It's a busy day for your business. Orders are up 10% in the last week and your team is working overtime to box and ship products. Meanwhile, you're seeing more interest from customers based outside your regional area. A common request from clients is one- and two-day shipping, but the rates eat into your profits. Is it time to outsource fulfillment to a dedicated provider?
That's a common question for online retailers used to handling their shipping in-house. On one hand, the DIY method may be less expensive. But as orders mount, you may find yourself spending far more time on logistics than on other critical parts of your business — such as marketing and client retention. That can lead to worsening customer service and difficulty scaling.
Outsourcing fulfillment tasks can alleviate those pain points.
What Does it Mean to Outsource Fulfillment Logistics?
Anytime a customer places an order with your business, it has to be picked, packed, and shipped. That's logistics in its most basic form.
Outsourcing fulfillment turns all those tasks to a company that specializes in them. You'll look to your 3PL (third-party logistics) provider to house your inventory, monitor incoming orders, and get them to your customers. They'll box your products and ship them via cost-efficient carriers, whether that's UPS, FedEx, DHL, or some other service. And if a customer decides to return a product, the 3PL provider handles that for you, too.
Growing companies use 3PL order fulfillment to enhance scalability. It can also save time and cut shipping rate costs, among lots of other benefits.
When Should You Consider Outsourcing Fulfillment Logistics?
Not every company needs to outsource its logistics. If you're in the early stages of building a business, you might be able to handle fulfillment internally. But things can change quickly, so look out for signs it's time to talk to a 3PL provider.
Rapid Growth
Did your orders recently double or triple in size? Maybe one of your products went viral on TikTok, and you're working overtime just to keep up with the surge in demand. Or, perhaps you started an extensive marketing campaign, and you're seeing really good results.
A massive uptick in demand is cause for celebration. But it may become unsustainable if you're working 24/7 just to keep up with the orders coming in. Hiring a 3PL fulfillment provider removes the logistics tasks from your plate so you can focus on scaling your business.
Seasonal Fluctuations
Some organizations see demand spikes at certain times of year, such as during the holidays or peak seasons. For instance, maybe you run a promotion a few times a year, and orders take a major jump while the sale runs. If your storage space is too small to house the demand peaks, you might benefit from 3PL solutions.
The right provider will allow you to scale your storage space up and down to meet order requirements.
High Shipping Costs
Most major carriers provide shipping discounts to business customers. But the savings may not be much, especially if you don't qualify as a large-volume mailer. When you partner with a 3PL provider, you benefit from their rates, which may be much lower than yours.
That's because 3PL fulfillment companies serve multiple customers. The combination of your company's orders — plus other 3PL clients — helps you qualify for lower shipping costs. That's savings you can pass off to clients. Reduced shipping rates also help your business compete against larger companies that offer fast and low-priced deliveries.
Operational Inefficiencies
Is it hard to provide your clients with a delivery time they can depend on? Maybe you don't have an issue serving regional customers. However, shipping time lengthens for clients based further away. Or you're seeing a rise in customer complaints caused by shipping errors, and you can't seem to find a fix.
Operational issues can quickly hamper your company's growth and damage your reputation as an online seller. Partnering with a 3PL provider helps streamline the shipping process and eliminate mistakes. In fact, nearly 90% of retailers say that their 3PL greatly improves customer service levels.
Limited Resources
Minimal storage space, outdated technology, and inexperienced staff can hinder your ability to fulfill client orders. If you're quickly running out of room to store products or lack a warehouse management system (WMS), it's time to look into a 3PL.
Dedicated 3PL providers use the latest technology to enhance the fulfillment process. Their WMS can quickly track orders and notify you when inventory gets low, so you won't have to worry about stockouts that frustrate clients. Most use order picking tools to help warehouse associates grab the right items, reducing errors. And you can count on robust analytics that break down your shipping costs and average delivery times.
With a 3PL, it's easier to scale your storage space based on customer demand. You won't need to invest in a property — your inventory goes straight to the 3PL provider's warehouse.
Expanding Into New Markets
If you're handling logistics from one location, it's harder to guarantee a fast shipping time in distant places. Costs might increase, and there's a greater chance of a breakdown in the delivery process that results in delays.
Companies that want to expand their presence in a new region or nationally can see substantial benefits from working with a 3PL. Your organization can place inventory in strategically located warehouses, cutting down on delivery times and shipping expenses.
Benefits of Outsourcing Fulfillment to a 3PL
There are serious 3PL advantages your business can look forward to when you outsource fulfillment to a provider.
- Faster delivery times: Shorten your shipping time to two days or less, a major differentiator that can give your business a competitive edge.
- Reduced operational costs: Eliminate costs associated with in-house fulfillment, such as hiring staff and buying storage space.
- Up-to-date technology: Lean on a 3PL's WMS and other technologies to forecast inventory needs, reduce shipping errors, and prevent stockouts.
- Improve customer satisfaction: Improve your business reputation as a reliable seller that provides timely deliveries.
How to Assess If Outsourcing is Right for Your Business
Is it time to turn your in-house logistics function over to 3PL experts? Consider these factors as you weigh your options.
Analyze Pain Points
Try to pinpoint the biggest logistics challenges you face in your organization. Some that might come to mind include:
- Expense of maintaining a storage facility for inventory
- Need to quickly scale up fulfillment activities to meet seasonal demand fluctuations
- Difficulty finding experienced logistics employees
- High shipping costs
- Lack of software to manage customer orders or forecast inventory needs
- Increase in customer complaints related to shipping errors
- Too much time spent on fulfillment, making it hard to focus on other areas of your business
Those are all issues that you can quickly resolve by working with a 3PL provider.
Understand Your Growth Goals
Think about where you want your business to be in the next six months to five years. Are you planning an expansion to a new region? Or hoping to attract clients nationwide? Then it may make sense to work with a 3PL company with a network of warehouses in the areas you want to serve.
The alternative is buying space yourself and hiring on-site employees to manage fulfillment activities. That's a significant expense that may not be realistic for smaller, growing organizations.
Another option is to keep fulfillment as-is. But you may find it nearly impossible to guarantee fast delivery to your clients, especially when they're located far away.
Compare Costs
How much does it cost to run your fulfillment services in-house versus what you'd pay to a 3PL? Consider getting a few quotes from 3PL providers to get an idea of the expense and how it compares to your current setup.
Be sure to think of other factors that indirectly impact costs. For example, say you're considering an expansion into a new region, and partnering with a 3PL would make it easier to ship products quickly. If you opt not to expand in favor of keeping your fulfillment costs steady, you may be leaving extra revenue on the table.
Look at Long-Term Sustainability
One of the biggest advantages of working with a 3PL provider is scalability. You can increase or decrease your inventory levels based on customer demand without buying a dedicated property for storage. If you opt to expand into another area, you can use the 3PL's network of warehouses to stash inventory close to new clients.
A 3PL benefits from its logistics expertise and advanced technology. Small and medium-sized businesses may not be able to replicate those without incurring major costs and disruptions. By partnering with a third-party logistics provider, you can leverage their experience and tools as your organization grows.
Steps to Get Started With a 3PL Provider
You know the benefits of working with a 3PL, and there are clear signs it's in your company's interest to move forward with a partnership. Take these steps as you search for a 3PL that suits your organization.
1. Research and Evaluate Potential 3PL Providers
Many companies offer 3PL services, but their services vary. You may find providers that operate strictly in one region or accept only certain types of products. Others may use technology that doesn't integrate with your software or website. One provider might be more expensive than another, or offer less customization options to box your products.
Think about your must-haves — the qualities you want in a 3PL provider — and stick to them. You might make a list of questions to ask each company as you search for one to handle your fulfillment needs.
Some questions that can help you get to know each 3PL provider (and what they offer) include:
- What carriers do you work with?
- Do you use a WMS? What systems does it integrate with?
- Do you specialize in specific types of products? Can you handle the products my company sells?
- Does your organization support custom packaging needs?
- What are your order minimums and maximums per month?
- Where are your warehouses located? What areas do you serve?
2. Define Your Logistics Needs and Goals
Work out what you expect from a 3PL. Do you want guaranteed one- or two-day delivery times? Are there times of the year when demand kicks up and you need the 3PL to step up activity to meet increased orders? Is there a plan to expand your business into a new area soon?
You'll want to choose a third-party logistics provider who can meet your expectations and grow with your business. Take the opportunity to get into specifics. Ask about the 3PLs track record, the types of companies they work with, and what their experience is with your concerns.
3. Establish Clear KPIs and Expectations
When you think you've found the right 3PL for your organization, set a few metrics — or key performance indicators (KPIs) — to measure performance. You can (and should) share the KPIs with your logistics provider so they know what you expect from their services.
Some metrics you might use include:
- On-time deliveries
- Order accuracy rate
- Customer delivery complaints
- Shipping cost per unit
- Time-to-fill
- Return processing time
- Inventory management accuracy
Keep on top of your KPIs and don't hesitate to reach out to the 3PL if you notice declining performance. Calling out the issue can stop it from becoming a bigger problem that customers see.
Is it Time to Outsource Your Fulfillment Logistics?
Turning fulfillment over to a third-party logistics provider is a big decision that can have a very positive impact for your organization. If you notice any of these red flags, it's probably time to look for a 3PL partner:
- Difficulty keeping up with customer orders
- Lack of time for other key business activities
- Increase in order errors or mistakes
- Out-of-control shipping costs
- Insufficient inventory space
- Concerns about scaling your business because of fulfillment issues
QuickBox offers 3PL solutions that can help you overcome fulfillment challenges and grow your business. We have multiple warehouses to support scaling businesses and use the latest technology to manage customer orders and returns. Contact us today for a free consultation or fulfillment analysis to get started.