When Is the Right Time to Use a Fulfillment Center?
We’re not mind readers, but we’re pretty sure you landed on this article because you’re wondering when to use a fulfillment center. The correct answer will be unique to you and your company, but it can be easily determined through a series of other questions. In this article, we’re going to help you ask yourself the right questions and decipher the data to decide whether it’s the right time for your company to use a fulfillment center.
Some companies use a fulfillment center from day one of launching their business. However, many companies wait until they reach a point of discomfort in their operations – the point at which their business may start to suffer. We hope you haven’t reached that point yet but, regardless, we’re here to help you find the right fulfillment solution for your business needs.
First, let’s make sure we’re on the same page about what a fulfillment center is and what it can do for your business.
What can fulfillment centers do?
Every fulfillment center is different and has a different menu of services, but here are some services a third-party logistics company can offer:
- Receiving inventory
- Inventory management (loading, unloading, organizing, storage)
- Packing orders safely and efficiently
ShipMonk can handle a wide range of sophisticated fulfillment needs including:
- Multi-channel ecommerce fulfillment
- Multi-retailer support
- Retail fulfillment
- Subscription boxes
- Crowdfunding & flash sales (Kickstarter, Indiegogo, Celery, Groupon, etc.)
- FBA prep service
- Kitting and assembly
- Customized labeling and packing lists
- Cross docking
- Consolidation and breaking bulk
- 3rd party shipping accounts
- Quality control
- Customized packing procedures
- Fragile item preparation
- Returns management and arranging exchanges
If the items we listed above are things you already know your organization needs help with, it may be time to outsource fulfillment to a third party.
Benefits of outsourcing fulfillment include:
1) Focus on growing your business.
While you may feel there is value in being in the trenches and immersing yourself in the necessary activities of running your business, we doubt you started your ecommerce business because you wanted to spend your time packing orders and managing inventory. Heck, there may even be days that you kind of miss the simplicity of packing boxes. But the reality is simple: The fate of your company relies on you to have a clear vision and focus on your top priorities.
Outsourcing fulfillment to a third-party logistics company allows experts to take over the parts of fulfillment that don’t truly require your time and effort. This frees your time to focus on more fun, challenging projects such as dreaming up new products, ramping up sales, improving your brand position in the market, and scaling your business to dominate your category.
2) Save time and money.
Outsourcing is an investment, not an expense. Many companies think they’re saving money by bootstrapping and doing everything in-house, which is often a penny-wise and pound-foolish mistake. Using a fulfillment center releases you from the need to sign a long-term warehouse lease, which locks you into a specific amount of real estate when you may need more or less space during different seasons. Fulfillment companies also benefit from better shipping rates due to high shipping volumes. Read this article to learn more about how you can save money by using a fulfillment company.
3) Efficient processes for inventory storage and distribution.
Allowing experts to take over the process of inventory management and order fulfillment will create systems for your business that make you, your employees, and your customers happier. Precise order tracking, data reports and intelligent analytics, advanced software and technology, plus quicker and more accurate processes will provide your company with a unified distribution model.
4) More flexibility, and a greater ability to scale your business quickly and sustainably.
Without the hassle of managing inventory and order fulfillment, your business becomes agile and able to create new avenues of sales and distribution.
5) Infrastructure and increased agility enable your business to enter new markets with ease.
Go for global domination! Outsourcing order fulfillment to a third party allows your business to enter new and untapped markets without the need to set up a physical retail space in each new location you want to sell products to.
Questions to ask yourself:
- How many people does your business employ?
- What are their roles and responsibilities?
- How much time is your organization spending on processes related to order fulfillment (from receiving inventory to shipping, and everything in between)?
- How much money does your fulfillment process cost your organization?
- Do you know whether you are overpaying in some areas, such as shipping rates?
- Do you have a dedicated fulfillment team?
- If so, are they experts at their responsibilities?
- Could these team members be more beneficial in another role within your company?
- Do you have intelligent systems in place for inventory management and order fulfillment that allow your Purchasing Director to make informed decisions about purchasing inventory based on sales trends and historical data?
- Are there gaps in your data?
- Is your current order fulfillment process running smoothly?
- Are there any inefficiencies?
- How many customer complaints have you received about incorrect orders, broken items, and late shipments?
- Has this cost you additional business or damaged your reputation and brand positioning?
- Do you currently customize orders and add in special touches such as handwritten notes?
- If so, how important is this to your brand and business model?
- Are you currently locked into a warehouse lease?
- If so, is the space too small for your projected inventory needs?
- Do your goals include growing or scaling your business in the next 2 years?
- Does your business plan include adding distribution channels or entering new markets?
Results based on your answers:
Time & Money
If your company is bleeding time on order fulfillment responsibilities, consider whether you would be able to speed up handling time by outsourcing shipping.
Once you know the dollar cost of keeping order fulfillment in-house, compare it to quotes from your favorite third-party fulfillment centers to see a comparison of monthly expenditure. You may find that using a third party logistics company will lower your overhead costs while decreasing your shipping costs. Fulfillment centers give you the ability to avoid long-term leases and eliminate staff requirements, saving you time in hiring and management. If you’d save money and gain benefits by hiring a fulfillment company, the answer becomes very clear.
Stress & Efficiencies
If you have identified inefficiencies within your organization’s fulfillment processes, determine whether the solutions are able to be solved using your current resources (time, money, and expertise). For example, if your backorder process has kinks and leaks, you’ll want to improve this area in order to increase your speed and dependability. This may require you to get support from a third party logistics company that can serve as both a strategic partner and consultant. Without proper knowledge and systems, inefficiencies can cause undue stress on your team members and overall business.
Agility & Flexibility
When you’ve analyzed your business plan and upcoming goals, decide if future strategies will need to include a partnership that enhances your fulfillment capabilities. For example, expanding your organization to a wider reach by utilizing a fulfillment center with multiple locations can allow your business to tap into new markets while maintaining stellar service. Consider using a third-party logistics company with strategically-located warehouse locations.
Whether or not you choose to maintain your own warehouse presence, adding support from a third-party fulfillment partner can be a strategic move to improve your scalability and create a solid foundation for future projects. Similarly, if your sales are cyclical and seasonal, you can gain flexibility by outsourcing inventory storage and avoiding long-term leases.
Time to decide.
Ultimately, the right time to hire a fulfillment center is when you determine that the logistics of inventory management and order fulfillment are becoming a burden on your business or that it’s costing you opportunities to improve, grow, and scale your organization.