button.
While you might be able to manage fulfillment by yourself at first, the task may become challenging to manage as your business grows. With more orders to ship out and more product to store, you may be in need of another solution.
That’s where outsourcing ecommerce fulfillment comes into play. Outsourcing to a fulfillment provider, also known as a third-party logistics (3PL) provider is a strategy used for many online stores.
There are many credible providers with both fulfillment centers and technology that connects to your ecommerce website to remotely oversee the different stages of fulfillment — from automating packing as soon as an order is placed to labeling and shipping it out. They’ll also work with carriers, mail the shipments, track progress, and confirm successful delivery.
The costs associated with outsourced fulfillment depend on the number of products stored in the provider’s warehouse, how many shipments occur each month, the 3PL’s pricing model, and more. As you consider the fees, remember that there are many benefits to outsourcing order fulfillment, all of which inevitably lead to time saved and an increased ROI.
Why Getting Fulfillment Right Matters
A reliable and streamlined order fulfillment process is directly correlated to the success of an ecommerce business. Having a structured fulfillment process in place can make or break the trust a consumer has in you. From the second an online transaction is finalized to the moment a package arrives at the recipient’s address, the entire chain needs to function smoothly, accurately and efficiently.
In short, how your business fulfills orders has a direct and substantial influence on your reputation with customers. Especially in an economy driven by corporations like Amazon, where customers are now able to get free, on-time shipping for every single purchase.
In fact, a recent poll conducted by the supply chain management firm Arvato Management Solutions found that 54 percent of online shoppers abandoned their carts as a result of expensive delivery, and 24 percent abandoned their carts because of inadequate delivery speeds. Moreover, 45 percent of shoppers cited a convenient shipping process as the main factor in their decision to complete a transaction.
Taking these statistics into account, it would make sense that your business’s order fulfillment standards affect whether you can retain and grow a secure customer base in the long-term.
Top Options for Fulfillment
Every organization has unique elements that are baked into their particular fulfillment process. Before we dive into the reasons why outsourcing order fulfillment to a 3PL makes sense for retailers of various sizes, we’ll review the most common fulfillment models — and pros/cons associated with each.
1. In-House Fulfillment
Keeping fulfillment in-house means you, as the retailer, manage all aspects of the fulfillment process internally. This includes storing inventory, packing boxes, and shipping orders out yourself. This is a common approach for home-based startups with limited inventory and minimal overhead costs.
Benefits of Keeping Fulfillment In-House
On the plus side, you have total control over everything. When you outsource something, you’re responsible for an experience that you can’t oversee from beginning to end. To a lot of entrepreneurs, this is crucial.
Handling fulfillment yourself is also a great way to truly understand your business and your customers. By seeing first-hand what goes into your fulfillment process and viewing the trenches, you might get insights into other levels of the operation.
Risks of Handling Fulfillment In-House
As your business scales, more expenses are accrued through in-house fulfillment—especially when the volume of orders increases and the amount of storage n your home decreases.
Some of these costs include renting and staffing a warehouse space, obtaining the right equipment and materials, purchasing warehouse management software, enrolling in commercial liability insurance, and securing a carrier transport.
In addition, owning the entire fulfillment process at a large scale presents risks. If you can’t keep up or fall behind, you risk losing customers when their shipment doesn’t arrive per their expectations. BizJournal reported that 52 percent of consumers blame the retailer if their orders are delayed or incorrect. Customers expect precision, so you cannot afford to leave a margin for error.
Don’t forget to consider the amount of legwork needed to fulfill orders in-house and attention taken away from other important tasks. With time being so important to you as a business owner, it often makes sense to take this time-consuming task off your plate sooner than later.
With each page refresh to check for new orders, box packed, drive to the post office, line waited in, etc., you are missing the opportunity to get customers, make new products and market your business
Dropshipping is a fulfillment model where orders are shipped from the manufacturer directly to the consumer. In this model, the online store owner never touches their inventory.
Advantages of Dropshipping
One important benefit of dropshipping is the minimal overhead. You may even earn a percentage of the sales commission from the manufacturer or receive a discount for selling the products from the wholesaler or manufacturer that created them.
Downsides of Dropshipping
The risk factors related to dropshipping relate to the fact that the entire process happens between manufacturer and consumer. You’re distanced from the process, which means you don’t have exclusive control of inventory management, quality assurance, and customer satisfaction in terms of ordering and shipping.
Additionally, because most manufacturers are located abroad, it can take a very long time for packages to reach your consumer if it’s coming from overseas. As mentioned earlier, customers today do not have the patience or time to wait for their orders. If you can’t deliver on time, they will look elsewhere.
3. Third-Party Fulfillment
Third party fulfillment is a model that involves outsourcing fulfillment to a professional entity that provides services on behalf of the seller. The fulfillment provider is responsible for storing the seller’s inventory, packing and labeling orders for shipment, negotiating discounted rates with carriers, processing customer returns, and ultimately ensuring orders are shipped out on time.
Benefits of Outsourcing Fulfillment
Outsourcing fulfillment to a third-party saves businesses a lot of time to ultimately make your business scalable. This is because a large fulfillment center has the resources, staff, expertise, and bandwidth to process a much higher volume of orders than a smaller infrastructure can.
An increased number of ecommerce companies are realizing this approach will take the from a small business to a growing one by handing off the busy work and focusing on the tasks that only they can do.
Third-party fulfillment also helps businesses manage seasonality and slow periods. Because your business can suddenly ramp up or slow down, sometimes dramatically outside of forecasted volume, a 3PL can help you quickly get an increase from demand out the door on time, or ensure you only pay for what you use when and if business slows down.
This, along with changes in staff, ordering packing materials and supplies, and general shipping complexities are moving parts that your fulfillment provider is handling for you.
Though fulfillment is being handled within their four walls, you’re not completely giving up all control. A good 3PL will provide you the tools to manage inventory, make informed business decisions, and dictate how your orders should be handled— even when you’re not there.
It’s critical that you remain intimately familiar with your inventory data, including quantities on hand, the point in time you need to order more inventory at the product-level (especially in preparation for holidays and promotions), where your items are being shipped to, and how you should optimize your inventory across fulfillment centers to reduce time in transit and shipping costs.
Inventory management is still a critical element of your business, and one that you don’t need to give up when you outsource fulfillment.
3 Examples of When You Should Outsource Fulfillment
Outsourcing fulfillment is not the most viable option for every ecommerce business. Consider the three signs below to understand if outsourcing fulfillment is a good fit for your needs.
1. You Want to Offer Two-Day Shipping (Without Going Broke)
The same Arvato research referenced earlier found that 53 percent of consumers name delivery speed as the most crucial factor in determining whether to make a purchase online. In today’s culture of instant gratification, people often expect shipping to be fast, easy, and inexpensive. If you can’t keep up, your business will suffer. While most ecommerce business owners would like to offer this level of logistics to their customers, the cost of postage alone is likely an expense that your small business cannot afford.
When you outsource fulfillment, however, you can make two-day shipping a feasible option without straining your budget. Some third-party fulfillment companies have multiple fulfillment centers located in different regions or cities, enabling you to concentrate the storage of inventory in areas close to your customer base.
This minimizes the distance or shipping zones that an order is shipped to, which also curbs the overall price of shipping and accelerates the time of arrival.
Speed and convenience matters for your business’s reputation because the absolute maximum number of days a consumer will tolerate waiting for their shipment is 4.5, according to a recent survey by AlixPartners.
2. You’re Shipping More than 100 Orders Per Month
In-house fulfillment is manageable in the initial stages of a business, but choosing this route will only benefit you to a certain point. The more consumers you reach and the greater demand you face, the less bandwidth you have to monitor, prepare, and execute shipments yourself. We use 100 shipments as a rule of thumb, though what’s manageable and makes sense for one business may be different for another.
Time is a business owner’s most valuable resource, and as such, you need to decide which tasks are practical and useful to delegate. While there is no right number of shipments to hand off to a 3PL, if you’re planning on growing and are already struggling to make time for fulfillment then it might be a smart business decision to outsource this function.
Not to mention, there are many costs of self-fulfillment that can accrue without notice. The most substantial of these is the opportunity cost—when you lose track of the the high-dollar tasks that maximize ROI for your business because you’re too overwhelmed by low-dollar responsibilities.
The deficits of this opportunity cost are described by wellness brand entrepreneur and ecommerce maven Teri Miyahira, who realized early in her career the profit margin she had sacrificed in an attempt to fulfill orders herself. She explains:
“Every hour I was spending personally on $10/hour tasks instead of $10,000/hour jobs, I was effectively losing $9,990/hour in revenue generating activities.”
Miyahira’s firsthand account is also verified through price comparison data from the ecommerce hosting platform Shopify. Their analysis determined that it costs nearly $600 per month or $7,200 annually to ship a minimum of 100 orders monthly. However, with the discounted bulk rates from a third-party fulfillment center, you could save $90 per month and $1,080 annually on shipping, which means the cost to outsource fulfillment would be $6,120.
This yields both a time and financial gain, which can be invested directly back into further scaling the business.
3. You’re Running Out of Time and Space to Manage Inventory
Inventory management can be a challenge for both small businesses that are gaining traction and large businesses that already have their own warehouse. While newbies can rent a storage unit to mitigate the issue of too much product being stored at home, larger businesses that need to secure a warehouse will encounter the financial, legal, and logistical complexities.
If you look at the numbers, in addition to leasing the space—which a survey of warehousing companies estimated to be $13.02 per unit of pallet storage, $.54 per cubic foot, $2.14 per unit of bin storage, or $.88 per square foot—you also need to budget for the salaries of warehouse laborers, as well as the costs of licenses, insurance, shipping, forklifts and equipment, and much more.
While the DIY warehouse option is possible, it may not be the most affordable or convenient method if your goal is to continue expanding. Financing and operating a warehouse is a major commitment that requires a lot of logistics expertise. Outsourced fulfillment providers take this hassle off your shoulders.
Start Outsourcing Ecommerce Fulfillment
Keeping up with orders can be a significant challenge for ecommerce owners. To stay competitive with giant retailers like Amazon, you need to ensure your fulfillment strategy helps you earn new customers and keep them coming back — not deterring them or causing a bad overall experience.
Fulfillment remains a top challenge for ecommerce businesses.The good news is that using a fulfillment service through a third-party is now more important than ever before.
If you’re ready to hand off fulfillment, check out ShipBob. ShipBob has a network of fulfillment centers in the largest US cities and technology that integrates with the leading ecommerce platforms to automate fulfillment from your online store.