18 Mar Does Outsourcing Fulfillment Lead to Higher Profits?
At some point, a business may realize its in-house fulfillment operation is no longer efficient. Typically, this is because it’s outgrown an operation that had been working when the company was smaller, or the business’s needs have changed.
Investing in adjusting or expanding internal operations is, of course, a logical consideration. But evaluating a third-party fulfillment center and outsourcing the warehousing and fulfillment functions should be as well.
The reason is there are a lot of benefits to working with a 3PL that companies miss out on when a fulfillment operation is managed in-house. Here are three.
1 – The Technology Advantage
Technology is expensive and hard to implement. But, quality third-party partners will provide best-in-class inventory management and fulfillment applications many companies could never implement on their own. And, fast. These capabilities allow the 3PL’s customers to monitor order status, inventory, and shipments in real time and with full visibility. Investing in this technology as a stand-alone business is costly but is worked into the costs charged from a partner – and is essentially shared by all of their customers.
2 – Lower Costs
Many businesses find that outsourcing their order pick/ pack and ship leads to lower overall costs. To determine if the tactic is cost-effective, companies need to think beyond just the physical cost of labor, packing materials, and warehouse space. The additional costs of performing fulfillment in-house also include many soft expenses that go away with a partner – like the cost of technology – but also the opportunity costs of spending time running a fulfillment operation when resources may be better put into the core business.
Much of the expense of outsourcing is also variable. And since customers only pay for some services based on order volumes, costs often move in-line with sales.
3 – Improved Accuracy
A good fulfillment provider is better able to accurately and efficiently process orders and get orders out the door faster. Inventory control systems, streamlined pick and pack methods, and efficient carrier selection all lead to faster delivery for customers. Also, a good order management system allows companies to make better purchasing and shipping decisions because it is real data supporting those choices.
Ecommerce customers expect their order to arrive quickly, and their returns handled efficiently. Most also want a variety of shipping options as well as the ability to track exactly where their package is and when it will be delivered. These are a lot of hard to deliver expectations. Providing this level of service for a growing company is difficult when unsupported by a large customer service team or expensive technology.
Focus on the Business
The process of putting products in boxes is usually not core to most companies’ business. Outsourcing allows established and growing companies to focus on the other areas of the business more strategically and will often produce the greatest long-term results.
Weighing the hard and soft costs associated with fulfilling orders will often make the decision clear that working with a third-party provider is the right choice. Economies of scale, access to better technology, and operating on a variable cost model are a few reasons why. For every company operating their own fulfillment center, it’s an option that must be considered.