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

As a small eCommerce business owner, you’re already aware of the complex logistics that your product fulfillment entails. When it comes to delivering your products, you need to consider storage space, shipping costs, and customer satisfaction - all at once!

But what is the best option for a  small-sized business like yours – should you outsource your fulfillment logistics or keep it all in-house? In this blog post, we will explore both avenues and help you determine which one can be more beneficial for your particular online business.

Breaking Down eCommerce Logistics

What Is an Outsourced Fulfillment Service?

Fulfillment outsourcing is a popular option for small eCommerce businesses due to its cost efficiency and  scalability. By  outsourcing fulfillment services to a third-party provider, your company can benefit from access to the latest technology, improved shipping costs and times, and fewer overhead costs.

With this approach, you can focus more on your business's core competencies while allowing your third-party logistics provider to handle storage and distribute products as needed. On top of that, if order volumes increase rapidly, the outsourcing setup allows for quick scaling up of capabilities with minimal effort.

What Is an In-house Fulfillment Process?

In-house fulfillment, on the other hand, requires more upfront investment from you in terms of both capital and personnel but also provides complete control over your product distribution. This approach allows businesses to  keep track of inventory management in real time, as well as monitor customer satisfaction levels.

Your business can also have quick access to data regarding customer preferences, which can be used when making  marketing decisions. This approach works best if you want to keep every aspect of your eCommerce business under one roof, or if your company already has the necessary logistical infrastructure in place.

Outsourcing through Fulfillment Companies

For small-sized eCommerce businesses and online stores, outsourcing your product distribution to a third-party order fulfillment service can be a great way to optimize logistics while saving time and money. However, it's important to consider the pros and cons of outsourcing before you pull the trigger on this decision for your business.

Convenience and cost savings are great, but you need to make sure you're willing to deal with the cost to your ability to provide top-notch customer support.

Perks

Less Effort

Fulfillment outsourcing is a good option for many small eCommerce businesses. With a fulfillment center taking care of your storing and shipping, you can worry less about handling product distribution yourself.

Superior Cost Savings

It's a cost-effective measure because you no longer have to dedicate time, money, and effort toward your own storage or transportation of products. In fact, some statistics suggest that outsourcing to a third-party order fulfillment company can save your company  up to 25% in shipping costs.

Greater Access to Distribution Technology

Not to mention, a third-party fulfillment service typically has access to new technologies, such as advanced order tracking systems and automated fulfillment software, that might otherwise be too expensive for a small business.

Scalability

As we already discussed earlier, scalability is another great benefit of outsourcing your product fulfillment. By using a third-party logistics provider, you can easily scale up or down your services depending on the level of demand your business is experiencing at a given time.

Drawbacks

Lack of Quality Control

The main disadvantage of fulfillment outsourcing is the lack of direct control that you have over your own products and supply chain. By outsourcing the work of product fulfillment, you are also relinquishing control to a third-party provider.

This could lead to potential issues in terms of customer service, as it becomes harder for small businesses to monitor customer satisfaction levels and address any complaints promptly. If the supply chain breaks down, the buck has to stop with you, even if it wasn't actually your company's fault. And that can reflect poorly on your brand in the long run.

Potential Customer Service Problems

Similarly, third-party outsourcing can cause shipping delays related to your third-party provider, such as inadequate stock levels or slow shipping times. With about  two-thirds of US customers expecting two-day or less shipping, speedy orders have become all the more essential.

In other words, third-party shipping delays can lead to a poor customer experience and ultimately lost sales for your small business or online store.

Less Consumer Data

Another issue with outsourcing to fulfillment companies is the lack of visibility that your small eCommerce business has into the order process. When orders are fulfilled by a third party, it's difficult for you to keep track of inventory management in real time or monitor customer preferences, which can make your  long-term marketing decisions more difficult.

Third-Party Fees

Additionally, while third-party order fulfillment is largely a cost-effective method, it certainly isn't free, nor is it cheap. A fulfillment center might impose additional fees and fulfillment costs that you need to take into consideration when budgeting for your logistics.

Lastly, many fulfillment centers require minimum order quantities, which could limit your flexibility if you own a smaller online store that typically deals in lower volumes

In-house Fulfillment Service

In-house fulfillment is the yin to the yang of an outsourced fulfillment partner. It gives you complete control over your product distribution at the expense of time, money, and manpower. It requires a lot of work, but many small businesses think that it's worth it.

Perks

Greater Autonomy

Many smaller businesses are willing to slog it out with in-house product fulfillment because they prefer having control over their own product.

Potential for Better Customer Service

Instead of relying on a third-party provider not to screw up and leave a bad taste in consumers' mouths, you can easily monitor customer satisfaction and address concerns in a timely manner yourself.

More Accurate Consumer Data

In-house fulfillment also allows you to keep track of your company's inventory storage levels in real time, which is invaluable if you conduct frequent sales or  promotions. You can stay on top of the demand for your products at all times and adjust your supply chain accordingly.

Some Possible Savings

And while in-house fulfillment typically isn't as cost-effective as outsourcing, you nevertheless won't have to worry about additional fees when using your own facilities.

If your company already has the right infrastructure in place (such as warehouses and transportation assets), then an in-house fulfillment process might be better overall than outsourcing.

Drawbacks

High Time and Effort Cost

The main drawback of In-House Fulfillment for eCommerce logistics is the large amount of upfront investment required to get the ball rolling. Hiring and training a team to manage your own warehousing,  storage, shipping, and customer service can be costly and time-consuming.

While in-house fulfillment allows you to maintain better control over your shipping and customer service, it comes with the extra work of having to manage those processes yourself.

Tracking orders, dealing with returns or refunds, and managing customer inquiries can be time-consuming tasks that add up quickly for small businesses. If you're already stretched thin in terms of both manpower and brain power, this method of order fulfillment could be a hard sell.

Overhead Costs

There are also overhead costs associated with running an in-house fulfillment center, such as rent, utilities, taxes, etc. This is especially the case if you end up developing multiple fulfillment centers.

Additionally, your business needs to have enough space to store its inventory while simultaneously having access to reliable product shipping methods.

Limited Scalability

Another difficulty with In-House fulfillment services is scalability. It can be hard for businesses to quickly scale up or down depending on customer demand without having to invest more money or hire additional staff.

Sudden spikes in orders could send shockwaves through your company before you have a chance to adjust your supply chain. Any resulting delays can lead to dissatisfied consumers, bad reviews, and lost sales.

How to Make a Final Decision

When deciding between the two major methods of product fulfillment that are prominent in the eCommerce space, you should consider both your current resources and budget.

What's Your Current Infrastructure?

If your company has the necessary capital and staffing to invest in setting up its own in-house fulfillment strategy, this may be a more cost-effective long-term solution. However, if you lack these resources, then outsourcing may be a better option since it requires less initial investment.

What's Your Expected Volume?

It is also important for small eCommerce businesses to think about their order volume and scalability needs. For businesses that experience frequent spikes in volume or are expecting rapid growth, outsourcing to a third-party provider can be more efficient thanks to their access to larger facilities and more staff.

However, if you have more consistent order volumes or don’t need to scale up quite so quickly, your company might benefit from an in-house solution that allows for greater control over your inventory management and customer service.

How Much Do You Value Customer Service?

Speaking of customer service, your decision will also be affected by how highly you value customer satisfaction and building up  brand trust. Fast delivery times and the ability to directly address complaints make an in-house order fulfillment process attractive if you list customer service as a number one priority.

What Are Your Business's Projected Needs for the Future?

Finally, don't forget to take your business's future needs into account. While in-house fulfillment can be costly upfront, it may offer greater cost savings over time if your business grows significantly or regularly experiences high order volumes.

On the other hand, while outsourced eCommerce fulfillment centers often require minimum order quantities that might not work well with your business’s current operations, you can still find fulfillment providers that can grow with you in the long run.

Closing Thoughts on E-Commerce Logistics

All in all, there is no one-size-fits-all solution for small business product fulfillment in the eCommerce industry. The decision should come down to what works best in terms of cost savings, customer service goals, and  expected growth.

Ultimately, your eCommerce fulfillment services decision should center around what makes sense for your company’s current and future needs. No matter if you decide to go with an in-house or outsourced solution, Bluetuskr, an e-commerce marketing agency wishes you the best of luck on your eCommerce journey!

Happy selling!