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Fulfillment Outsourcing Vs. In-house Fulfillment: Which is Best for Small eCommerce Businesses

June 22, 2023 | Author:  Guest
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Are you a small eCommerce business struggling to find the perfect fulfillment solution? 

You’re not alone! 

Recent 2023 stats by Gitnux show that 70% of online shoppers are unlikely to do business with a retailer again if delivery isn’t done within two days of the promised date, and 38% will abandon their orders if they take more than a week, the pressure is on for small business owners to make sure their fulfillment process is up to par.

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So which solution should you choose? Fulfillment outsourcing or in-house fulfillment? 

Well, it can be a real conundrum for any small eCommerce business owner to decide which approach between the two suits their business best. 

But not any longer! 

In this blog post, we’ll examine both of these solutions in detail and help you make the decision that’s right for you. Buckle up as we deeply look into fulfillment outsourcing vs. in-house fulfillment for small eCommerce businesses.

Fulfillment Outsourcing

Fulfillment Outsourcing

As a small eCommerce business owner, one of the options you have in order fulfillment is to outsource.

What is it, and what is there to know before considering it?

Let's explore!

Definition and Explanation

Fulfillment outsourcing is a service that enables eCommerce businesses to outsource the physical labor associated with receiving and processing orders, packing and shipping, and distributing products to customers. Furthermore, integrating an efficient online invoice management system with your fulfillment outsourcing service can streamline your order-to-payment process, ensuring accurate invoicing and seamless financial transactions for your eCommerce business.

In other words, it’s an approach whereby a third-party logistics (3PL) company handles the entire order fulfillment process for you, right from the point of sales inquiry to the end of delivery and, sometimes, returns processing.

This allows you to save time and resources that go into managing the process in-house while also helping you improve customer satisfaction since you're using an external provider that's highly specialized in the field.

Pros and Cons

Outsourcing fulfillment often yields positive results for small businesses, yet there are pros and cons that need to be considered.

Pros

Some of the positives of outsourcing order fulfillment include the following:

  • Cost savings: Outsourcing fulfillment allows businesses to save on costs associated with hiring and training staff, buying equipment, and inventory storage space required when managing the process internally.
  • Scalability: Fulfillment outsourcing allows businesses to scale up or down depending on their needs. This can be a boon during peak seasons when more orders are coming in, and there's not enough time or resources to handle them all.
  • Expertise and resources: Outsourcing order fulfillment provides an opportunity for businesses to leverage the expertise of third-party service providers who have better resources and technology available at their disposal.
  • Time savings: With the help of outsourced services, you can focus more on business growth instead of worrying about the daily operations associated with fulfillment. Plus, since much of the process is handled by a third party, it saves your time significantly and allows you to focus better on other business functions managed internally.
  • Flexibility: You can tailor your fulfillment service needs according to your requirements and budget, as opposed to in-house fulfillment, where every step has to be taken care of.
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Cons

On the flip side, we have several drawbacks to using external specialists to manage your order fulfillment operations. Some of the cons are:

  • Loss of control: Since the entire fulfillment process is outsourced, you may feel that you have less control over how it's managed since it’s no longer in your hands.
  • Communication: When outsourcing fulfillment, communication between you and the third-party provider needs to remain open at all times to ensure smooth operations.
  • Dependence on third-party service providers: Depending on a third-party service can also result in delays or errors in the fulfillment process due to their own mistakes.
  • Additional costs: Outsourcing order fulfillment does come with additional expenses which need to be factored into your budget.  

Types of Outsourcing

Types of Outsourcing

Businesses have a variety of options when outsourcing. The multiple options allow them to pick the solution that best suits their requirements, creating an innovative and tailor-made approach for every unique case.

Drop-shipping

This type of outsourcing involves having a third-party service provider store and ship products directly to your customers. This eliminates the need for you to maintain your own inventory or manage warehousing and shipping.

Pick & Pack

Pick & pack outsourcing is whereby a third-party service provider picks, packs, and ships items on your behalf. This is an excellent option for businesses that don't want to manage the entire fulfillment process themselves.

Kitting and Assembly

In this type of outsourcing, a third-party service provider assembles products or kits according to your specifications. This outsourcing type is a great option for businesses that don't have the resources or expertise to handle kitting and assembly themselves.

Fulfillment By Amazon

Fulfillment By Amazon (FBA) is a type of outsourcing involving having eCommerce businesses store their products in Amazon warehouses, but Amazon manages the entire fulfillment process, from order placement to delivery.

How to Choose the Right Partner

Choosing the right 3PL for your order fulfillment needs is essential. Here are some valuable tips for selecting a reliable and experienced provider:

  • Research the different providers available and compare them to find one that best fits your needs.
  • Find a provider with the expertise and successful history to back up their services in the field. 
  • Check their capacity and scalability to ensure they can handle your business growth.
  • Communicate with your provider and seek to understand their procedures and what they anticipate. 
  • Assess the technology used by the provider and make sure they are up-to-date with the latest trends and technologies in fulfillment.
  • Check out the prices of different reputable providers to ensure that you're getting the best prices for quality services.

In-House Fulfillment

In-House Fulfillment

The other option you have as an eCommerce business is in-house fulfillment. Like outsourcing, in-house fulfillment also has its pros and cons. But first, let’s take a quick look at what it is.

Definition And Explanation

In-house fulfillment is when an eCommerce business handles fulfillment activities internally. This means that the business will store, manage and ship their own products. It’s an excellent option for businesses with the resources and expertise to handle fulfillment in-house.

Pros And Cons

Before you settle for in-house fulfillment, it's fundamental that you understand the pros and cons associated with taking this route.

Pros

They include:

  • Full control: With complete autonomy over the order fulfillment process, you have all it takes to provide your customers with only excellent service.
  • Customization: With custom in-house fulfillment capabilities, you can customize your process to meet the individual needs of every customer. This includes custom packaging, specialized shipping options, and other personalized touches that can help create a strong customer experience.
  • Quality control: Having control over your own fulfillment process allows you to maintain high-quality standards for packing, labeling, and shipping. This ensures that customers receive their orders in perfect condition.
  • Branding: In-house fulfillment also allows you to ensure that your branding is consistent across all aspects of the order fulfillment process. This includes everything from custom packaging to branded tracking numbers and emails.
  • Cost savings: By handling order fulfillment internally, businesses can avoid overhead costs associated with getting an external company to run the order fulfillment functions.
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Cons

For the downsides, in-house order fulfillment has a few things you need to know:

  • Limited scalability: For small businesses, in-house fulfillment can be an ideal way to manage orders. But as a company gains momentum and demand rises, it can become more challenging to keep up with the scale of operations often necessitating outsourcing parts, if not all, of your fulfillment process.
  • High initial costs: To set up an in-house fulfillment system, businesses will need to invest in infrastructure, technology, and personnel. This can add up quickly and be a major upfront cost for the business.
  • Staffing challenges: Finding qualified staff to manage the fulfillment process is not easy, especially if you already don't have experience in the industry. It can also be difficult to source reliable contractors for specific tasks.
  • Time-consuming: Managing your own product fulfillment can be a daunting task, often leading to major time-suck if the right steps aren't taken. You'll need to devote time and resources to managing the process, which can detract from other areas of your business.

Considerations For Setting Up In-House Fulfillment

Before you decide to set up an in-house fulfillment system, ensure that you factor in a few factors:

Budget

Investing in an internal fulfillment system isn't a decision to take lightly. Before you dive into setting it up, identify what your budget is and examine whether that amount will give you the efficiency gains needed for long-term success.

Location

How will you house your wares? Consider whether renting or buying a bigger storage space is necessary to accommodate the size and scope of products.

Technology

What type of technology and software will you need to manage the fulfillment process? This includes things like inventory management software, order tracking systems, and other tools to help streamline the process. 

Staffing

Are you adequately staffed to successfully handle order fulfillment, and if not, could you secure capable personnel for these responsibilities?

Factors To Consider

Factors To Consider

When it comes to deciding between in-house fulfillment or outsourcing, it's important to thoughtfully weigh out the two options to decide which is right for your business. Here are some assessment factors to consider: 

Cost Analysis

The cost of handling fulfillment internally will vary depending on your business's setup and size. In addition to overhead costs like warehousing and staffing, you'll also need to factor in the cost of technology and other resources. 

On the other hand, outsourcing fulfillment can be a more cost-efficient option for businesses that don't have the capacity or budget to handle it internally. 

Growth Potential and Scalability

If you're planning on scaling up your business, consider how well each option will be able to handle a larger volume of orders and shipments. In-house fulfillment may be challenging to scale, while outsourcing can provide more flexibility as your business grows. 

But then, you'll need to invest some time and effort in finding a third-party service provider offering fulfillment services for small businesses since the vast majority prefer to work with mid to large-sized companies.

Customer Experience and Control

Choosing to manage fulfillment in-house grants you full reign over the customer experience - from start to finish. That means you can ensure that each part of the business is handled according to your standards and expectations. However, outsourcing provides increased speed and affordability at the expense of some control.

Time Management

Finally, consider how much time each option will take to manage. Setting up and maintaining an in-house fulfillment system can be quite labor-intensive, while outsourcing typically requires fewer man-hours for order processing.

Making the Right Choice

Making the Right Choice

With no one-size-fits-all solution to selecting between in-house fulfillment and outsourcing, it's always crucial that you evaluate both methods carefully before settling on either. Consider the potential benefits of each option to make an informed choice for success.

Weighing the Pros and Cons

Before committing to a course of action, weigh the upsides and downsides of managing your own fulfillment process or outsourcing it. Carefully evaluate each option before making a decision that will determine how efficiently you can deliver products to customers.

Consider these six factors:

  • Control 
  • Customization
  • Cost
  • Scalability

If you value control and customization, in-house fulfillment may be the right choice. Outsourcing, however, offers the potential for significant cost savings and scalability that could help businesses grow.

Evaluating Your Business Needs

Every company is unique, so it's essential to accurately assess your specific needs and measure how each option would fit into your business plan. 

Ponder which solution will be the most cost-effective yet provide a stellar customer experience while bringing you closer to your success. 

Before making any decisions, ensure you are well aware of all capabilities associated with each choice and its future impact on operations within your organization.

Seeking Professional Advice

Before deciding which approach to use, seeking professional advice from an experienced fulfillment services provider is often helpful. The right order fulfillment solution can make or break your business, so enlisting an expert is critical for success. 

They'll evaluate all aspects of each option available and provide valuable advice to help you select a strategy that maximizes potential and meets your company's needs. Put yourself ahead of the game with professional guidance on your journey toward achieving successful results.

Taking the Plunge

After carefully evaluating all the possibilities and assessing what your company needs, it's time to make a decisive step. Consider how each possible solution impacts customer satisfaction, quality control, budget, and other critical considerations before reaching a conclusion.

With the perfect fulfillment method in place, you can rest assured that your products will reach their recipient swiftly with no complications or delays!

Conclusion

For a business to thrive, finding the most suitable fulfillment strategy is necessary. Finding the perfect option, however, is no easy task! Is it better to handle fulfillment yourself or use someone else? 

Weighing both outsourcing and doing it yourself can be overwhelming – but with some research (and maybe a little help from experts), you'll make sure your decision fits perfectly within the unique needs of your business.

I hope this blog post has helped you understand the benefits and considerations of both in-house fulfillment and outsourcing. If so, please share it with a friend who might find it useful.

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