Should you fulfill orders yourself, or outsource to a 3Pl provider?
This is one of the most common questions in logistics and for good reason. Deciding whether to continue in-house or to search for a fulfillment partner is a huge business decision - one that can have major implications for the efficiency of your fulfillment process, and for the customer experience as a whole.
But what are the differences between self-fulfillment and outsourced fulfillment? And more importantly, which is better for your business? We’re going to explore the pros and cons of both fulfillment strategies, and what you need to consider when evaluating your current method.
Self-fulfillment, or direct fulfillment, is when a business is in charge of managing the end-to-end fulfillment process themselves. This includes storing SKUs, processing orders, picking/packing, shipping, and customer care. Retailers that choose self-fulfillment are also in charge of sourcing all necessary packaging and shipping materials, in addition to hiring and managing the workers who are carrying out fulfillment-related tasks.
Outsourced fulfillment is the opposite of fulfilling your orders in-house, as described above. In this method, a business elects to outsource its fulfillment and shipping processes to a third-party provider. They are responsible for handling all fulfillment-related tasks on your behalf, as well as any value-added services you may require. A 3PL will typically provide their own warehouse and fulfillment facilities, as well as the necessary staffing, materials, and technology to fulfill orders effectively.
It’s easy to get started. Self-fulfillment is usually the most straightforward route for newly-established online brands. All you need to do is set aside some storage space in your home or office, buy packaging materials, print some shipping labels, and you can get started with fulfilling orders. This also allows you to keep your fulfillment costs down while you’re building up your order volumes.
Direct control over the end-to-end process. When you’re fulfilling orders in-house, this gives your team total control over how you want your packages to look and feel, rather than having to brief and prep an external team to do this on your behalf. This allows you to easily make changes on the fly in response to customer feedback.
A lot of hidden costs. The biggest difficulty of self-fulfillment is that costs can quickly spiral out of control as your order volumes increase. In addition to the material costs of fulfillment, you also need to factor in the price of extra warehousing space, transportation, shipping insurance, and an Order Management System to keep everything running smoothly. Unless you’re handling an exceptionally large volume of orders, this is unlikely to be cost-effective for your business.
It’s time-consuming. Fulfillment involves coordinating a lot of moving parts to make sure that customers receive their orders without delay. As your business grows, self-fulfillment (and troubleshooting logistical problems) is going to take up more of your time and energy that could be spent managing your sales and growth strategies - meaning that your business could stagnate.
Difficulty managing seasonal peaks. Order volumes rarely stay consistent throughout the year, which is challenging when you’re responsible for adjusting staffing levels and storage space in response to peaks and troughs. If you’re unable to forecast this effectively, you could end up with massive delays or escalating labor costs - neither of which is good for your bottom line.
Save on time and labor costs. As we mentioned above, fulfillment involves a lot of hidden costs that can quickly get overwhelming for businesses. Because 3PLs can operate off vast economies of scale, they can offer fulfillment services at much more affordable rates than most businesses can achieve independently. For example, fulfillment providers can negotiate cheaper rates with major carriers due to the huge parcel volumes they send into the system, meaning that your shipping costs will be much more manageable.
Scale your fulfillment operation effectively. Partnering with a fulfillment provider allows you to manage unexpected surges in order volumes with much greater ease. This is because many 3PLs operate multi-node networks of facilities that offer their customers the freedom to expand while maintaining their existing relationships. Furthermore, you can leverage the expertise of industry professionals and advanced technologies like automation to achieve a more efficient, streamlined fulfillment strategy.
Focus on growing your business. Outsourcing your fulfillment operation frees up a huge amount of extra time for you to focus on other areas of your business such as CX management, which too often end up being neglected in ecommerce.
Cost. Depending on how niche your fulfillment needs are, 3PLs can be a big upfront cost, especially if your order volumes are low. Extra services such as knitting and subassembly are often priced separately from mainline fulfillment services because they require extra time and labor. So, it’s important to make sure that outsourcing will be cost-effective.
Finding the right provider. Finding a fulfillment provider who meets your needs and operates across the right distribution channels is no small undertaking. It can take considerable time and effort to come up with the right proposition and vet different candidates, especially if you’re partnering with a 3PL for the first time.
So, now that you understand the pros and cons of self-fulfillment vs. outsourced fulfillment, how do you know which method is right for you?
Most businesses will start out by self-fulfilling. If you’re only dealing with a few hundred orders per month, outsourcing is unlikely to be cost-effective. If you also have a high SKU count which requires a complex storage plan, it’s difficult to offset these costs against a low order volume.
Another important consideration is how localized your customer base is. If you’re a new business, it’s quite likely that you’re leveraged local connections and business partnerships to begin building brand awareness. In this case, it may be an advantage to keep your fulfillment operation close to home initially to ensure fast shipping times that enhance customer satisfaction.
Most businesses will hit a point where self-fulfillment is no longer cost-effective or has become too difficult to manage - especially if there’s a limited amount of internal logistics expertise.
When order volumes escalate sharply, this can easily overwhelm an in-house fulfillment operation if there isn’t a robust growth plan in place. When this happens, it’s a good indication that now is the time to partner with a fulfillment provider.
In addition to warehouse and utility costs, IT software is one of the most overlooked expenses of fulfillment. As your operation grows more complex, advanced technology is essential to give you real-time visibility over your inventory and orders.
Once this becomes necessary, businesses will need to foot a very large bill to access the systems they need. Because most 3PLs will make their in-house WMS or OMS available to customers, this is a huge cost (and maintenance responsibility) taken off a business’s shoulders.
Moreover, if your order volumes are growing, it’s likely that your customer base is growing more geographically diverse. If you’re serving customers in more distant regions, this puts a lot of pressure on your operation to ensure that shipping times don’t lengthen - which can mean a lot of unsustainable shipping expenses. When this happens, transitioning to a 3PL provides you with more strategic warehouse locations that will reduce shipping costs and last mile delivery times.
So, how can you make the transition from self-fulfilling to outsourcing effectively? Making the decision to bring in an external provider is always a big decision, especially if you’re a rapidly-growing business that needs a big pivot in its fulfillment and shipping strategies. The best place to start is by acquainting yourself with the most important traits to look for in a potential fulfillment partner - we recommend checking out our blog on the topic!