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How to Shift From In-House eCommerce Fulfillment to a 3PL? Handling order fulfillment is a significant and time-consuming task that most growing eCommerce businesses did not sign up for. The operations underlying every business become more sophisticated as it grows. One of the most important is warehousing and order fulfillment, which must scale in parallel with sales and customer growth in order to be successful.
While in-house fulfillment may be less expensive at first, costs can quickly escalate as you require additional warehouse space, on-demand personnel, and closer relationships with shipping providers. Scaling implies either taking on a major function as a warehouse manager or finding an alternate fulfillment option. Therefore, many eCommerce merchants outsource this function to reputable third-party logistics (3PL) firms.
In this article, we’ll go over the advantages of working with a 3PL as well as some brief tips on how to outsource your eCommerce order fulfillment to a 3PL.
Let’s start with the basics of eCommerce order fulfillment and 3PL.
What exactly is 3PL (third-party logistics)?
A 3PL (third-party logistics) company offers outsourced logistics services, such as the administration of one or more components of warehousing and fulfillment. Third-party logistics providers offer end-to-end e-commerce fulfillment solutions to help your business remain competitive. End-to-end fulfillment solutions offer a variety of services that aid in order fulfillment, streamline your organization’s procedures, and ensure that your direct-to-consumer processes are as efficient and precise as possible.
Why should you outsource eCommerce Fulfillment to a 3PL?
If you are experiencing logistics and shipping challenges, here are the key factors you should keep in mind when you assess your operations to determine whether you should outsource order fulfillment to a 3PL.
Your logistics are falling behind
Canadian consumers are growing more demanding of shipping speed. It is generally accepted that offering fast and free shipping is one of the most effective ways to enhance e-commerce sales.
While a steady flow of new customers is great, you must be able to keep up with the order volume. If there is a consistent backlog in processing or shipping orders, you’re canceling orders because you can’t keep up with logistics, or if your sales are limited by your fulfillment capacity, it’s time to consider a shift to a third-party logistics provider.
Similarly, if your organization’s internal warehouse and logistics management is bottlenecking and you’re restricting your company’s growth by investing in internal fulfillment services, investigate whether a 3PL is a better and, in the end, less expensive alternative.
You are using a manual order tracking system
Many e-commerce businesses begin by manually processing orders: you enter an incoming order into a spreadsheet, pack it, and manually adjust shipping. Following that, you record the real cost of packaging, postage, and other details. This method is time-consuming, requires a large amount of labor, and introduces human error. It also lacks the metrics and insights acquired through automation. To improve project profitability, a 3PL will have software in place to track orders and automatically collate costs, expenses, and revenue.
Your fulfillment costs have skyrocketed
Shipping costs can swiftly ruin a small business or startup. From inventory storage to labor, order fulfillment can quickly become costly. While you will have to pay third-party fees for order processing and warehouse storage if you outsource order fulfillment, it will be a fraction of the cost of doing it in-house. Whether it’s receiving shipments or reducing packaging materials, third-party fulfillment companies are experts at streamlining the process. Your organization is very likely spending far more on shipping than is necessary. If you want to find a balance between giving free shipping and protecting your profit margins, a 3PL may be able to help you minimize shipping costs. A third-party logistics provider can do more, and they can do it better, faster, and cheaper. That level of experience can be beneficial for Canadian businesses.
Orders are missing or late
As order volume increases, so do the chances of errors, especially if your storage capacity cannot be expanded rapidly enough to keep up with the growth of your business. Orders are missing or lost, things are delivered late, and duties are overlooked. If your warehousing and shipping network is overloaded, you will almost certainly be unable to meet planned shipping deadlines.
If your shipments are falling behind, it’s a solid indication that you don’t have the infrastructure to meet current demand. A 3PL, on the other hand, will have the infrastructure in place to ensure precise tracking and delivery prediction deadlines, ensuring that clients are not dissatisfied owing to poor fulfillment. To monitor inventories and shipments, a 3PL often employs some form of distributed order management software, which dramatically lowers the occurrence of order errors.
How do you shift from in-house to outsourced 3PL warehouses?
Partnering with a 3PL provider can relieve your organization of the weight of warehouse overhead and infrastructure, allowing it to focus on sales, production, and growth. While there are various advantages, such as potential cost savings, decreased carbon impact, and faster, more dependable shipment, keep in mind that order fulfillment outsourcing is a complex process.
While many 3PL providers are available on the market, finding one that is a suitable fit for your company takes time and work. Here are a few recommendations for making the shift from in-house eCommerce fulfillment to a 3PL.
While choosing a 3PL partner who is compatible with your company’s growth, technology requirements, and distribution requirements, consider the following:
Is the 3PL provider’s geolocation compatible with your consumer base?
Do they work with all of your channels?
Is their technology compatible with yours?
Do they have a track record of success and a consistent clientele?
Is their size appropriate for a partner?
Is the 3PL able to handle all of your requirements (warehousing, receiving, order fulfillment, picking and packing, and so on)?
Do they provide customization or other services such as packaging slips, marketing materials, and so on?
Can you scale with this 3PL provider, or will you outgrow them quickly?
In general, it’s a good idea to start with a limited amount of inventory or a few products with a 3PL partner. Send a few orders to the 3PL and track their performance to see whether they’re a good fit for your company. This allows you to get to know the provider before entrusting all of your inventory to them. Choose a fast-moving product that you know will sell quickly for this test run.
Keeping some inventory on hand is also a suggested best practice. This is critical, whether you handle returns in-house or outsource them to a 3PL. Maintaining a small amount of inventory allows you to handle emergencies and provides a safety net in case of distribution issues. An 80/20 split (with 80% of inventory at the 3PL) is often a good idea, but it’s crucial to conduct the math yourself to determine if and how much inventory has to be split. In some cases, you may wish to keep additional goods on hand. For example, if you have huge and slow-moving inventory, you may prefer to keep it in-house. This will relieve the majority of the strain on your own warehouses without incurring additional storage expenditures with slow-moving products.
Partnering with a 3PL requires a long-term commitment that includes monitoring data, communicating with your 3PL provider, and evolving together. As a result, your 3PL partner must adapt to your growth, develop features to meet your expanding needs, and provide the technology you need to track stock and order performance.
Are you ready to outsource order fulfillment to a 3PL?
SPExpress provides comprehensive e-commerce solutions to support your company’s growth.
Contact us today to find out how we can assist you in improving your supply chain operations.