What Does It Mean To Outsource Order Fulfillment, And When Should You Do It?
December 18, 2018
What do you want to learn?
Fulfillment logistics is one of the most important (and most complicated) aspects of running an ecommerce business. As customer expectations continue to shift, both the complexity and the pressure increase for ecommerce brands to meet demand and keep up.
While you can likely manage it all yourself when your company is small or just getting started, at some point it may make sense to outsource supply chain managements tasks, including warehousing, fulfillment, and shipping.
Read on to learn what outsourced ecommerce fulfillment entails, why companies choose this route over keeping fulfillment in-house, and whether it’s right for you.
What does it mean to outsource fulfillment?
Outsourced order fulfillment refers to hiring a third party to manage some or all aspects of the order fulfillment process, including storing inventory, packaging items, and shipping orders.
While outsourcing may seem like a risky option, the company you outsource fulfillment to should be a true partner for your business, not just a transactional vendor.
“With ShipBob, I feel like I have a team member running my fulfillment — I’m never worried that a shipment won’t go out.”
Nicole Humphreys, Founder, August Effects
Third-party order fulfillment services
Outsourcing order fulfillment processes to a third-party logistics (3PL) company means they handle the following services on your behalf using their infrastructure, workforce, and technology:
- Warehousing: Storing and managing your inventory in the 3PL’s facilities (not just an on-demand warehousing platform that just matches you with warehouses that have excess space)
- Picking: Following a pick list and retrieving the item(s) from their spot in the 3PL’s warehouse as soon as an order is placed on your website
- Packing: Packaging all items in the order using the appropriate box or poly mailer and packing materials, then adding the shipping label to the package
- Shipping: Scheduling shipping carriers to pick up packages from the 3PL’s facility to be sent to your customers along with electronic order tracking information
- Returns processing: Facilitating the returns process and getting your unused merchandise back into your available inventory
The benefits of outsourcing shipping with an order fulfillment company
There are many reasons why ecommerce brands hand off retail order fulfillment processes to a third-party logistics partner rather than keeping fulfillment in-house.
1. You don’t have to store inventory yourself
Whether you have your own fulfillment warehouse or your inventory is filling up your living room, basement, or garage, dealing with storage can be a nightmare.
Your sales may fluctuate seasonally or month-over-month. This can lead to a shortage of space when you get a new batch of inventory or cause you to pay for too much ecommerce warehouse space before you’ve fully grown into it or when your inventory isn’t selling during low seasons.
When you outsource fulfillment, your 3PL can efficiently track your inventory levels without you having to handle product, organize everything, or sacrifice your space. All you have to do is send more inventory when stock levels get low.
The cost to store inventory shouldn’t eat into profit margins. In fact, logistics warehouse tenants can expect to see a 10% rate hike starting in 2021, due to a high demand for warehouse expansion and construction. That’s why more brands are seeing the added value of outsourcing fulfillment with warehousing space included.
“My garage was at maximum capacity — we couldn’t even fit another person in there. I could have leased a warehouse somewhere and grown into the space, but with the seasonal nature of our business, meaning we’d have to scale up our fulfillment and workforce every year, I knew I had to find a 3PL partner.”
Noel Churchill, Owner and CEO of Rainbow OPTX
2. You don’t have to deal with packing boxes, shipping carriers, or running a warehouse
If you’ve ever fulfilled orders yourself, the following inbound and outbound logistics tasks are all too familiar:
- Searching for a box that will fit all of your products
- Layering your items in dunnage
- Playing Tetris to pack the box
- Taping the package closed
- Printing labels
- Running to the local post office or UPS Store
Doing those activities every day becomes time-intensive and costly. The greatest clue that it’s time to outsource fulfillment is that you can no longer keep up with your increasing order volume. While you can hire someone to take on these tasks, you will still be stuck paying the many hidden costs of fulfilling orders in-house.
“Our fulfillment team worked 5-6 hours every day preparing orders to be shipped out. This added up to be a massive time sink, taking up scarce staff resources. I knew we had to outsource fulfillment to a 3PL to support the volume we wanted to achieve. Since partnering with ShipBob, we’ve scaled from $300,000 in sales per year to over $1.1 million due to infrastructure, technology, and scalability improvements.”
Ryan Casas, COO of iloveplum
Additionally, leasing a space comes with a lot of warehousing management and operational responsibilities. You have to staff it, purchase equipment, insurance, and software, and manage operations. Investing in your own fulfillment infrastructure is a long-term commitment requiring a lot of resources and expertise.
Alternatively, outsourcing order fulfillment to a 3PL eliminates tasks like packing boxes and managing complex fulfillment operations, and instead of hiring fulfillment staff, you can hire marketing and customer support roles.
3. You can scale by focusing on only the most important tasks
While fulfillment-related tasks are important, it’s likely that none of them are the reason you started your business — and they only eat up more of your time as you grow.
Eventually, you will find that your time is your greatest resource. Spending time on fulfillment-related tasks instead of on generating more sales and building your customer community can ultimately prevent you from scaling your business.
Smart business owners understand they can’t do everything themselves and know when to take something off their plate. Outsourcing order fulfillment helps you free up your time to focus on branding, product development, and other initiatives that only you can lead. You can hand over managing inventory, packing boxes, and shipping orders to a 3PL; after all, it’s their core business — not yours!
4. You get to leverage the 3PL’s volume and fulfillment expertise
With all the nuances of managing order fulfillment processes, unexpected issues can arise that quickly become overwhelming — especially if order volume picks up.
Because a third-party logistics company works with countless ecommerce companies, they are used to fulfilling large volumes of shipments. This affects everything from the rates they negotiate with major carriers for steep discounts to ship across the world to the number and size of the fulfillment centers they operate.
“We are very impressed by ShipBob’s transparency, simplicity, and intuitive dashboard. Their shipping costs are very reasonable, and their platform makes fulfillment feel so easy.”
Harley Abrams, Operations Manager of SuperSpeed Golf, LLC
A 3PL has a network of partners that help drive faster, more effective, affordable service. They know best practices, are prepared to handle peak season, can easily scale their workforce, manage returns, and much more. Working with a fulfillment expert means you don’t have to become one yourself.
“Since partnering with ShipBob, we’ve been able to scale our business from $300,000 in sales per year to over $1.1 million due to infrastructure, technology, and scalability improvements.”
Ryan Casas, COO of iloveplum
5. You gain a strategic geographic footprint with multiple fulfillment centers
If you fulfill orders in-house, you are limited to shipping orders from one location, which can be more expensive and lead to longer transit times for customers who are farther away. To meet customer expectations around affordable 2-day delivery and even same-day shipping, this won’t cut it.
Partnering with a 3PL lets you use their fulfillment centers in various regions, no longer limiting you to shipping from the confines of your neighborhood post office. Splitting your inventory among several warehouses across the country means your products are already stored near your customers, so you’re shipping to lower shipping zones, reducing the costs and time in transit.
“Because of Amazon, our customers expect 2-day shipping. Luckily, ShipBob has fulfillment centers in major cities all over the US. The more fulfillment centers we have inventory in, the more addresses we can offer 2-day shipping to. And the more people we offer it to, the more conversions we get: We’ve seen an 18% reduction in cart abandonment.”
Founder of My Calm Blanket
6. You get the best technology and analytics to help your business grow
Handling fulfillment in-house typically involves manual order fulfillment processes. When you outsource shipping, you’re not just getting the 3PL’s services but also a plethora of tools, distribution metrics, and inventory reporting you can actually use to inform business decisions.
3PLs are no longer seen as a cost center but rather a revenue generator that helps reduce cart abandonment and increase conversions by meeting customer expectations.
Fulfillment solutions today include seamless integrations that connect your entire retail supply chain to your sales channels, enabling the ability to:
- Offer expedited shipping options
- Route each order to the fulfillment center that is closest to the customer
- Provide real-time tracking for orders
- Make data-driven decisions using built-in reports that help you reduce shipping costs and transit times
- Forecast inventory and send proactive alerts to reorder more product
- And much more
“Since our store is powered by Shopify, the integration between ShipBob and Shopify has made it really easy to manage everything from inventory and warehousing to customer communication. It’s been really helpful when clients reach out, for example, when they enter the wrong address at checkout. I can jump into ShipBob and edit it.”
Steve Staffan, founder and CEO of Brummell
Why you shouldn’t outsource fulfillment
While outsourced order fulfillment may seem like a great option for your ecommerce business, the following considerations may convince you to keep fulfillment in-house.
1. You want to maintain total control of every step of the fulfillment process
Whether you have trouble delegating or simply want your own staff to handle everything, keeping fulfillment in-house gives you complete and precise control over how your items are stored, picked, packed, and shipped to customers. This can be especially helpful for handmade or fragile items.
Furthermore, if you or someone on your team are an ecommerce logistics expert, your distribution network is a core competency, or you’ve already built your own supply chain, you likely won’t need a 3PL, at least for some time.
2. You insist on personalizing orders with gift wrapping or customization
If you have unique packaging that involves any type of customization on an order-by-order basis — whether it’s a personalized handwritten note or a gift wrapped box with crinkle paper and a sticker on top — your unboxing experience may be beyond a 3PL’s capabilities.
Many 3PLs allow the use of branded boxes and poly mailers and provide kitting services to meet the unique needs of customers, though it may raise the cost of fulfillment. But in-house fulfillment will always give you freedom and flexibility over packaging.
3. Each of your products is different or has special needs
For products that are made-to-order, personally customized, or one-of-a-kind, sticking to self-fulfillment will be the way to go. This is because each unique item will need a separate location in the 3PL’s warehouse, making storage inefficient and expensive.
Additionally, if your products are perishable, hazardous, or flammable, outsourced order fulfillment may be difficult or impossible. If you have strict inventory storage requirements, you may have trouble finding a 3PL that can meet your needs.
4. Your sales volume is low enough to pack orders yourself
If your current volume of orders is manageable for you to fulfill yourself, then you can continue to do so. Self-fulfillment is lower-cost when your business is small, though of course there is a time tradeoff.
If you’re trying to save as much money as possible, refraining from outsourced order fulfillment helps you increase cash flow, especially if you have a low profit margin. Just monitor any increases in order volume over time before it becomes too much for you to manage.
How to outsource product fulfillment
When it comes to outsourced order fulfillment, there are many options. Here’s how to make sure you find the right partner for your unique business.
1. Determine your needs
Before you choose a partner to outsource shipping to, be sure you fully think through all considerations, implications, and must-haves for your business’s unique needs.
- Review your growth plans so you select a partner that will be scalable as your sales increase — from handling B2B ecommerce orders to having international shipping capabilities.
- Know your must-haves (besides pick, pack, and ship) to ensure you get a provider with the features you need — whether it’s kitting or refrigeration services — and understand how you will be charged for them.
- Have a sense of your ideal timeline so you can plan accordingly depending on how long onboarding and receiving inventory takes.
- Consider your branding needs and whether you need to ship orders in custom boxes or branded poly mailers vs. plain packaging.
2. Compare 3PL providers
Order fulfillment processes directly impact your customers’ experiences with your brand, product, and reputation. Your 3PL’s performance can leave a long-lasting impression on your customers. To choose the right third-party logistics service provider:
- Make sure you understand all potential fulfillment costs and whether you’ll have separate line items for things like boxes and packing materials.
- Determine if you’d be okay with being locked into a contract.
- Analyze the time in transit from each 3PL’s fulfillment centers to reach your customers using historical shipping addresses.
- Evaluate their fulfillment network and whether you’re limited to one location or if you’ll be able to grow into multiple fulfillment centers, and whether their coverage is surrounding rural areas or major cities.
- Explore the 3PL’s technology and integrations to discover if your current online store(s) and the other systems that power your ecommerce operations are compatible with their fulfillment solution or if you’ll need to hire a developer to set it up.
- Check out what kind of reporting and other tools they offer to assist with everything from inventory forecasting to inventory distribution optimization. These tools can help you save on logistics costs and time in transit.
- Think through what level of support you’ll be okay with receiving, from phone calls to dedicated on-site account management.
3. Choose the right partner and relax!
Once you’ve made your selection, you can send your 3PL your inventory, sync your store(s) to their technology, and start having your orders fulfilled by them. When you outsource shipping, you can automate fulfillment and track the process from when an order is placed on your store until the package arrives at your customer’s doorstep.
Many ecommerce businesses find that moving away from self-fulfillment is the best decision they’ve made. But choosing to outsource shipping to a third-party logistics company is a major decision to make.
If you’re ready to find a partner to outsource fulfillment, download the e-guide, “How to Choose a 3PL for Your E-Commerce Business.”