Before we delve into the key points, I feel I should preface the fact that outsourcing fulfillment isn’t for everyone. However, everybody working in eCommerce should research the facts and figures before making the decision to keep fulfillment in-house. Just because you can currently handle your order fulfillment in house does not mean that it is the smartest long-term solution!
If are still on the fence regarding whether your company is ready to outsource fulfillment or not, here are nine key things you should consider before making a final decision:
1. Fulfillment is a Distraction Due to High Growth
While agility is unquestionably a valuable characteristic of small businesses and startups, when your efforts are focused on more critical business operations, you may grow ineffectual when it comes to fulfillment. Chances are, you have other—and possibly stronger—skills and experience besides logistics. If fulfillment is in any way a distraction from the focused skills that will grow your business, it will likely be nothing more than an afterthought. Or, even worse, focusing on fulfillment may diminish your productivity in areas in which you do excel!
Additionally, the opportunity cost of in-house fulfillment may hurt your business more than it helps. Fulfillment companies not only handle all of the pick, pack, and shipping requirements you will face as an entrepreneur, but also generate psychological freedom from those details. This freedom will enable you, the business owner, to focus on marketing, sales, and product design. Delegating the crucial task of fulfillment may also release positive energy that you can put toward improving any other business-growing skills you need to develop.
Scalability is another key element in deciding whether or not you should outsource fulfillment. You may be able to keep up with orders now, but what about 3 months from now? And when that day arises, will you have the time to properly voir dire fulfillment companies to choose the best-fit?
2. Your Fulfillment Costs are Rising
Many startups bootstrap their operations to conserve resources in order to retain greater control while growing the business. This is great because you focus on the core aspects of your business, but it necessitates you to look past initial costs and take into consideration the bigger picture of outsourcing fulfillment. Does your business require you to scale quickly to maintain a competitive advantage? Or will you benefit by having a logistics partner? By bootstrapping fulfillment, you may miss out on the extensive network that a well-connected fulfillment center could provide by way of valuable industry-centric advice.
If you’re still hung up on costs, make sure you do the math. Once you factor in the cost of printers, scales, shelving, facilities, labor and supplies, it’s not uncommon to find that the total outsourced fulfillment cost per order comes in at less than the DIY cost per order. This also doesn’t take into account the value of freed-up working capital and… perhaps the most essential resource of all… time.
Delegating the repetitive process of receiving, warehousing, picking, packing, and shipping to others can, over time, be the deciding factor in the battle between growth and stagnation.
3. You Overpay for Shipping (and you may not know it!)
Unless you have previously utilized a fulfillment company, or you have spoken to someone who has, you may not realize that you are overpaying for shipping. Shipping is extraordinarily expensive for small businesses that don’t have the leverage to negotiate better rates. If you ship a particularly cumbersome and unwiedly product, you may find that your shipping costs consume your entire margin!
Since fulfillment centers ship at high volumes, they customarily have negotiated discounted rates with various prominent shipping carriers. And in the case of ShipMonk, these savings are passed down to you, the client!
The overhead of daily UPS or FedEx pick up, endicia.com, or stamps.com fees, and the cost of package processing software like ShipStation can add up quickly. All of these basic costs essential to any scalable operation can be avoided by outsourcing fulfillment.
4. You are Concerned about Brand Damage Resulting from Inaccurate Orders
Unfortunately, most customers today give a company only one opportunity to deliver on a promise. Therefore, it is imperative that you meet their expectations when they place their very first order.
No matter how familiar you are with your own product line, manually inputting orders — or picking and packing products without an inventory management software system — results in an error ratio that you may find unacceptable. Compounding this issue is if you have multiple SKUs… more SKUs translates into more opportunities for errors without a cutting-edge inventory management software solution.
This is not to say that fulfillment centers are perfect. However, most fulfillment companies have implemented systems and have procedures in place to ensure your order is picked, packed, and shipped correctly.
5. Storage Space is Vanishing
Don’t let storage be a hindrance when forecasting inventory. By using an order fulfillment company, you’ll be able to accurately predict inventory levels and store sufficient product based on market demand without having to factor in more warehouse space. Since businesses selling CPGs receive significant discounts for ordering in bulk, your price break from ordering a higher volume of inventory can cover a portion of the cost associated with outsourcing fulfillment. This solution is cheaper and much more convenient than renting a storage unit and far more convenient than storing your product in your laundry room.
6. You Hope to Develop In-House Fulfillment
If you find yourself Googling topics related to fulfillment operations and how you can streamline your in-house efforts, it may be time to look into third-party options. Growing a profitable business requires a lot of work and every resource is valuable. So why waste resources on growing an order fulfillment department when you can simply outsource the entire operation altogether?
Fulfillment companies have proven integral to smaller companies in terms of streamlining and scaling their logistics operations. As experts in supply chain management, a fulfillment company can help your business with factors such as sourcing cheaper packaging, finding better shipping options, and even offer advice on your business model.
7. You’re Expanding Internationally
Outsourcing your international fulfillment is an excellent way to penetrate a new market without incurring the risk of opening your own warehouse abroad. With help from an order fulfillment company, you can handle this problem efficiently. Not only do fulfillment companies get better international shipping rates—and may even be strategically located in your target country—but they’re also experienced with export and the customs documentation filing that goes with it.
The landscape of customs, declared values, and Harmonized Tariff codes are complex and convoluted. Rather than learning these ins and outs yourself, you might consider working with a fulfillment company who has demonstrable knowledge in this arena.
8. Managing SKU and Inventory is Challenging
If you’re a small business, you probably have no need for state-of-the-art technology to grab a product off a shelf, put it in a box, and slap a label on it.
But once you have hundreds of different products in your warehouse, you’ll need to invest in some type of warehouse management system to keep track of inventory levels and sales forecasts. Mismanaged inventories — whether deficient or excess — can create significant financial problems for even the most robust of operations. When choosing a fulfillment company, always ask in-depth questions regarding their fulfillment software.
Depending on the company, you may have inventory management software access included in your monthly fee. This is another alternative to cut other operational costs when outsourcing fulfillment.
9. Slow Shipping Times and Delays Cost You Business
Typically, fulfillment companies are strategically located next to major shipping hubs. This facilitates faster delivery times and lower shipping costs. The physical location of your business may contribute to delays simply due to lack of access to—or a relationship with—the major shipping carriers. The advantage here is that as many as two days can be otherwise lost with transferral to a distribution center. These are two days that a fulfillment center can give you… two days that will prove instrumental in customer satisfaction and retention.
No business is exactly the same, so you’ll need to do a bit more business-specific homework before you can make an educated decision whether or not outsourcing fulfillment is right for you. And if you have any questions regarding this article or any other concerns related to logistics, order fulfillment, or supply chain management, feel free to let us know. We would be more than happy to help!