By Jake Rheude, Vice President of Marketing at Red Stag Fulfillment
Your market has gone global. Online ordering has removed many of the barriers that companies face to finding customers in new regions, and it allows the consumer to find exactly what they’re looking for instead of settling for whatever is local.
This is a fantastic opportunity, but it generates significant changes to the way you fill and ship orders. One of the biggest challenges that companies face is how to understand expansion needs and meet them while protection revenue and inventory. A core way to safeguard a business while growing is to begin outsourcing different tasks, including order fulfillment.
Handing off your products to someone else can feel a bit scary. You’ll need to trust them significantly to get things done right, and also to provide savings to make the peace-of-mind worthwhile. It’s a difficult journey to start, or even to know where and how to begin.
To help, we’ve put together five questions that can show you if outsourcing via a third-party logistics and fulfillment partner (3PL) is the right move or if you should keep things in-house for now.
Do You Have In-House Expertise?
First and foremost, do you have the people you need to run the fulfillment side of your business?
If your warehouse is growing and you need an actual manager, the salary for this position alone can often be close to your annual costs with a fulfillment company. 3PLs tend to price themselves around workforce costs because it allows companies to make the jump to their outsourcing services more efficiently.
When you don’t have the expertise, it can lead to delayed orders, missed shipments, or even stock-outs when inventory isn’t controlled. Most 3PLs have experts to prevent these events from occurring and use a wide range of fulfillment and warehouse tools to audit their actions and reduce the likelihood of mistake, accident, or error.
If your business needs to hire warehouse talent, use that time to also shop around for nearby fulfillment outsourcing companies and compare these direct costs plus the other savings they may offer.
Are Returns Hurting Profitability?
One core warehouse activity is correct order fulfillment. Your other fulfillment capabilities virtually don’t count if you’re not getting the right product to customers on time. When things are wrong or late, you’ll end up having to replace and refund, which causes significant issues.
Refunds and replacements eat into your profitability quickly. You’re not only losing money on a sale, but you typically will have to pay for additional shipping to get the product back. The need to expedite a replacement to keep a customer happy will further reduce the profitability of any sale.
A leading cause of these concerns is errors in the picking and packing process. Your team grabs the wrong product, or they’re not following an order sheet, so some items are missing. This is especially easy when you’re working with pen-and-paper, and an order comes in with various quantities of products.
Most 3PLs and third-party services avoid errors through the use of the newest technology. Mobile devices that track items, barcode scanners that verify order list, and pack stations that doublecheck everything before it is put in a box are just the start. There are also leading warehouse management tools that produce the correct label, highlight potential errors, and can even automatically select the best carrier option to control price but get the products to the customer on time.
A 3PL invests in these capabilities for all of their clients, so you’re not footing the bill for an entire package. This alone could introduce significant cost reductions if you are currently in need of a new platform to help avoid fulfillment errors.
In many cases, a 3PL will promise certain order speed and accuracy metrics, sometimes paying you if there’s a mistake. It’s a smart way to protect your profitability while also keeping customers happy.
Is Customer Location Changing?
Another common reason that companies begin outsourcing fulfillment is that their customers start to change. You might tap into a new market or changes in things like weather and hobbies can generate new kinds of demand for your goods. For any business, the average customer profile changes.
How will you adapt if that change means your customers live hundreds of miles away or are even in new countries?
3PL services can provide a high cost and expertise advantage when your market shifts because they have global experience. Distant and remote markets, whether domestic or international, require smart considerations and carrier negotiations to control costs. Your average 3PL will do enough volume with a carrier to get rate-based discounts, which may ultimately make it easier for you to reach those far away customers without seeing a significant increase to your shipping pricing.
In general, 3PLs also know customs and border requirements and regulations, minimizing risks associated with goods being held up by customs or returned for improper paperwork. Using a partner to expand your company’s reach can help you protect against local customer loss while also making it easy to become a global brand.
What Is Your Growth Plan?
Your warehouse and fulfillment operations need to serve your business as it is now and as it grows in the future.
If your business is expanding, you’ll want enough warehousing space to address this before you need it. That means shelves and rack space to handle additional inventory, aisles wide enough for carts or forklifts as order-size grows, and room for more packing stations too.
It is common for businesses to outsource fulfillment when they grow beyond their current warehouse space. That trend is because of the cost of breaking ground on a new location, expanding your existing buildings, or having to move to new sites.
When the change is dramatic, it can have ripple effects in your company. For example, you may need to hire different workers or face changes in work environment requirements if you move cities. Distribution hubs in your region or country may also have significantly higher costs for warehouse space. A 3PL can mitigate many of these costs as you no longer need your own warehouse staff, and the 3PL offers space in major transit hubs without you needing to purchase an entire facility.
You might end up saving money if the 3PL partner is located closer to your customers. If they have multiple distribution centers, you could also be able to meet growing customer demands for things like two-day shipping.
If your current space isn’t big enough for where you plan to be tomorrow, consider changing today while costs are low, and there’s enough time to move operations without impacting fulfillment.
How Do You Feel About Your Warehouse?
Do you want to be a logistics company? If your answer is “no,” and your daily activities involve more and more time in the warehouse, it might be time to look for a 3PL partner.
Fulfillment services are complex and require you to consistently run analysis on performance to manage margins and avoid losses. When your products become more complex — especially if you do any assembly yourself or work with perishable goods — warehouse requirements compound too. If this isn’t your passion, it’s easy to lose focus and incur spoilage, damage, or other product harm.
This is usually one of the better ways to tell if you should look at third-party fulfillment outsourcing. 3PLs enjoy the warehouse work and logistics management. They thrive on getting orders right and delivering better deals to you.
You want to protect your business the best you can. Sometimes, that means controlling sales and doing product research to find what customers will want next. Others, it just might be finding the right partner to offload difficult but necessary work that must be done right to ensure the survival of your operations.