3 Times When Outsourcing Fulfillment Makes Sense Here are some key instances in which working with a fulfillment provider can help successfully scale your business.
By Peter Danby Edited by Matt Scanlon
Opinions expressed by Entrepreneur contributors are their own.
Outsourcing order fulfillment for your ecommerce business might feel like an intimidating prospect, but it can be a highly beneficial step towards sustainable long-term growth. While informal picking, packing and shipping operations — often buoyed by the help of family and friends — may serve new business owners well, rapid and/or unexpected growth generally demands a more formal arrangement. In most cases, outsourcing order fulfillment to a third party can save time, establish and preserve a good reputation, and allow you and your team to focus on scaling without the distraction of logistics.
Three scenarios in which outsourcing makes sense:
Related: A Brief Guide To Ace Order Fulfillment For Your E-Commerce Business
1. When rapid growth overwhelms operations
If a business is growing, this is certainly a time for celebration! If you haven't already made plans for scaling, however, it's also an important time to invest in appropriately-sized infrastructure, and outsourcing fulfillment is a logical step in this process. A few benefits in a quick growth cycle include:
• Managing & storing inventory. If your house has been doubling as your business headquarters during rapid growth, you are likely to run out of space soon (if you haven't already). As order numbers rise, you will need to make a significant investment in inventory to increase margins and guard against stock-outs, and you'll also need to find somewhere to put it. Partnering with a fulfillment provider places inventory storage and management in their hands, so you and your team can concentrate on elements like sales and marketing.
• Meeting deadlines. Most startups run lean, so deadlines can become challenging during times of unanticipated growth. What could originally be done by a few people seated around the kitchen table quickly becomes unmanageable, while customer expectations regarding delivery speed remain unforgiving. (According to the customer experience platform Narvar, 53% of shoppers won't purchase something if they don't know when it will arrive.) Outsourcing fulfillment to a third party ensures that orders will be picked, packed and shipped briskly, and it can also advise on the best shipping options.
• Minimizing errors. With the help of just a few employees and/or family members, human error during order fulfillment is unavoidable. Outsourcing gives access to automated picking and packing functions and verification software that will make mistakes exceedingly rare.
Related: 3 Things You Must Do to Scale Your Ecommerce Business
2. When key team members are focused on the wrong things
If you have bootstrapped a business thus far, chances are that you and/or team members play different roles within your operation. When rapid or unexpected growth occurs for a company fulfilling orders in-house, key staff members often need to assist with picking and packing to avoid a costly order backlog. If sales and marketing people are sorting inventory and stuffing envelopes instead of capitalizing on growth opportunities, you are throwing away money. A third-party fulfillment provider can help with:
• Managing inventory. As a business grows, physically managing inventory becomes increasingly resource-intensive. While you may have been able to handle most things on your own up to this point, large inbound shipments (palletized products, floor-loaded containers, etc.), product assembly and bundling and a true quality-assurance processes demand substantial capacity. Outsourcing allows you to partner with fulfillment providers that already have such resources in place.
• Procuring packaging materials. If you are doing your own fulfillment, ordering and reordering packaging materials is time-consuming and expensive. Partnering with a third party will remove this tedious item from the workflow and allow you to take advantage of volume discounts on things like bubble mailers, polybags, corrugated cartons, tape, void fill and pallets.
• Managing returns, exchanges and cancellations. If you are running lean, picking and packing hundreds (and eventually thousands) of orders each day will be difficult, to say the least. Add to this the joys of returns management and reverse logistics, and your employees will find themselves with a whole new set of full-time responsibilities. This is especially true for businesses in the fashion industry, where between 30% and 40% of sales are returned on average. Fulfillment partners are highly experienced in this field; they can help a business preserve its good reputation with stakeholders by skillfully navigating customer demands and difficult logistical decisions. This function alone can be worth the investment.
3. When logistics needs grow increasingly complex
For most businesses, growth necessitates a full-scale reevaluation of operations, priorities and goals. As you prepare to meet new challenges, you may find that existing operational infrastructure and expertise are unable to support growth. Outsourcing allows you to take advantage of a fulfillment provider's economies of scale, preserving your energy and focus for growth-related opportunities instead. Such partnering assists with:
• Navigating multi-channel fulfillment. Many businesses begin with a single sales channel like an Etsy storefront or a proprietary website, where inventory management is streamlined and easy. Once companies begin to offer the same product in multiple locations, however, operations become both complex and more time-sensitive. Fulfillment providers are used to these challenges, as they manage clients with multiple sales channels every day. Furthermore, their powerful software systems will do much to take this challenge off your plate.
• Engaging with wholesale customers. This brand of engagement allows your business to dramatically increase its potential for profitability; however, while these customers play an important role in the growth of many businesses, they also make things a lot harder. Partnering with professionals who are experienced in servicing large buyers will help you stay compliant with their frequently over-the-top routing guides, avoid any associated chargebacks and/or shipment rejections and keep wholesale growth plans on track.
• Maintaining high standards for accuracy. As the fulfillment space becomes increasingly competitive, error-free ordering has become the baseline for most sellers and customers. Amazon, for example, has lofty demands in terms of both speed and accuracy that are exceptionally hard to meet if you are picking and packing through an informal setup.
Related: Guide to Starting a 'Fulfillment by Amazon' Business
