Whether you’re thinking about starting an ecommerce business or you’ve been selling products for a while, you’ve probably thought about warehousing, shipping, and fulfillment.
Sure, making sales is the exciting part. But what happens after the order is placed? Somehow your product needs to end up in customers’ hands.
There are three ways this can happen:
- You sell a product from a dropshipper who will fulfill orders for you.
- You fulfill your own orders, either independently or with a team.
- You work with a logistics company that will handle your warehousing and fulfillment.
There are clear benefits to packing and shipping your own orders: it’s flexible and cheap. For these reasons, businesses that are just starting out, and businesses that have unique ecommerce packaging needs, often handle their own logistics.
And regardless of age or industry, any business struggling with cash flow will be better off handling things in-house. Sometimes you have more time to spend than money.
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But if your business is growing quickly and you have the cash on hand to outsource, you may be interested in exploring third-party warehousing and fulfillment.
There are many logistics companies that will store your product and take care of packing and shipping your orders.
Working with logistics companies can be intimidating if you’ve never done it before. In this piece, we’ll take you through every step of the process.
Table of Contents
- What are fulfillment services?
- The benefits of using third-party logistics
- When is the right time to switch to outsourced fulfillment?
- Who should not work with a third-party logistics company?
- What does the fulfillment process look like?
- How to choose a fulfillment services provider
- Moving forward with your fulfillment services partner
What are fulfillment services?
A fulfillment service is a third-party warehouse that prepares and ships your orders for you. It does this from its fulfillment center. Ecommerce fulfillment services are ideal for businesses that don’t want to deal with shipping or have outgrown existing warehousing capabilities to a point where they’re unable to ship orders themselves anymore.
There are many larger third-party fulfillment providers, like the Shopify Fulfillment Network, as well as smaller regional options, like Colorado Fulfillment Co. and Ecommerce South Florida. If you’re scaling fast and looking to optimize your fulfillment strategy, working with a provider that offers a central view of your data and smart inventory allocation across multiple warehouses will give you the most flexibility. To learn more about the Shopify Fulfillment Network, visit us here.
What does a fulfillment center do?
While each fulfillment center operates slightly differently, they all accomplish the same thing: they act as a command center for all your order prepping and shipping needs. Fulfillment centers also double as warehouse spaces for inventory storage, allowing you to hold onto product.
Some fulfillment service providers have multiple fulfillment centers, allowing them to serve different geographic locations more quickly than if they were to have just one. This allows ecommerce companies to deliver fast and affordable shipping to a diverse customer base.
What do fulfillment services cost?
Fulfillment services typically charge by the hour or per unit/pallet. Providers add up costs for receiving, storage, pick and pack, shipping, kitting or bundling, returns, custom packaging, gift services, and setup. They then apply transactional (e.g., receiving, shipping) and recurring (e.g., storage) fees.
The benefits of using third-party logistics
The obvious benefit to using a third-party logistics (3PL) company to outsource fulfillment is that it saves you from having to do the work yourself. But the benefits go deeper than that. Outsourcing warehousing and fulfillment can have a meaningful impact on your business’s growth.
Avoid long-term leases
Many logistic companies offer flexible pricing. This means that as you grow—or go through slow periods—they’ll be able to adapt to your needs and adjust costs accordingly. Renting your own warehouse space usually requires more of a commitment.
Bring on the experts
When you hire an outsourced fulfillment services provider, not only do you get warehouse space, you also get people responsible for running the fulfillment center. When you fulfill and ship your own orders, you’ll likely need to hire staff as you scale. Managing staff takes time. If your business is still in flux, you may be wary of promising someone a job. Instead, you can outsource the work to a logistics company and let them be responsible for finding and hiring good people.
Each 3PL has a whole team of logistics experts and support staff who are there to help you along the way. They manage all of the labor needed for receiving, inventory management, and order processing and shipping—giving you a new level of agility you might not achieve so easily on your own.
Use your time to optimize
Chances are you didn’t start a business because you’re really good at packing boxes. Your time is better spent on managing and optimizing across the company—not bogged down in the logistics of order fulfillment. When you let someone else take care of logistical details, you can focus on the things that have a greater impact on your bottom line.
When Noah Chaimberg, the brain behind Heatonist, the biggest hot sauce ecommerce platform in the world, outsourced order fulfillment to the Shopify Fulfillment Network, he was able to focus on business goals and growth. This allowed him to concentrate on marketing and becoming one of the most prolific purveyors of hot sauce in the world.
Be more agile
Although doing it yourself is mostly free, it can actually cost you in the long run. As consumers expect faster shipping times, doing it in-house can cause you to fall short of these expectations and deliver a bad customer experience. Partnering with a 3PL for outsourced fulfillment services, you can benefit from their efficiencies and leverage their buying power on packaging and shipping costs. Some even share real-time stock levels and status updates so you can be proactive.
This then frees you and your team to test new strategies, inventory management techniques, and other initiatives to achieve rapid growth—without worrying about back-end logistics or hiring backlogs.
When is the right time to switch to outsourced fulfillment?
Most companies start out fulfilling their own orders, and some eventually add a third-party solution as they scale. The problem is, it’s difficult to know when to make the switch—especially if you’re bootstrapping your business.
It turns out, businesses of many sizes can benefit from warehousing and fulfillment services. There are a variety of companies to choose from, some of which specialize in smaller or larger-scale operations.
However, there are clear signs that it’s time to start outsourcing.
Cyclical or uneven sales
If the number of orders you process fluctuates throughout the year, it probably doesn’t make sense for you to commit to running and staffing your own warehouse. A logistics company will be able to adapt to your needs.
Likewise, unexpected spikes in sales—while great for your bottom line—can compromise your delivery promise. An expert can handle times when your daily order volume peaks so you can deliver a consistent and efficient experience every time.
That’s what happened to Elizabeth Grojean, founder of Baloo Living, a store that sells weighted blankets. After unplanned press coverage left her scrambling to fulfill orders, she used the Shopify Fulfillment Network to find a more reliable and adaptable solution.
You’re too busy
If you’re so busy dealing with order fulfillment that you don’t have time to focus on growth, it’s probably time to start outsourcing it. As a business owner, you need to be able to devote time to sales and marketing, expanding to other ecommerce platforms, sourcing new products and ideas, and otherwise improving your business if you want to be around for the long term.
Lack of infrastructure
If you’re growing geographically, you may outgrow your current infrastructure before you can adapt. Shipping to locations across the country or even the world poses logistical challenges that increase expenses and shipping times, among other things. This can hamper large-scale growth.
When you outsource to a global fulfillment partner, they’ll be better equipped to serve a growing customer base, leveraging multiple locations and optimizing fulfillment accordingly.
Third-party warehousing and fulfillment isn’t right for everyone, but if you find yourself in one of these situations, it might be time to start calling around and chatting with logistics companies.
Who should not work with a third-party logistics company
The fact is, no single solution is perfect for every business. There are times when using a fulfillment services provider doesn’t make sense, no matter what size your business is.
Businesses with limited cash flow
Whether you’re a startup or not, if you don’t have the funds available, you may need to do it yourself. Sometimes your biggest resource is time, and you need to work with what you have.
In these cases, you might have to bootstrap business growth and use your own time as an investment, instead of paying employees or contractors.
Highly specialized businesses
You may be surprised at the amount of customization many logistics companies offer—I certainly was. Still, not everyone will be able to find a company that can do what they want. If your business has highly specialized needs, it might make more sense to handle your fulfillment internally.
For example, a company that manufactures customized orders using specialized equipment might need to take the reins on their fulfillment processes. But for most other companies, third-party fulfillment services can be a huge time saver that also offers cost savings.
Businesses with limited daily order volume
If you’re only doing a handful of orders a day, it’s likely too soon to consider outsourcing order fulfillment. At this stage, it’s still manageable in-house, either by yourself or an employee of your own. Once you hit five to 10 shipments a day, that’s when it’s time to begin your search for a 3PL.
What does the fulfillment process look like?
Most business owners who manage order fulfillment in-house spend a significant amount of time managing staff, providing customer support, and generally overseeing the entire process.
But with outsourced fulfillment, the process looks pretty simple. In fact, all you really need to do is make sure your ecommerce fulfillment services provider has enough inventory. In many cases, your orders can be sent directly to your logistics company, and they’ll take care of packing and shipping the order.
If you run a Shopify store, the Shopify Fulfillment Network offers a dedicated network of fulfillment centers that ensure timely deliveries, lower shipping costs, and a positive customer experience. There are also several apps available to streamline your integration of third-party logistics.
What about returns?
Many logistics companies can also solve order fulfillment problems on your behalf. This includes processing returns and issuing refunds which you want to communicate with customers in your return policy.
Typically, customers will send a return directly to the fulfillment center, where the company inspects it for damage and validates any customer feedback. They’ll then replace the product or issue a refund—you never even have to get involved. If the returned product is in sellable condition, they’ll also restock and ship it in a future order.
Can you still use custom packaging?
A great unboxing experience can be a solid point of differentiation. Customers feel more satisfied with their purchase and are more likely to buy again or recommend you to their friends.
Unfortunately, finding a great logistics company that will work with you on this can be challenging. Many logistics companies, especially the larger ones, force clients to use their rigid standards when it comes to packaging and other custom needs.
But many companies do offer this service. Even better, since warehousing and fulfillment companies have so much experience in this area, they may be able to make recommendations and help you save money on packaging.
With the Shopify Fulfillment Network, for example, you can integrate your customized packaging, add branding, design packing slips, and include custom packaging inserts, like stickers or samples, to surprise and delight your customers.
If custom packaging is important to you, make sure you ask potential companies about their options and willingness in this area.
How to choose a fulfillment services provider
If you want to hire an ecommerce fulfillment services company, the first thing you’ll probably do is head to Google. If you’re lucky, maybe you have a friend or colleague who can make a few recommendations. Now, how do you choose the right one?
Similar industry experience
More than anything, you want to find the right fit. Just like every ecommerce system functions a little bit differently, so does every fulfillment company. Many providers package their services to serve a niche of businesses in certain industries or types of business. There are a wealth of fulfillment companies out there—and each company has a unique focus.
Similar existing clients
Try to find a logistics company that already works with businesses similar to yours. This is a particularly good idea for ecommerce merchants who have their own sets of needs. You need a company that has experience fulfilling ecommerce orders.
Experience in this area means not only that the company will be able to fulfill your orders accurately and in a timely manner, but also provide strategic guidance and advice as you continue your partnership. It will be better equipped to assist you with business challenges because it understands the nuances of ecommerce in general.
Your best bet? Hop on the phone or send an email. Chat with someone one-on-one about your business. Don’t be afraid to ask a lot of questions or to request references. Most importantly, be upfront and clear about your needs so there are no surprises down the road.
Look beyond price
One of the most common shipping problems is cost. And while it’s easy to look at the price tag and choose a fulfillment services company based on budget, you’ll want to consider more than just that. Many companies choose a provider based solely on price, only to find out that quality is absent from the equation.
Price is important, but finding a company that is a good fit is just as important. Unhappy customers could end up costing more in the long run.
While you’ll want to consider multiple options and compare rates, it should only be one of many factors in your decision.
Technology and integrations
Many ecommerce companies use a full tech stack, and you’ll want to find fulfillment services that can smoothly fit into that existing framework. When you sell on multiple ecommerce platforms, for example, those integrations are imperative for smooth logistics across all channels. This includes B2B wholesale channels and vendor management.
Some fulfillment services offer even more advanced tech features. The Shopify Fulfillment Network uses machine learning to provide recommendations for keeping your inventory close to customers in order to save time and shipping costs. And smart replenishment tells you which SKUs to restock at which fulfillment center based on sales, days on hand, and seasonal trends.
Data and analytics
Data is a powerful tool in ecommerce, and your fulfillment services are another data point that can tell you more about your business. Look for an option with real-time analytics tracking, so you can make informed decisions about inventory allocation, purchasing, and more. A service like the Shopify Fulfillment Network also provides customer data and end-to-end package tracking.
Take your time
Do your due diligence when searching for a logistics company. You don’t want to have to switch companies three months later.
Take the time to check them out, talk with them, make sure they’re competent, and be certain you’re a good fit for each other. Check out the claims the company touts and speak with customer and trade references to make sure they’re legitimate.
This is especially important if you’re not sure about whether you’re ready to make the switch to third-party warehousing and fulfillment. As a potential customer, you can and should ask a lot of questions before choosing a company to work with. If it doesn’t feel like a good fit, don’t be afraid to walk away.
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Moving forward with your fulfillment services partner
Outsourced ecommerce order fulfillment services make sense for businesses with big goals, fluctuating sales, and not enough time to take care of things in-house. It’s a great way to free up your own time while enlisting a niche expert who can help you optimize order fulfillment and overcome logistics challenges in your business.