Outsourced Fulfillment Guide

Fulfillment 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.

 

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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. Third party logistics companies, also known as 3PLs, provide all of the services required to truly outsource your fulfillment.

 

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

Request a Fulfillment Quote From ShipBob

What services are offered by third-party order fulfillment companies?

Most 3PLs offer standard fulfillment services like picking and packing, inventory storage, global shipping, automated package tracking, and more. Additional services include managing returns, customized solutions from kitting to branded packaging, B2B fulfillment, and more. On top of that, some 3PLs provide fulfillment technology that has all-in-one order and inventory management software, analytics tools, and software to track real-time stock levels, orders, and shipments.

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 operationsInvesting 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

[Download: ShipBob’s 2-Day Express Shipping: How to Drive Revenue Through Ecommerce Fulfillment]

 

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:

“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 order fulfillment

Not every 3PL is going to be the best fit for your business, but the right 3PL should have the technology, infrastructure, support, and expertise to help you grow your business, no matter what stage of growth you’re in and what challenges come your way.

Below, you will learn the most important questions to ask a potential 3PL, plus tips you should consider during your search, so you feel confident in choosing the right fulfillment partner for your business.

 

1. Are you ready to outsource fulfillment?

There is no “right” time that will be the same for every brand when it comes to outsourcing fulfillment, but there are signs to look out for. Here is a checklist to help you decide if you’re ready to partner with 3PL and make it worth the investment. 

You may be ready for a 3PL if any of the following apply to you:

  • I spend several hours a week (or day) packing boxes and shipping orders.
  • I don’t want to fulfill orders myself anymore (or when I launch my brand).
  • I’m running out of space to store my inventory.
  • I need more time for strategic projects, like marketing and product development.
  • I don’t want to invest in a distribution infrastructure (e.g., warehouses, forklifts, labor, etc.).

 

2. Determine your needs for the right fit

During your initial conversations with different 3PLs, you might come across a few that are not able to work with you. Don’t get discouraged. Every 3PL has their own set of customer qualifications, such as:

  • A maximum SKU count
  • Monthly order minimums or maximums
  • Product size and weight limitations 
  • Prohibited product materials
  • Integrations they offer that match where you sell, and certain features, services, or capabilities that they can or cannot provide 

Your business is unique. That’s why it will take some time to find a 3PL that will provide everything that you need. If you’re coming across challenges finding a 3PL that will fit within your budget, consider the following:

  • Are you able to work the cost of fulfillment into your budget? It might not come until you hit a certain order volume.
  • Pricing tactics such as bundles, increasing product costs, and minimum spend thresholds in exchange for free shipping (that is greater than your average order value), should be considered.

Also keep in mind that every 3PL is different, especially when it comes to following:

  • Pricing model  
  • How many customers they have and their capacity to take on more 
  • The order volume they can handle per customer
  • Different warehouse locations and the total number of them (e.g., some only have local or nationwide locations while others have an international network)

 

3. Anticipate what questions a 3PL will ask you

To determine a mutual fit, a 3PL will also ask you questions about your business and needs to help you get the info you’ll need to ship products the most strategic way you can. 

To prepare going into the conversation ahead of time, be ready to have answers to questions related to:

  1. Product weights and dimensions
  2. Current monthly order volume
  3. Business projections based on marketing plans, product launches, PR initiatives, and markets that you plan to enter or expand into
  4. Where your customers are located (by zip code) — this allows a 3PL to determine what fulfillment location(s) you should store in inventory in (this is often exportable from your online store)
  5. Average number of items per order and common order combinations
  6. Total number of SKUs (or unique products you sell)
  7. The technology you use (ecommerce platform at minimum)

Some 3PLs might even ask about average order value and have other questions that will help them advise you on maximizing sales, reducing costs and abandonment, and optimizing your supply chain. This will be from 3PLs that think through business strategy and are looking for a long-term partnership. The more data and info you share, the more a 3PL is equipped to help you and offer ways to streamline your fulfillment strategy. 

Keep in mind that the larger and more experienced the 3PL, the more insights and knowledge they have from working with thousands of brands across industries.

 

4. Compare 3PL providers and make a decision

To stay organized, you might want to create a list of the “must-haves” such as services, technology, warehouse locations, and pricing. You will also want to come up with a way to help you keep track of the pros and cons and services of each 3PL, such as a scorecard or a comparison table. 

Another thing to keep note of is that the cheapest option isn’t always the best option. Be cautious of tradeoffs for the lowest cost option, and closely compare apples to apples. Ask yourself: 

  • What am I getting for this price? 
  • Which services are most important for my business? 
  • How much support will I get?

 

5. Connect your sales channels & send inventory

Once you’ve made a decision, go through the full onboarding process and requirements to get started. An implementation team may assist you in creating an account, integrating your store (and other sales channels), setting up shipping options, and importing all of your products.  

Be sure to follow the 3PL’s exact protocols when it comes to preparing and sending inventory (and be sure to communicate it with your manufacturers and other providers you currently work with). 

 

How to Choose the Right 3PL

Not all 3PLs are created equal. The partner that makes sense for you will depend on your brand’s needs. When evaluating your fulfillment partner alongside your technology stack and sales channels, ask the following questions:

  • How are you different from traditional 3PLs?
  • What do I have access to in your fulfillment dashboard?
  • What do you use as a warehouse management system (WMS)? Did you build it or use another third-party tool?
  • Which ecommerce platform integrations and fulfillment options do you support (Shopify, Walmart, Amazon, Facebook, Google, etc.)? Which can offer 2-day shipping?
  • How can you help me offer a best-in-class customer experience?

P.S. We built a checklist to help you evaluate providers. Download it here.

Download The Guide To Choosing The Right 3PL

How ShipBob works

ShipBob is a tech-enabled 3PL, meaning we use our own proprietary software across our fulfillment network which pushes back to our customers so they can keep track of real-time inventory levels and orders as they are being picked, packed, shipped, and delivered. 

Once your store is connected, orders are automatically sent to our warehouses, where inventory is picked, packed, and shipped (and tracking info is pushed back to your store and shared with your customers). Our fulfillment services help you optimize for time and cost, and use the delivery experience to beat customer expectations and own more of the customer relationship.

Using ShipBob’s global fulfillment centers, you can strategically distribute your inventory across our locations to get your products delivered faster and for cheaper, as storing inventory near your customers helps reduce the shipping zones and costs associated with shipping orders to faraway destinations. Whether you ship from one or multiple fulfillment center locations, you can offer 2-day shipping to 100% of the continental US using ShipBob’s 2-Day Express shipping option.

To provide you with visibility into our operations and performance, and also hold ourselves accountable, ShipBob offers data and analytics to help you with everything from year-end reporting to better supply chain decision-making. We show which fulfillment centers you should stock, days of inventory left before you run out, impact of promotions on stock levels, each shipping method’s average cart value, shipping cost, and days in transit, your fulfillment cost per order, storage cost per unit, and much more.

 

ShipBob’s pricing explained

ShipBob takes a simplified approach to fulfillment pricing. There are only a few core fees you will be charged:

  • Receiving for a flat rate of $25 for the first two hours ($40/man hour after the first two hours).
  • Storage for a prorated monthly charge of $40 per pallet/month, $10 per shelf/month, $5 per bin/month.
  • Overall fulfillment cost per order (includes postage, picking, and packing for the first four picks in an order, then $0.20 per pick for the fifth pick and after).

Note: The exact shipping rate charged is specific to the order and varies based on destination, weight, dimensions, shipping service, and more. Request a quote here to get your pricing plan.

 

Conclusion

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.

Outsourced fulfillment FAQs

  • Is it cheaper to outsource fulfillment to a 3PL?

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  • Which 3PL is best for ecommerce order fulfillment?

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  • How do I outsource my fulfillment with ShipBob?

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  • What services should I expect from a 3PL?

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  • Does ShipBob offer custom packaging solutions?

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