06 Jul Deciding Between In House Warehousing and Outsourced Fulfillment
When researching in house warehousing versus outsourced fulfillment online, it’s amazing the number of sources that indicate that this decision is best decided by looking at the costs alone. In fact, quite a few sources say that there is a magical number of orders that you need to be shipping in order for outsourced fulfillment to be beneficial or cost effective. The thought process is something along the lines of – if you aren’t shipping at least X numbers of orders per month, then you won’t save money by using an outsourced fulfillment company. Are there cases where low order volume will not be quite as beneficial to outsource from a cost perspective? Absolutely. But does this mean that you should only consider outsourcing if you ship a certain number of orders per month? Quite the contrary! While the thought of this volume based approach is well intended, there are some important factors to consider instead of just looking at numbers alone.
Okay, If You Simply Can’t Afford Fulfillment Services Don’t Outsource
Before we jump into the other factors that influence this decision, it’s important to establish that if you don’t have enough “free cash” to actually pay a fulfillment provider, then you should continue shipping on your own. Most commonly, this is the situation where you are bootstrapping your business with limited funds and you literally have to take advantage of your time (or that of your partner or wife/husband). There’s no shame in this situation – most businesses aren’t highly funded, contrary to the news reports about all of the high tech start-ups gaining insane amounts of seed funding. So as a true rule of thumb, if you can’t afford to actually pay cash to a fulfillment company, then keep shipping out of your house or garage until your business starts netting enough profit to afford this service.
What to do If Fulfillment is a Critical Success Factor
One other important factor to keep in mind that could cause you to think twice about outsourcing is the extent to which the fulfillment and logistics component of your business is a critical success factor to your business. What does this mean? Simply put, if your business’ most important core competency is logistics and shipping, then you might have to figure out a way to continue to perform warehousing and fulfillment functions in house. For example, some companies rely so heavily on very unique and distinctive value propositions in the logistics process that it would be almost impossible to have a general fulfillment company take on the responsibility in a 3pl environment and provide the level of detail needed in order to produce a successful result. As an example, some of the more innovative companies that are coming up with very unique, time sensitive and stringent requirement food and grocery distribution in localized markets may be barking up the wrong tree by outsourcing such a demanding fulfillment operation to a 3PL. Even still, there are quite likely some 3PL companies that can handle this type of work, but it may not be the best choice to outsource and rather to keep the control in house. And suffice it to say, however, these situations are quite rare.
I’m Growing or I want to Truly Maximize Growth
For the rest of the businesses out there that can actually afford to pay cash for fulfillment and don’t have an extremely complex fulfillment process that will make or break the business, outsourcing fulfillment is a wonderful opportunity to take a process off the plate of key employees so that effort can be placed in areas that will actually grow the business. After all, let’s face it, if key staff are truly spending time packaging orders, shipping, performing inventory control and the like, the business is missing out big time on this key staff that could very well be used more wisely by focusing on tasks that are critical to the success of the organization.
Do some business owners really want to have control over the process? Of course! And will outsourced fulfillment companies always treat your products as if it’s their own company? Not necessarily. But as your company grows, you’ll have the same challenges with internal employees. Furthermore, a minimal accepted percentage of errors is not only expected but is also normal. Most proficient fulfillment providers will operate at a high level. Outsourcing will take a burden off of your plate, allowing you to grow your business.
And when is the “right” time to actually outsource? Should you be shipping 1,000 orders per month? 2,000? Actually, the time to outsource has more to do with when you want to start focusing efforts on growing the business. Companies that ship as little as 100-500 orders can benefit by outsourcing as well. In fact, when sales are lower, some might argue that it’s even more critical to pound the proverbial pavement and invest as much time as possible on selling and marketing rather than fulfillment.
Other Times Outsourcing is Important
There are a number of other instances when outsourcing is highly beneficial:
- If you don’t have enough space internally and don’t want to commit to a long term lease
- To take advantage of fluctuating demands throughout the year
- To target a different geographic region or international region
- Seasonal demand fluctuations
As you can see, there are so many factors when deciding whether to keep fulfillment in house or to outsource. It would be foolish to base a very important decision on a hypothetical break-even order volume per month (which is even more difficult to determine since many new breed fulfillment companies offer extremely competitive rates). Looking at the larger, more strategic picture will help you make the best decision overall.