A wide variety of industries rely on third party order fulfillment in order to maintain and grow their business. These services require complex operations to efficiently manage warehousing, automated order processing, shipping, compliance and more.
Order Fulfillment: A Brief Overview
Order fulfillment pertains to the steps involved in receiving, processing and delivering orders to end customers. Order fulfillment is done in one of three ways:
- Drop-shipping: Shipments are sent direct from the manufacturer
- In-House Fulfillment: Orders are fulfilled in-house.
- 3rd Party Fulfillment: Orders are filled at a vendor’s facility and/or Fulfillment House.
There are different pros and cons to each process. However, many retailers and manufacturers have found optimal success in outsourcing order fulfillment to a third party. According to the 2014 Global Outsourcing and Insourcing Survey from Deloitte, 46 percent of surveyed businesses already outsource their order fulfillment, and 13 percent of those that don’t are planning to.
The Benefits of Outsourcing Order Fulfillment
By engaging a proven-successful third party company that has capacity for warehousing, product distribution and order fulfillment, your business can enjoy some important benefits:
Avoid taking on a long-term lease on a warehouse space. By engaging a third party to warehouse and distribute your products, you can keep your overhead low and reduce your risk in the event that you need to scale or downsize inventory storage.
Flexible pricing for growth. When you’re doing your own order fulfillment, there’s a risk that you won’t be able to support an unexpected large order. A third party order fulfillment partner can work with you on pricing, so that your costs scale as you grow without jeopardizing your ability to keep your customers happy.
No need to hire or manage additional staff as you scale. If you were doing your own product distribution, you’d need to hire and take on more personnel to satisfy new customers’ orders. With an order fulfillment partner, they handle the supply chain staffing so that you have a lot less to worry about when you grow.
Greater effectiveness with your actual business. With a knowledgeable and proven-successful product distribution partner, you can focus on what you do best! They will implement an effective order fulfillment process with you, so that you can direct your attention to your products, sales, and other aspects of your business.
Eliminate shipping errors. A common and significant problem with in-house order fulfillment is that as you acquire more customers (orders), the potential for errors increases as well. Shipping errors can be as minor as a single product replacement, or as disastrous as a multi-SKU order getting delivered after a required date; regardless, these errors are costly and incredibly risky for the health of your business. Third party order fulfillment partners have more experience and implement tested and proven product distribution methods to eliminate or at least significantly reduce errors and their potential of happening.
Reduced costs. Several of the previously mentioned benefits already highlight the potential for reduced costs by transferring your order fulfillment to a third party partner. Additionally, however, you can benefit from reduced costs with warehousing, staffing, taxes, and more since these companies may have more buying power in these areas. This is because best-in-class logistics companies combine their shipping volume for lower bulk rates, and you can leverage this by working with them versus on your own.
When is it Time to Outsource Your Order Fulfillment?
- If your sales are cyclical or uneven, your company will need to take on extra costs in order to run and staff a warehouse during off-times.
- If you and your staff are too busy with order fulfillment to focus on growth.
- If your business is outgrowing your current infrastructure, causing customer issues such as delays or errors.
The majority of companies who outsource this aspect of their business because they don’t have:
- The warehousing space to accommodate their inventory (whether that is stable or fluctuates seasonally),
- The ability to provide consistently high-level performance in processing and shipping orders, and/or…
- The resources or staff to satisfy the needs for best-in-class order fulfillment (personnel, experience, technology, or equipment).
Important Considerations for Outsourcing Order Fulfillment
As you consider potential third party partners for product distribution and fulfillment of your orders, there are some key areas of consideration to help you identify the right partner.
- Look at your current situation. First, assess your current needs as they relate to product distribution: warehousing, inventory location, order processing, shipping, compliance, etc. Are you able to manage the current demand for your products? Are orders generally fulfilled correctly and in a timely manner? Are your customers pleased with your order fulfillment process, or have you had consistent complaints? These are all useful clarifying questions to ask.
- Project for future needs. Once you have identified your company’s needs and opportunities for growth and/or improvement with your order fulfillment process, take some time to extrapolate what your sales will look like in the coming months and years. Based on projected supply and demand, you’ll be more equipped to select a partner who can grow with you. And if you have a projected spike in sales in the near future, you should really prioritize finding a good order fulfillment partner as soon as possible so that your product distribution is up and running smoothly when the increase happens.
- Confirm warehousing capacity. Since any effective order fulfillment service starts with warehousing, it’s very important that your partner is equipped to store your inventory. If you’re going to be growing in a way that will require a significant amount of increased space, be sure to advise potential third party partners and confirm that they will be able to support it when the time comes. Flexibility is key, since you’ll need your order fulfillment partner to be able to grow with you.
- Consider costs. Comparing different order fulfillment companies’ pricing can be very much like comparing apples and oranges. A good rule of thumb is to break down your monthly order data (Total number of orders — U.S. and international, average units per order, average weight of the order, and the average needed square footage of storage space). Ask your potential partners to provide pricing based on these numbers, and you’ll be better equipped to accurately compare. Don’t forget additional fees for shipping labels, packaging, storing per square foot or pallet, and make sure all fees are agreed to in contractual form to avoid any surprises down the line.
- Assess shipping abilities. Your order fulfillment partner should have a proven record of excellence when it comes to shipping. If your company ships internationally, this consideration is going to be very important. You may also want to consider order fulfillment partners with multiple locations around the globe, since geographically optimizing the storage of your inventory can significantly reduce shipping costs and fulfillment times domestically and internationally.
- Ask about automation. The key to the most efficient order fulfillment process is automation — systems that operate effectively without a human are more time- and cost-effective, and less prone to mistakes and costly errors. Your fulfillment partner should be automating communication about orders, from the initial notice to the warehouse, through shipping confirmation and tracking numbers. Also, remember to ask about their process with chargeback fees resulting from errors.
- Note any value-add services. Some logistics companies offer value-added services to sweeten the deal. Be sure to ask about anything that sets one company apart from the rest, be it with an assigned resource within the organization to strategize with you on solutions to your fulfillment shortcomings, or a free in-depth analysis to determine where your process needs work.