Startups, growing brands, and small businesses face unique challenges in today’s ecommerce landscape. With ecommerce giants like Amazon and Walmart fueling the intensification of customer expectations for shipping options and speeds, smaller players have to match their shipping services—and ecommerce fulfillment prowess—with drastically fewer resources.
It’s the classic story of David vs. Goliath: how can individual online stores compete against these industry behemoth marketplaces?
Replacing the slingshot and stones in this analogy, enter Fulfillment as a Service (FaaS), a modern and innovative approach to order fulfillment that offers businesses the flexibility and scalability they need to thrive in a competitive environment. Continue reading to learn more about FaaS, the pros and cons of this order fulfillment service, and how to choose the best fulfillment partner for your business.
What is Fulfillment as a Service?
Fulfillment as a Service (FaaS) is a specific category of outsourced fulfillment options in which ecommerce businesses can pay for different fulfillment services on an “as-needed” basis from a set menu of pricing. Think of it as a flexible subscription service for supply chain and fulfillment solutions. These services can include warehouse space for storage, picking and packing, shipping orders, and other value-added services like labeling, returns processing, and Fulfillment by Amazon (FBA) prep to list a few.
For businesses that are struggling with handling in-house fulfillment—or that want faster shipping speeds or are looking to scale rapidly—contracting with a fulfillment expert that offers on-demand FaaS services, or other options like a third-party logistics (3PL) warehouse or fulfillment center, can be a great solution.
Fulfillment as a Service vs. Third-Party Logistics
While both FaaS and traditional 3PL providers offer outsourced order fulfillment services, there are key differences between the two:
| FaaS | 3PLs | |
| Technology |
FaaS providers typically leverage the most cutting-edge technologies to manage the fulfillment process, allowing FaaS providers to offer excellent scalability and flexibility. |
Old-school 3PL providers may rely on more traditional methods, but nearly all now use warehouse management system (WMS) software. Additionally, a growing percentage of 3PLs are using more advanced technology like automation and cloud-based WMS platforms. |
| Service Offerings |
FaaS providers offer a wide range of services, including inventory management, order processing, shipping, and returns management, and other value-added services. These services are highly scalable as customers can easily pick and choose what they want to pay for. However, FaaS providers typically offer more generic services and subscription packages that lack customization options. |
Traditional 3PL providers may focus more on warehousing and transportation, but many now offer inventory and order management as well as comprehensive supply chain management. More importantly, 3PLs typically tailor their service offerings to each client, allowing for greater customization in service offerings, but they can lack scalability as adding or removing services is more difficult and often requires contract negotiations. |
| Cost Structure |
FaaS providers use a set menu of prices for different services that businesses can subscribe to. This “a la cart” pricing structure often provides more flexibility, allowing businesses to pay for only the services they need, which can be quite cost-effective for brands with more basic needs. However, this one-size-fits-all pricing menu doesn’t reflect the labor or resources each individual business uses, meaning that businesses may spend more on certain services than they would under a more traditional pricing structure. |
3PL pricing structures may offer less flexibility and modularity, meaning businesses are unlikely to be able to add on or remove services in the middle of a contract period. However, more traditional pricing structures mean that businesses pay according to the labor and resources they actually use instead of a flat rate. |
Key Considerations When Selecting a FaaS Provider
- Ensure that the provider's technology is compatible with your existing systems and can be easily integrated. Look for providers that offer robust APIs and seamless integration with popular ecommerce platforms.
- Evaluate the range of services offered by the provider. Make sure they can meet your specific fulfillment needs, including inventory management, order processing, shipping services, and returns management.
- Choose a provider that can scale their services to accommodate your business's growth. This includes the ability to handle increased order volumes and expand their infrastructure as needed.
- Understand the provider's pricing model and ensure that it aligns with your budget. Look for providers that offer transparent pricing and no hidden fees.
- Research the provider's reputation and track record. Look for reviews and testimonials from other businesses that have used their services. Ensure that the provider has a proven track record of reliability and customer satisfaction.
- Evaluate the level of customer support offered by the provider. Ensure that they offer responsive and knowledgeable support to address any issues or concerns that may arise.
How to Get Started with a FaaS Provider
Step 1: Evaluate Internal Needs
Start by evaluating your current fulfillment process and identifying areas for improvement. Determine your specific fulfillment needs, including order volume, shipping requirements, and inventory management.
Step 2: Find & Rate Options
Identify potential fulfillment companies and rate how well they meet your needs in key categories including their technology, service offerings, scalability, cost, reputation, and customer support. Reach out to the top options and request detailed proposals outlining their services, pricing, and capabilities. Compare the proposals to determine which provider best meets your needs.
Step 3: Transition Fulfillment Operations
After you’ve chosen your partnership, work with your provider to integrate your existing business systems with their software. Ensure that the integration is seamless and that all data flows smoothly between systems. Once your systems (and order data) are synchronized, start transitioning your fulfillment operations to the FaaS provider.
Step 4: Monitor & Improve
Once you have implemented FaaS, continuously monitor your fulfillment processes to identify areas for improvement. Compare key performance indicators (KPIs) from before and after outsourcing with a FaaS provider to ensure you are seeing a positive return on investment (ROI). In other words, you should have concrete numbers to track how your fulfillment costs, shipping costs, order accuracy, fulfillment efficiency, and customer satisfaction have changed since partnering with a FaaS provider. Work with your fulfillment partner to optimize the process and ensure that it meets your business's evolving needs.
Find Your Best Fulfillment Solution with Extensiv
As an industry-leading technology partner for 3PLs, FaaS businesses, and ecommerce businesses alike, Extensiv provides unparalleled fulfillment solutions for every player in today’s commerce landscape—and not just software.
Extensiv’s Fulfillment Marketplace makes it easy for brands and ecommerce businesses to search for, find, and connect with leading fulfillment providers so you can build partnerships that will help your business thrive. Whether you are just getting started in your growth journey and are looking for a FaaS provider to handle a small portion of your fulfillment needs, or you are interested in outsourcing the entirety of your supply chain and fulfillment operations to a 3PL expert, Fulfillment Marketplace can help you find the partner you need. Best of all, it’s entirely free to use.
Want to know more about how the rest of Extensiv’s solutions for brands can help you take your fulfillment operations to the next level? Request a demo today!