For ecommerce business, in-house fulfillment or outsourcing to a 3pl fulfillment, there is no one right way to proceed the fulfillment process, since it depends on sellers’ unique needs and what they are willing to take on.
Generally, there are several questions you can ask yourself whether you need a 3pl fulfillment services.
What’s 3PL fulfillment services?
Third party logistics (abbreviated as 3PL) fulfillment is part of supply chain management that involves storing inventory in a warehouse, packing and delivering orders.
7 questions to ask about using a 3PL fulfillment services
- How many SKUs do you have?
The quantity of SKUs or unique products you hold will influence your bottom line. Say you are using a long tail strategy and have many products, in this case, if you choose to outsource to a 3pl, you will be charged a relative huge storage space fee for warehousing your products, especially if your products are turning over slowly. On the other hand, if you hold a small number of SKUs, then using a 3pl fulfillment service will save you on fulfillment infrastructures and facilities if you do in-house fulfillment and future less expense on shipping fee by leveraging 3pl fulfillment company order volume advantage.
- How would you like to optimize your shipments according to customers’ destinations
Facilities for storing inventory and shipping orders are important, not just in terms of space, but also in terms of their location and proximity to your shipping destination. For a company looking for growth, the value of third-party logistics is not only in being able to expand across the country, but also in being able to send more packages than it does internally.
The nationwide 3pl fulfillment service allows you to deliver packages at amazon-like speeds to your customers, reducing shipping time and the areas you will ship to. The less the zones, the lower the freight. While these costs appear to be incremental at the order level, they increase over time.
- What does your brand growth plan look like?
Is your order volume consistent monthly, seasonal, or increasing over time? The requirements you experience and anticipate will affect your shipping and processing strategies because you want to ensure that the warehouse space you choose is not too large or too small. Will you expand so fast that you will soon transcend the new space? Or will you never fully expand to the full warehouse and risk overpaying by square footage?
Third-party logistics provides a safety net for any peak season demand, no matter planned or unplanned, so you don’t have to worry about fulfilling orders on time or having to lay off workers at the end of the peak season. Considering any short-term sales and fulfilling products on a long-term basis can help you make the right decision.
- Have in-house fulfillment distracted you?
A good 3pl should always be your good partner to help you stay in the know without having you pay more attention to your order fulfillment implementation. Generally, a dedicated account manager will be assigned to answer your questions responsively at your deck and is always be one step ahead of you. For a business with incremental order volume, this kind of support will really avoid you be distracted from the core business——to attract more customers.
- What do you need for your return procedure?
When it comes to return process, some 3pl providers will offer different options such as processing returns and exchanges themselves or getting the packages back to senders. Since the complexity of your return process also affect your fulfillment strategies, if your return review procedure is very involved, you may want to partner with a 3pl fulfillment company handling your return management.
- What’s the total fulfillment cost?
While there are many variables in calculating shipping fees, the handling can be more complex based on the ways 3pl fulfillment company charges. No to mention that the value-added services (like kitting and assembly) they charge and other customizations. So it can be tough to make an apples-to-apples comparison between internal fulfillment and 3pl fulfillment.
For internal fulfillment costs, you need to add up the monthly operating costs (including warehouse labor, rent, and packaging supplies) (for example, $20,000), and then divide this number by the average monthly shipping volume (10,000), with a handling cost of $2 per order. While this is a very simple calculation, you’ll see how it affects your margin: if the customer spends $60 before taxes, the shipping cost is $10, and your order handling cost is $2 per order, then the order’s total internal fulfillment cost is $12, or 20% of the average order value. How does this compare with different third-party logistics?
- Do you want to manage fulfillment yourself?
As consumers, we like the speed with which amazon delivers orders, but as a business, it’s hard to meet those expectations. If you can’t complete orders at that speed and deliver packages so diligently, your customer experience will suffer. Many brands are finding that the transition over fulfillment helps them refocus on internal work and allows their teams to devote themselves to other fast-growing parts of the business, thus making better use of their time.