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When Is the 3rd Party Fulfillment Outsourcing Smart for Ecommerce and B2B Businesses?

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February 15, 2020 |

You didn’t get into business to fill boxes and slap labels on packages, so it’s time to seriously consider outsourcing those activities when they get in the way of the fun stuff, like creating relationships, crushing the sale, and finding the best new lead.

Outsourcing is a common tactic for offloading your fulfilment needs because it can generally be cheaper than hiring a team to do it internally, and you can scale easily with minimal infrastructure investment. Sometimes, it’ll save you a lot, but you may also grow so big it’s time to bring it back in-house.

Understanding that dynamic is tough, so today we’re looking at sometimes when you should consider outsourcing fulfillment, as well as when it makes sense to own it. But first, let’s start with two things you absolutely need to know for growing your business quickly.

Forget the B2C-B2B distinction

When business owners start looking into outsourcing, they tend to look for solutions that only feel like their industry. For many of you, that’ll mean looking at B2B-focused solutions where the emphasis is on the larger supply chain and manufacturing. Traditionally, there’s been more focus on getting goods to your own distribution center and less on how to get things to the individual customer.

That world is gone, thanks in part to Amazon and its dominance in the B2B world as well as B2C. We’ve seen the same customers start to have the same expectations, such as two-day shipping, free shipping options, and being able to place smaller orders as needed instead of office-wide, recurring shipments.

It’s also changed the game for how B2B telemarketing has evolved, where you’re going to need to provide a lot more customer support and service than before. So, when you start reading here and then searching for the right partner for you, remember that there’s no more B2C and B2B distinction for your customers.

They want what you’ve got on sale for a good price, with fast and reliable shipping, and they already expect you to be doing that on their terms.

Fight the Outsourcing Fear with Knowledge

Putting your products in the hands of someone else can feel scary, even when it’s still an abstract thought. That’s your livelihood, so it makes sense. Work to alleviate your fears by talking with a lot of outsourcing partners.

Find out what they can promise, how they deliver, and speak to some of their customers to get an accurate idea of how well they live up to those promises.

For fulfillment, you’ll need to trust your partner right away. So, ask questions and expect honest answers. Ask about how they operate, labor and other costs, and how much you can expect to save. Get it all in writing too, so that you know what your costs will be and how pricing is calculated.

If their website makes a claim, ask them to back it up. These third-party logistics companies (3PLs) are experts, so you should be able to see some surprising results here too. One big area is managing inventory shrinkage, where fulfillment companies have specific processes that can nearly eliminate it.

Once you feel comfortable with the idea of handing things off, you’ll then want to do your own calculus to see if your operations are ready for fulfillment outsourcing. That’s where our next set of scenarios come into play.

Existing In-House Experts or Hiring Needed?

If you have the team you need to run your warehouse, you might not need to outsource operations. What you’ll want to ensure is that you’ve got the people and systems in place to scale. If you don’t have tools or enough staff, can you get them easily based on where you are?

When warehouses grow, you need reliable management and solutions that help your team.

Warehouse management systems have evolved significantly and are able to automate many tasks, ensuring order accuracy. The discussion is often if you have the capital to get a new system, hire up, and expand physical space and infrastructure if you grow.

Look at salaries for staff, benefits, breakroom space, and increases for the team you promote to manage this growth.

In most cases, 3PLs price their services to be more affordable than expanding a team and physical infrastructure. They want to earn your business by making it a more affordable solution up front. By having a workforce managed for multiple clients, they can keep what you pay low.

If you don’t have the expertise needed, your warehouse may face delayed orders, missed shipments, or even stock-outs when inventory isn’t controlled. 3PLs have experts to prevent these events from occurring and use a wide range of tools to audit and reduce the likelihood of mistake, accident, or error.

Are You Experiencing Returns and Mistakes?

Warehouses and fulfillment must support profitability. When mistakes start hurting your bottom line — from increased costs to lost reputation and sales — it’s time for a change. 

Customers are incredibly demanding and they’re all expecting you to be the next Amazon. They want orders right and on-time, based on what your website promises. That means getting things correct each time or facing increased replacements and refunds when things are wrong, late, or damaged.

Every time your warehouse gets something wrong, it costs. Are you facing prohibitive costs in the warehouse? Are you losing customers?

Outsourcing can be a smart way to protect your profitability. Not only are you generally guaranteed much higher accuracy rates with 3PLs, but they may cover costs and losses associated with any mistake they make. They’re also heavily investing in teams and technology to eliminate the errors that happen in picking and packing. They’ve got capital to invest in barcode scanners, verification tools and technology, and streamlined processes and equipment to eliminate waste of cardboard, packing materials, and other elements.

Getting access to this technology is generally cheaper when you do it via a 3PL because they invest to give a better service to all customers. Expenses are spread across multiple clients, allowing you to save without error or risk.

Adapting to Customers

When your average customer or order changes, does your warehouse?

One chief reason we see ecommerce and B2B businesses start looking at outsourcing fulfillment is to meet new customer demands, such as locations and orders. If you’re switching from bulk to individual elements, or vice versa, that’s a lot of new work to do with carriers.

At the same time, changing from local to country-wide or international orders comes with major challenges to get to customers and meet regulations and shipping requirements. You’ll also be spending a lot of time with carriers and their websites to determine what’s the most affordable way to expand.

That becomes an expensive activity and time-consuming too. When your customers change and you struggle to respond, it might be smart to look for help.

3PLs tend to have multiple distribution points and strong carrier relationships, enabling them to reach large portions of the country or world at lower costs than most individual companies. New markets, new order types, and changing demographics tend to make a small impact because 3PLs have experience with a wide range of clients and products.

Add that to the carrier discounts most get based on the volume of shipments they regularly make, and you tend to save when customers change. Plus, it’ll be the 3PL’s responsibility to learn each market and ensure you meet regulatory requirements, protecting you against claims, customs holdups, and many problems unique to individual countries and states.

How Do You Want to Grow?

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 must have the warehouse space to grow into — it has to be there before the demand hits and you end up storing stock on the floor, leading to damage and returns. The size of your space scales first and that means having the revenue to grow it too.

Growth is one of the chief reasons B2B companies begin outsourcing fulfillment. You’re focusing on expanding sales and marketing teams, field teams, customer service, and more. That’s a lot of real estate. Then, it’s followed by more sales and the need to house more product. Again, lots of real estate and cost.

It can be easier and cheaper shifting your warehouse to a 3PL than breaking ground on a new site, planning it, getting carrier relationships for it, and then splitting efforts between multiple locations to fill orders.

If your change is dramatic and impacting business lines, your response must be too. At this point, it’s about what you can afford and the speed which you get it done. Consider, ahead of any imminent need, testing a small batch of inventory and orders with a 3PL. See how they handle it and if customers are happy. Do they improve or is your process too difficult for them to get right?

When you need a new or larger distribution hub, local 3PLs might end up saving you considerably if they can properly work with your products and guidelines. Like everything else in your business, test and verify.

Protecting and growing your business means putting it in the best hands to get the job done. Sometimes, they’re the hands of someone else. 


Guest Post Author Bio

Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an order fulfillment company specializing in heavy and large products. They work with a range of online retailers and ecommerce businesses. Check Limecall Pricing and Choose our Callback Software.

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Never underestimate the power of passion. With over 17 years of experience in building internet businesses, 5 successful bootstrapped b2b brands. Sathish spends most of his time executing ideas into niche internet brands through a lean team and enjoys being a wanderlust.

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