When you’re running an E-commerce business, fulfillment is a key part of your daily grind. In case you didn’t know, fulfillment describes the operation of warehousing, packing, and shipping your products. For most E-commerce businesses starting from the ground up, it’s fairly common for fulfillment to be done in-house. Someone’s gotta do it, after all! However, you may want to consider outsourcing fulfillment to a third-party logistics provider as your business grows. Outsourcing fulfillment is the best way to ensure your customers receive their orders while letting you focus on what you do best: running your business! If that sounds like something you’re interested in, you’ve come to the right place.
Hold On a Sec—What’s Kitting?
Great question! Kitting is the process of grouping several individual items into one homogenous unit, like a subscription box. Kitting happens when every order you’re receiving is the same, and each package is then filled with the exact same contents. Generally speaking, in-house fulfillment works the best when you’re kitting.
The alternative to kitting is a more intensive fulfillment process called picking and packing. Picking and packing describes the process of customizing each package to every individual order you receive. Needless to say, this process requires a lot more time, effort, and attention to detail than kitting. If you’re attempting to undertake picking and packing in-house, or if you’re receiving too many kitting orders to keep up with, it may be time to begin outsourcing fulfillment to a third-party logistics provider.
What is a Third-Party Logistics Provider (or 3PL)?
A Third-Party Logistics Provider (or 3PL) is a company that takes on the warehousing, packaging, postage purchasing, and shipping of your products. 3PL’s offer a suite of services, from packaging all the way down to providing discounted shipping quotes. Whether or not to outsource fulfillment to a 3PL is a choice most E-commerce businesses face at some point. Let’s go over some of the pros and cons, shall we?
Pros of Outsourcing Fulfillment
There are lots of benefits that come with outsourcing fulfillment to a 3PL. We’ve laid out several for you here.
Here’s a newsflash: people are impatient! In today’s day and age, customers expect their purchases to be delivered, like…right now. They also want a variety of shipping options, better decision making tools, and they want to know exactly when to expect their order. However, all of that might be more than your business can deliver. When your E-commerce business gets to a point when you’re no longer able to keep up with customer service, it’s time to outsource to a fulfillment partner that can. Many 3PL’s also seamlessly integrate with your store, so as soon as an order comes in, it’s getting prepped to go back out. Pretty cool, right?
You Save Time & Money
Believe it or not, outsourcing fulfillment will end up saving you time and money as your E-commerce business grows. How, you ask? Firstly, fulfillment companies are able to negotiate better shipping rates due to volume discounts. As a smaller online business, you might find their shipping rates are more competitive than the rates you get from your carrier. If your small business is spending a lot of money on order fulfillment and shipping, a third-party logistics provider that can help reduce those costs.
Second of all, your business can benefit from a 3PL’s efficiency and expertise. These companies focus solely on fulfillment, so chances are they’re better at it than you…and that’s okay! Outsourcing fulfillment to a 3PL saves you a ton of time in the process, and guess what, folks? Time is money.
Pro Tip: If you’re an E-commerce business owner, postage can be one of your biggest expenses. Fortunately, you can buy postage at discounted rates with shipping software. Certain USPS shipping software out there like Pirate Ship hooks you up with postage at Commercial Pricing rates, giving you the deepest USPS discounts possible. That means all the money that you save on discounted postage can be put back into growing your business!
Match Fulfillment to Sales Volume
One of the biggest upsides of outsourcing fulfillment is that it allows you to run your business without worrying about fluctuations in sales volume. E-commerce sales naturally fluctuate throughout the year (think the holiday season, Memorial Day blowout sales, etc.). If your sales volume noticeably increases or decreases throughout the year like a lot of online e-retailers do, you might have a difficult time fulfilling all your orders. During peak season, you HAVE to be able to fulfill every order that comes in if you want your E-commerce business to succeed. On the flip side, you want to be just as fast on fulfillment during lull periods without the burden of an unnecessarily large staff. Makes sense, right?
Avoid Long-Term Leases
If you’re shipping out a lot of packages, chances are you’ve grown out of your house and need to rent warehouse space to hold your product. The thing is, warehousing costs quite a bit of money and usually comes with long-term leases. You have to pay those leases no matter what—even if your sales are in a lull period. Working with a 3PL means you won’t have to rent out warehouse space, since they keep your products in their warehouses. In fact, a 3PL retaining an online seller’s inventory is the entire principle of dropshipping. Learn more about dropshipping.
Cons of Outsourcing Fulfillment
On the other side of the coin, outsourcing fulfillment does have some drawbacks and may not be the right choice for certain businesses. We’ve laid out some of the cons below.
Sometimes It Costs Too Much
If your E-commerce business is still in its infant stages, working with a 3PL might require more cash than you have on hand. You have to pay 3PL’s for their services, after all—and their help doesn’t come cheap. If you’re not receiving an overwhelmingly large amount of orders, it might make sense keep fulfillment in-house to cut down on costs.
Your Specific Needs Can’t Be Met
When it comes to outsourcing fulfillment, not everyone can find a company that can do exactly what they want. If your business has highly specialized needs, it might make more sense to keep fulfillment in-house (like if your company manufactures customized orders with specialized equipment). However, this is a rare instance that we don’t see often. Most E-commerce businesses can find a 3PL that can meet their needs, and the juice is usually worth the squeeze.
Inability to Use Custom Packaging (Sometimes)
Custom packaging creates a memorable unboxing experience, which is a great way to build customer loyalty. In fact, customers expect memorable experiences from their online purchases nowadays! One of the biggest drawbacks to outsourcing fulfillment is that some 3PL’s won’t let you use your own custom packaging. A lot of 3PL’s (especially the larger ones) force clients to use their rigid packaging standards, leaving no room in the picture for your own custom packaging.
Outsourcing Fulfillment Can Help You Do What You Do Best
Here’s the bottom line. Working with a 3PL allows you to focus on what you do best: running your business. Most E-commerce business owners aren’t fulfillment specialists, and that’s okay! Outsourcing fulfillment lets you focus on other areas of your business like growing sales, marketing, planning, and customer service. If your E-commerce business is growing at a pace where you can’t keep up with fulfillment, you can rest easy knowing that a 3PL has got your fulfillment covered.
The Alternative: In-House Fulfillment
As E-commerce business owners ourselves, we’re huge fans of in-house fulfillment. If you’re interested in the other side of the argument, check out our article In-House Fulfillment: The Pros and Cons.