Most multichannel marketeers keep order fulfillment and customer service inhouse. But I see more and more companies turning to third-party providers, thus outsourcing fulfillment.
Why? Many companies admit that their core business are marketing and merchandising, and not operations. So they want to focus on their core competences. Outsourcing of fulfillment activities is then an interesting option.
Cost is also a big factor: Fulfillment costs are continuing rising.
For some companies the cost of internal fulfillment has come to a point where it makes sense to consider outsourcing to a fulfillment provider in order to reduce cost. By placing the fulfillment function with someone who is specialised in it , you cannot only reduce potential cost increases, you will also benefit of the knowledge and experience of the Third-Party-Logistic provider. (3PL)
As you might know, one of the largest fulfillment expenses is the cost incurred in distribution of your products to your customers. Some of the larger service providers will have higher volumes in parcel distribution and might pass this advantage in better rates to you in order to save you money on your distribution costs. But you will also benfit in the experience of packaging methods, sampling, labeling etc. Especially webshops are in need of Value Added Logistic services so they will be looking for webshopfulfillment.
And outsourcing can give you a boost in technology. For example, webshops today need to offer safe and sound payment methods in their ordering proces. This requires technology support for your websystem that can be found in most 3PL service providers.
Outsourcing of your fulfillment process can be a risk, too. You give your customer care to an outside company, and that is great if it improves your service levels, but it can be detrimental to our brand awarenss if the service levels are not as good as yours.
You have to make sure that your outsourcing partner understands your product and know your brand. Some merchants prefer to have their own customer support.
It depends on many factors if your company is suitable for outsourcing the logistic operations. But it always comes down to this: You will have to find the best fulfillment service that you can afford while meeting your clients expectations.
Can outsourcing be an option for you?
If you want to decide if outsourcing is something for you, there are many 3PL providers to choose. And most fulfillment companies will offer your more than “pick, pack and distribute” options. Here are some tips to help you make your decision.
- Know your current costs
A key consideration is pricing, so make absolutely sure that you have insight in all of your current costs to make a good comparison of the cost offered by the vendor on your request of proposal. Check the total annual cost calculation to avoid surprises.
2. Can the provider handle your product?
Make sure the vendor has experience in your kind of product. There are a lot of fulfillment companies and most of them are specialised in certain products.
For example, a 3PL provider experienced with food fulfillment might not be the right fit for a hazardous product merchant. Ofcourse the most ideal product for a fulfillment company will have high volumes and small sizes.
If you have (organic) food products, look for a 3PL with the proper certification.
3. Inventory of your product
Speaking of products, probably your largest asset will be your inventory. So check out if the vendor can handle the specific requirements of your products.
4. Negotiate service levels
The requirements from merchants to handle their product will differ as you might expect. Be sure that the potential 3PL provider meets your specific requirements, by testing the agreed service levels.
5. Pay a visit to the vendor
A very important factor in the decision is if there is a “click” with the 3PL provider and you. You will probably have defined your needs in the Request For Proposol but if officials and working staff can actually see what they have to do for you, this will avoid suprises. And that will be the key to a longlasting succesfull relation.
Next to that, the “chemistry” needs to give you a trustworthy feeling. There will be times that the 3PL provider has to react and face unplanned issues on your behalf.
6. Go for a win-win situation
If your finally have decided with who you want to do business and you are making up a contract, look to the future, negotiatie a term that make sense for boh parties. Usually a two- to three-year contract is in best interest.
Be sure to make a part in the contract where you can control some of future price increases. A “lowball” cost in the beginning may not end up in your best long-term interest.
Be aware that even if you decide to outsource that you will still have to be the one pulling the strings in your back-end operations. Don’t think that now you have outsourced your fulfillment, that you don’t have to do anything in the managing proces.
7. Four signs to look seriously at outsourcing
1. Fulfillment is not a core activity of the company.
2. Fulfillment costs have reached a point that it would be cheaper to pay a specialist.
3. Actions and/or seasonal spikes require a flexibele fulfillment capacity.
4. Your company is rapidly growing and you can’t or don’t want to invest in operations.