Should You Outsource Order Fulfillment or Keep it In-House?

As our economy expands with e-commerce options, logistics emerges as a major differentiator among retailers that offer the same or similar products. The free two-day shipping model pioneered by Amazon.com has become a cultural expectation, and our collective appetite for fast and free delivery will only grow in the years ahead.

For retailers with limited product selections, order fulfillment is a manageable proposition. However, as the number of stock-keeping units (SKUs) grows, it becomes difficult to manage fulfillment by oneself. The complexity of such an undertaking has given rise to an entire industry of third-party logistics providers looking to take on the burden of other businesses’ order fulfillment.

But is outsourcing worth it?

Weighing the Options

The biggest advantage of keeping order fulfillment in-house is also fairly obvious: total control over the fulfillment process. Your team picks and packs the products from your shelves, and you use a freight carrier that you’ve selected on the basis of price, delivery speed and reliability.

On the other hand, 3PL hasn’t become a nearly trillion-dollar industry for no reason. Outsourcing fulfillment to a 3PL provider allows you to tap into a network of fulfillment facilities that can put your products closer to the customer, lowering your shipping costs and increasing all-important delivery speeds. 3PLs also have access to bulk shipping rates that can reduce your freight burden even further. Whether shipping is a major expense or just a small fraction of a product’s value, it’s a cost that adds up with each unit sold. It can eat away at your operating margins like termites munching on the walls of your warehouse.

To decide which approach is right for you, start by considering your product — or rather, the package it ships in. If your goal is to minimize packaging costs and ship lots of products at inexpensive rates, a 3PL can help. If part of your product’s allure stems from detailed and expensive packaging, it might be easier to keep things in-house where you have the most control.

The skills at your disposal are also important. If your team knows how to execute, optimize and improve the efficiency of your fulfillment process, you’re in good shape to go it alone. Even if your team isn’t quite sure how to handle everything, technology and software solutions can fill in the gaps. Just be careful: Powerful cloud-based warehouse tools are a huge step up from manual data entry and an analog pick-and-pack process.

If you’re considering a substantial software investment as a last-ditch effort to get order fulfillment under control, you may be better off spending the money on a 3PL. Without the necessary experience, handing the reins over to a tried-and-true 3PL provider can be a smart investment (and sometimes a huge relief).

Fulfilling Your Goals

No matter what route you opt to follow for meeting your order fulfillment needs, the end result should look the same: accurate and timely delivery, consistent quality during the unboxing stage, and a scalable fulfillment process that can function properly as your business takes off and reaches customers in new markets.

You can accomplish the above goals regardless of whether you partner with a 3PL or keep your operation in-house. The former can offer incredible value and a limitless scale, and the best ones will become trusted business partners that feel like part of your organization. That said, in-house fulfillment can be more cost effective for smaller businesses and can offer you control over every detail. Ultimately, it’s up to you to decide which option best meets your needs.

Georg Richter is founder and CEO of OceanX, which is reinventing the membership economy by transforming customer-brand interactions and providing a powerful engine for recurring revenue.