Outsourcing vs Insourcing eCommerce Fulfilment

Posted by KarlSchwick on March 21, 2024

Many businesses are successful because their founders are willing to ‘get their hands dirty’, and involved with every facet of business operations. During the early stages of an eCommerce retailer’s growth, this can be beneficial because it means leadership better understands the intricacies of each process. However, this is not always scalable. Working alongside third-parties can pay dividends, helping management to instead focus on strategy and vision, while specialists take care of operations. In the same way that retailers can outsource eCommerce store development, and other elements such as hosting, they can outsource their product storage and distribution too. This is known as eCommerce order fulfilment.

What is eCommerce order fulfilment?

Ecommerce order fulfilment is the process of entrusting a separate business entity to store, pick, pack and ship your products on your behalf, as you. With differing levels of involvement, some third-party logistics providers (3PLs) can also offer support with returns, outsourced customer service, customs clearance, and in the case of UK-based Zendbox, inventory management and analysis, which can help you avoid understocking (and avoid missing out on sales), and also overstocking (avoiding cash being tied up in inventory, unnecessarily):

How does 3PL work?

Outsourcing 3PL is a highly-involved process. Entrusting a third-party with the most delicate element of your eCommerce business operations involves surrendering a lot of control, and it takes time to build trust. This is why it’s crucial to check out third-party reviews, customer success stories, and also to reach out to 3PL firms’ publicly-known clients, to ask for feedback.

Once you’ve found the right provider, then begins client onboarding, which involves integrating your individual sales channels, or multichannel order management system (OMS), with the 3PL’s warehouse management system (WMS). Once systems are aligned, the 3PL should have the necessary inflow of data to process your orders, but before this, you need to ship your products in bulk to the pick and pack warehouse, so that they can be carefully positioned in picking locations. As orders come in, in real-time, the picking team will collect the orders, and take them over to the packing bench, ready for the addition of the shipping label, and in some instances, order customisation.

Then, your orders will be allocated onto pallets, or inside containers, organised by shipping carrier, ready for collection by the 3PL’s courier partners (e.g. DHL, Parcelforce, DPD, FedEx). Subject to carrier selection, your customers will have in-flight delivery options, such as timed delivery windows, ‘leave safe’ place, and GPS position tracking of their incoming orders.

What are the benefits of outsourcing third-party logistics?

Working with a 3PL gives you access to the shared, collaborative buying power of all of the other clients that use the same fulfilment centre. Thanks to economies of scale, fulfilment outsourcers can access preferential shipping rates, along with further efficiencies with packaging, contact centre operations, software and claims processing.

Rather than having to hire and train your own staff, invest in expanding your own premises, and all of the associated red tape, with 3PLs you will typically only pay for what you use, freeing up capital to instead invest in other areas, such as sales and marketing, to acquire and retain more customers.

Outsourcing fulfilment can accelerate your order processing, and even grow your sales. For example, Complete Strength founder, Rob Whitfield, has acquired new customers thanks to their 3PL’s 10pm order cut-off time, adding: “The majority of our orders will come in of an evening. When we had an earlier cut-off time, we missed out on sales. Now we’ve got a later cut-off time, we get less abandoned carts. We have also noticed customers are shopping with us simply because of the later cut-off time."

Brightpearl and Trustpilot looked at 29,080 1 to 3-star reviews left by consumers, of eCommerce businesses, and found that 77% of them were related to the post-checkout customer experience; namely delivery, returns, customer service and refund policies. Specialist 3PLs can identify, and remedy gaps in service quality that can lead to these negative reviews, helping you achieve a more satisfying end-to-end customer experience.

What are the potential drawbacks of fulfilment centres?

3PLs aren’t accessible to every online store. It comes down to order volumes, seasonality, peaks and troughs. Some providers can assist merchants shipping an average of only 10 parcels per day, whereas others will demand 300 or more. This is because the 3PL needs assurance that they will be able to process sufficient orders to overcome their fixed costs of setting up a new client. Businesses beginning with lower order volumes might find working with a 3PL is more expensive than doing it in-house. There may also be a bedding-in period after customer onboarding, in which the 3PL will need time to familiarise itself with your product range and order customisation requirements. Fulfilment warehouses are typically in just one location, but increasingly 3PLs are looking to partner with overseas providers, and/or invest in their own overseas fulfilment centres.

Deciding whether to outsource or insource 3PL

While historically, warehousing has been perceived as a commodity, the proliferation of online retail means consumers are becoming increasingly sophisticated in their demands. They anticipate lightning-fast yet sustainable delivery options, endless order customisation, and your items to always be in stock. Whether you insource or outsource your order processing, it would be prudent to establish KPIs (key performance indicators), and OKRs (objectives and key results), with your head of operations, and/or your chosen fulfilment provider. This can be metrics such as order processing speed, picking accuracy, WISMOs (‘Where is my order?’ queries), and customer feedback in the form of CSAT (customer satisfaction) surveys, and NPS (net promoter scores). With these metrics in place, you will be able to monitor the impact of your decision on outsourcing business operations, or doing it all by yourself.