Let’s face it—order fulfillment is one of the most important, yet most complicated aspects of running an online store. Business owners must continually rise to the occasion to meet demand and satisfy customer expectations (i.e. providing fast, affordable shipping).
It’s a delicate dance, to be sure—but fortunately, outsourcing fulfillment to a third party logistics provider (3PL) makes the whole process a whole lot easier. Not only does working with a third party provider give you a chance to expand your footprint and focus on business growth, but it also leads to a lot of cost savings.
What is outsourced order fulfillment?
Outsourced order fulfillment is when retailers hire a third party to manage some (or all) aspects of the order fulfillment process. These 3PLs handle everything from storing inventory and packing boxes to shipping orders on the sellers’ behalf. In short, 3PLs take care of all the heavy lifting related to end-to-end fulfillment.
How 3PLs support order fulfillment
Third party service providers support order fulfillment in a variety of ways. Today, nearly all 3PLs offer a suite of standard fulfillment services, which includes picking and packing, inventory storage, global shipping, and automated package tracking (among other features).
Some fulfillment companies take things a step further by also managing returns and creating customized fulfillment solutions for their customers. And if that wasn’t enough, the leading 3PLs are equipped with innovative technology like inventory management and order management software. These platforms track shipments and product movement in real time, so you know you’re always working with the most accurate and up-to-date inventory information.
Though outsourcing may seem like a risky option on the surface, working with a reliable 3PL can actually transform the way you do business in both the short- and long-term.
Benefits of outsourcing order fulfillment
There are a number of reasons why ecommerce brands might want to outsource fulfillment to a third party logistics partner. Some of the greatest benefits of outsourcing fulfillment are that you’re no longer responsible for storing inventory, you don’t have to deal with running a warehouse, and you can take advantage of the 3PL’s expertise.
You’re not responsible for storing inventory
The reality of running a product-based brand is that inventory storage can be a huge hassle. Regardless if you have access to a warehouse or you’re storing inventory in your garage, the whole storage process can be tedious and time consuming. But the beauty of an outsourced fulfillment strategy is that you’re no longer responsible for managing inventory storage.
When you outsource to a 3PL, they’ll oversee everything related to your inventory levels. All you have to do is send them more inventory when those levels start to run low. Simple as that. This arrangement is especially beneficial when you consider the going rate of warehouse construction and expansion. It’s a whole lot easier (and less expensive) for you to rely on a 3PL than to try and build or acquire a storage location of your own.
You don’t have to deal with running a warehouse
Warehouse operations are critical to the health and wealth of your ecommerce brand. Still, the logistics of running a warehouse or fulfillment center can be quite complex—not to mention a drain on your time and money. However, teaming up with a 3PL means you no longer have to pack boxes, print shipping labels, negotiate with shipping carriers, and the list goes on.
Completing these inbound and outbound tasks every day is too much for most modern retailers, which is why they look for help from a 3PL partner. By having a 3PL perform these tasks, brands aren’t bogged down by all the nitty gritty of warehousing. And instead of hiring fulfillment staff, retailers can hire marketing and customer support roles to help grow their business.
You can take advantage of the 3PL’s expertise
Another perk of working with a 3PL is that you get to take advantage of their vast experience and expertise. Because 3PLs work with countless ecommerce businesses, they’re used to fulfilling large order volumes all throughout the year. This experience has a huge effect on their ability to negotiate with shipping carriers and lock in better shipping rates for their customers.
More simply, outsourcing to a 3PL means your brand has access to lowered shipping costs and faster shipping times—thanks to the 3PL’s connections (and presence) all around the world. Third party providers have a wide network of fulfillment partners, which translates to faster, more efficient, and more affordable order fulfillment services.
On top of that, 3PLs are well versed in fulfillment best practices and are prepared to handle changes in demand due to seasonality, etc. They can easily ramp up their workforce, supervise returns, and make sure every step of the fulfillment process is flowing smoothly.
You have a chance to expand your geographic footprint
As we just mentioned, 3PL providers have connections and fulfillment centers that span the globe. This is in stark contrast to fulfilling orders in-house and shipping from a single location—which requires a lot more time and money to ship to customers who live further away. To that end, it’s nearly impossible to offer two-day shipping or same-day delivery when all your orders are processed and shipped from the exact same site.
Outsourcing fulfillment dramatically expands your geographic footprint, seeing as 3PLs give you access to their fulfillment centers in all different corners of the world. This way, you’re no longer limited to shipping from the confines of your local post office. Instead, you can split your inventory among several warehouses so products are stored as close to your customers as possible. Along those same lines, you’ll also reduce shipping costs and cut down on time in transit, since your shipments don't have to travel nearly as far to reach your customer base.
You have access to top shelf technology
It’s important to note that when you outsource fulfillment, you have access to more than just the 3PL’s services. You also get to leverage their analytics tools, distribution metrics, and inventory reporting features. These systems and resources offer incredible functionality you can use to inform your inventory purchasing decisions, new product planning, and more.
In fact, the best fulfillment partners have seamless software integrations that’ll connect your entire supply chain to all your sales channels. In turn, your brand can offer expedited shipping options, route orders to the fulfillment center closest to the customer, provide real-time order tracking, and send proactive alerts when it’s time to replenish your stock. These integrations aren’t just convenient, they also unlock major growth and profitability for your online store.
Challenges of outsourcing order fulfillment
As great as outsourcing order fulfillment is, that’s not to say it doesn’t have its share of challenges. Namely, outsourcing means you won’t have total control over the fulfillment process, you can’t do much in terms of customization, and you need a certain sales volume to really make this fulfillment style worth it.
You won’t have total control over the fulfillment process
While there are a number of differences between outsourced and in-house fulfillment, one of the most obvious is that you have more control when you fulfill orders in house. Whether you have difficulty delegating or you prefer your own fulfillment team, keeping fulfillment in house gives you complete control over how inventory is stored, shipped, and so on.
Still, if you can find a reliable 3PL whom you fully trust, relinquishing this control should feel more like a weight lifted than another reason to stress over your fulfillment operations.
You can’t do much in terms of customization
As the world of ecommerce has grown more and more competitive, retailers are constantly on the lookout for ways to set themselves apart and surprise/delight their customers. For many brands, this means incorporating customization into the customer experience. These customizations can range from unique packaging, to a gift wrapped box, to a handwritten note included with the shipment—anything that is managed on an order-by-order basis.
It’s possible that these specifications will exceed a 3PL’s capabilities and/or they won’t be able to accommodate these sorts of requests. However, the silver lining is that a lot of 3PLs do allow you to use branded boxes (or poly mailers), and provide kitting services to help satisfy your unique needs. But keep in mind these extras have a tendency to raise fulfillment costs, as well.
You need a certain sales volume to merit outsourcing
Lastly, outsourcing fulfillment can be a challenge if your order volume doesn’t merit hiring a third party. In other words, if your current order volume is low enough to fulfill yourself, you may continue to fulfill in house. Although self-fulfillment comes at a lower cost for startups and small business owners, you also need to consider the amount of time this will require.
All in all, if you’re trying to save as much money as you can, avoiding outsourced order fulfillment has the potential to offer some cost savings (even more so if you have a low profit margin). Just be sure to keep an eye on how your order volumes change—over time, it may be too much for you to manage and lead you to outsourced fulfillment.
How to decide between in-house and outsourced fulfillment
As you’re deciding whether to keep fulfillment in house or outsource to a third party, there are a few factors your brand will want to mull over:
What are your storage requirements?
If your business is actively working to increase its sales, then it’s safe to assume your storage requirements are going to increase. That is to say, as your brand grows and acquires new customers (or introduces new product lines), you’re going to need more and more space to store your inventory and process replenishment orders.
While having your own warehouse space is okay for brands who are just starting out, it’s not a long-term solution for retailers who want to reach the next level of success. So if your storage requirements are on an upward trajectory, outsourced fulfillment is definitely your best bet.
Where is your order volume headed?
To piggyback off the previous point, you need to evaluate where your order volume is headed. Though a low order volume can often be managed by an internal team, the more products you sell, the more complicated (and time-consuming) fulfillment becomes. And that’s exactly why so many of today’s retailers have made the switch to a third party order fulfillment provider.
The great thing about 3PLs is that they have systems in place to handle any order volume with exceptional ease and efficiency. By leveraging warehouse management tools and technology, 3PLs can guarantee accurate, on time delivery for each and every order they ship. Not only does this boost customer satisfaction, but it’ll do wonders for your retention levels, too.
How do you want to invest your resources?
No matter what you sell or whom you’re selling it to, time and money are some of your most valuable resources as an ecommerce brand. With that said, you need to make a decision about where you want that time and money to go. Do you want to spend those resources on fulfillment-related tasks—or would you rather focus on building your customer community?
If the latter is true for your brand, then working with a 3PL is the best way to make that happen. When you invest in a 3PL provider, you can stop wasting so much energy picking/packing orders, and instead free up time to enhance your branding, product development, and more. In turn, you’re likely to see a lot more customer engagement with your store (which ultimately results in increased sales and higher profits). Win-win-win.
Curious about teaming up with a 3PL? Be sure to check out our Fulfillment Marketplace for a list of vetted 3PLs to meet your specific needs.