When managing an ecommerce business, order fulfillment is a vital process. From order taking to delivery – all of these stages of order fulfillment are crucial in ensuring customer satisfaction. While you can do the order fulfillment yourself in the initial stages, it can become overwhelming if your business grows and there is a huge volume of orders to fulfill. For this reason, learning how to outsource order fulfillment should be one of your priorities.
Order fulfillment also contributes to customer loyalty. When you are able to deliver on your promise, customers will likely order from you again. 69% of consumers are less likely to shop with a retailer if a purchase is not delivered within 2 days of the promised date.
Although you may have an in-house fulfillment team, the task may take them away from their core tasks. Order fulfillment is a time-consuming task. As your business grows, you need to streamline the order fulfillment process. One of the ways to do this is by outsourcing order fulfillment. In this topic, we shall cover the following topics:
- Why Outsourcing Order Fulfillment Matters?
- Signs That You Need To Outsource Fulfillment
- Advantages and Disadvantages of Outsourcing Fulfillment
- Outsource Order Fulfillment: Should You or Shouldn’t You?
- Options For Order Fulfillment
- Steps In Choosing A Fulfillment Partner
Why Outsourcing Order Fulfillment Matters?
One of the most crucial aspects of an ecommerce business is getting your products into the hands of your customer. You may have one of the best high quality products in the industry but if you can’t keep up with the demands of your business, you are going to lose customers.
Fulfillment is important because it dictates customer experience the moment they click the “Purchase” button. This is very true in an industry dominated by Amazon where customers can get free and on-time shipping for their purchases.
Just how important is order fulfillment to customer satisfaction? A recent poll by supply chain management firm Arvato Management Solutions revealed that 54 percent of online shoppers abandoned their carts because of expensive delivery and 24 percent due to slow delivery speed. In addition, 45 percent cited convenience as the main factor in their decision to complete a transaction.
When your business is just starting, it’s okay to be hands-on with the fulfillment requirements. However, once the volume of orders grows, it may become overwhelming for you or your team. This is where order fulfillment outsourcing comes in.
Signs That You Need To Outsource Order Fulfillment
There comes a point when you need to choose between keeping order fulfillment or outsourcing it. As a business manager, you want to be in-charge of all your business affairs as much as possible. But at the same time, you have a business to take care of as well.
Handling order fulfillment can become a challenge when the number of orders becomes huge. It can become hard to keep up with the orders while managing your business at the same time. Business experts say that there’s a “tipping point” when deciding to outsource your business. So what is that ‘tipping point’?
1. You can’t keep up with the increased volume of orders
A growing company is always good news for any business. However, if you can’t keep up with the volume of new orders you can see decreased customer service in an industry that thrives on high expectations from buyers.
2. You’re running out of warehouse or distribution center space
At first, your garage can serve as your warehouse or distribution center for your inventory. However, if you have reached the point when your facility no longer has enough space for storing your inventory, and rather than leasing additional space, you can consider outsourcing it. This will help lighten up the load off your shoulders and preserve your capital.
3. You like to focus on your company’s core competencies
With order fulfillment, you will be spending too much time on packaging, managing, and shipping orders. If this is not your core competency, it may be time to learn how to outsource order fulfillment so you can focus on your core competencies. With order fulfillment out of your way, you can now focus on doing what you do best.
4. You’re grappling with seasonal and/or fluctuating demand cycles
If you have seasonal products in your inventory, it may not make sense to have an in-house fulfillment department at all. In fact, it may be costing you more money. If demand for your product fluctuates throughout the year, outsourcing order fulfillment may be your best option. Most providers can fill up your seasonal requirements so you don’t have to worry about not being able to answer the needs of your customers during the Holidays or other season.
5. Your warehouse labor costs has become out of hand
Labor costs are one of the most expensive aspects of running an ecommerce business and it can pile up quickly as you try to meet the growing demands of your customers. You will be needing pickers, packers, receivers, replenishment workers, and managers to oversee operations. You will need to give them initially and ongoing training, paid and supervised. With order fulfillment outsourcing, you don’t have to worry about labor worries and expenses.
Advantages and Disadvantages of Outsourcing Order Fulfillment
There are many reasons why you should consider learning how to outsource order fulfillment. Working with the right partner can be more attractive than keeping it in-house.
You don’t have to keep the inventory
When your volume of order becomes larger, you will need space for storing your inventory. Your living room, basement, or garage may become filled up. If you have fluctuating demands or seasonal products, you may experience shortage of space when a new batch of inventory arrives.
When you outsource, your outsourcing partner will efficiently track your inventory levels. They will be the one to handle and organize the products in their warehouse or fulfillment center. All you have to do is replenish them when the inventory level gets low.
Reduced Shipping Costs
Most order fulfillment providers have facilities all over the country and overseas. This gives them a solid foundation for offering lower shipping rates. Depending on the 3PL provider you choose, outsourcing can save you up to 15% to 35% off published shipping rates. They also have software that allows them to browse shipping rates from different carriers and choose the most cost-effective rate.
Lower Operating Costs
The warehousing and storage industry in the US alone is valued at $22 billion employing over 600,000 people. It thrives because more and more businesses are recognizing its cost-saving potential. While you would pay a flat storage fee for your stored products, you only pay for the items picked, packed, and shipped. Fulfillment providers will only charge you for what you use.
Even if you experience a seasonal increase or decrease in sales, it will have no impact on your base cost. The storage cost will only change when the number of units stored in your warehouse changes.
Extend Your Reach
Most fulfillment providers have the framework in place to ship and deliver orders from any part of the world. You can leverage their global platform to extend your reach and expand into new markets. With the right fulfillment provider, you can take your business to the next level and go global.
Improve Customer Service
Providing superior customer service is vital to running a business. Order fulfillment may entail delivering 24/7 support which your in-house team may not be able to deliver. Most fulfillment providers have people who are available 24/7 who can address returns, exchanges, and refunds.
Outsourcing order fulfillment can help you meet evolving customer expectations. About half of shoppers say that same day delivery options appeal to them and will convince them to shop with a retailer. Meanwhile, around 63% are looking for estimated or guaranteed delivery dates. Providers offering same-day delivery tend to have an advantage over 85% of their competitors.
Aside from same-day delivery, customers are also looking for other delivery options such as online reservation, pick-up in store, and buy online then ship from store.
Leverage on Technology
Most fulfillment providers use the latest technology in processing and shipping orders. You can integrate them to your online store resulting in a streamlined order fulfillment process. The technology often includes the following services:
- Inventory management
- Item tracking
- Shipping and handling
- Carrier selection
- Payment processing
You can focus on the most important tasks
While order fulfillment is important, it’s most likely not the reason you started a business. Fulfilling orders can eat up more of your time as your business grows. As a business owner, you will realize that time is very important. Spending time on order fulfillment instead of generating sales and building customer relationships can keep you from scaling your business.
By outsourcing order fulfillment, you can free yourself from doing all the heavy lifting of your fulfillment center and focus on growing your business. You can spend your time on designing, marketing, and selling your product.
Here are the reasons why you should think twice about order fulfillment outsourcing:
You can’t personalize packaging
With order fulfillment, you may have some method of customizing your packaging on an order-by-order basis. Whether it’s a personalized handwritten note or a gift-wrapped box with crinkled paper and sticker, you won’t be able to do it with a fulfillment provider.
It can be costly
While you will likely save money on shipping costs, the overall expense for a fulfillment center can be costly. Expect to be charged for storage, picking, packaging, and shipping your items to customers. If your inventory is one of the top selling in the industry, you could still make money. However, if they just sit on the shelves, it may become costly for you.
You have no control
Once you learn how to outsource fulfillment, you give up control of the whole fulfillment process. You have to be comfortable with the provider. Also, your fulfillment center may be your core competency or you already have a supply chain that you won’t likely want to outsource.
Outsource Order Fulfillment: Should You or Shouldn’t You?
Now that you have an idea of the advantages and disadvantages of outsourcing order fulfillment, the question is: Should You or Shouldn’t You? To help with your decision, here are three factors to consider.
Type of product and packaging
Does your product have complex packaging? Are they custom-made or fragile? If your answer to the question is “Yes,” you may want to consider keeping order fulfillment in-house. Most 3PLs providers will not be able to handle high levels of customization. Customizing packaging of fragile or custom items yourself will assure customers that they will get the correct order and receive exactly what they expect.
However, if you are just using basic packaging without extra customization, or if the products can be packaged in bulk, order fulfillment outsourcing may be more cost-efficient.
Business size and order volume
If your business has a low order volume, the most logical option is to keep order fulfillment in-house. However, if you are expecting an increase in order volume, outsourcing fulfillment is your best bet for scaling your business. Just make sure that the 3PL provider is large and advanced enough to meet your expected demand.
The location of your business
The location of your business is an important factor in deciding whether to outsource order fulfillment or not. In an Amazon-dominated industry, online shoppers demand to receive their products as quickly as possible. They may even cancel their orders if the shipping takes too long or is delayed.
To ensure that your business can meet customer expectations, look for a warehouse close to your customers to lessen the number of shipping zones the order will travel. This will help lessen shipping times and costs, which can keep your customers satisfied.
Options For Fulfillment
If you are having a difficult time deciding between in-house or outsourcing order fulfillment, here are some options you can also consider.
This is a common practice of shipping companies. They lease warehouses near prime locations to ensure that orders are easily delivered to customers. It can save you some money in the process. If you decide to take this option, ensure that you have a high-quality shipping software solution to help manage your inventory and order fulfillment from remote locations.
This is a relatively new concept in order fulfillment. Instead of renting a warehouse for storage of your inventory, you delegate the task of order fulfillment and inventory tracking to the drop shipping company.
Although it has a low barrier to entry, it is worth noting that most drop shippers are located overseas so shipments would take longer and potentially become more expensive.
Third party logistics providers can handle larger volume of shipment. Aside from that, they will pack and ship orders, manage your inventory, and handle customer returns so you can have more time in growing your business.
Third party logistics companies are the most expensive option of the three. However, the cost can be offset by the time saved, discounted shipping rates, and faster shipment times.
Steps in Choosing the Right Fulfillment Partner
When learning how to outsource order fulfillment, you need to realize that finding the right partner will be crucial to the success of your business. Choosing the wrong partner could prove costly to you on different levels. Here are 5 steps to help you make an informed decision when looking for a fulfillment partner.
1. Choose a company that can meet your needs
There are many fulfillment companies that will claim that they can meet your every need. They promise timely and accurate shipping of your order. Before choosing a provider, do your research first. Do they have knowledge about the industry? They might even have several clients who are in the same market as you. Ensure that they are capable of meeting the needs of your business.
2. Look for a provider who will grow your business
When outsourcing order fulfillment, make sure that your chosen partner will help achieve business growth. Does the provider use technology that integrates to reporting systems? Is the technology customizable and scalable? Make sure that your fulfillment partner will scale with you.
3. Look for a company that offers wide range of solutions
Ensuring great customer experience should be one of your top priorities. Getting your product to customers on time, every time, accurately, and cost effectively. To achieve this goal, you need the help of shipping carriers. You may be overcharged for small parcel shipments so make sure that the provider you will choose offers various ways to fulfill your order.
4. Choose an experienced and reputable company
Work with a provider that has proven experience and is knowledgeable in all aspects of order fulfillment outsourcing. Ask for referrals or testimonials from customers they worked with. You can visit their facility and meet the entire team.
5. Choose a partner that offers seamless integration
Look for a fulfillment provider that uses technology that can integrate directly with your sales channel. You would want to get orders to customers quickly and accurately. Can the company help you optimize and expand your integration solutions? These are all key in becoming a compliant business.