Order fulfillment outsourcing
The Benefits of
Outsourcing eCommerce Order Fulfillment
The philosophy of outsourcing starts with a very basic principle: Focus on Core Competencies, Outsource the Rest. This principle is applied almost every day in every business. For example, businesses typically outsource janitorial work, couriers, recycling. As expertise becomes more relevant and less generally available, we’re outsourcing more functions like I.T., Tax preparations, Human Resources, and Customer Service (admittedly many outsourced customer service models seem to forget the concept of “service” but there are good models as well). For most online brands, core competency revolves around designing, sourcing, marketing and selling products. The technology requirement is generally outsourced to service providers such as Shopify. As a start-up, ‘in-sourcing’ order fulfillment, warehousing and shipping functions for reasons of cost and need is the likely first step. But the question remains, when is it time to consider fulfillment outsourcing and what benefits might be gained?
The simple answer is when order fulfillment, warehousing, shipping are distracting your organization from executing the core competencies necessary for ongoing success. In fact, diluting the very skills that got you started in the first place. After all, which sales associate would rather be cleaning a bathroom while a new customer was phoning in trying to place an order?
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1. Reallocate Valuable Resources
Recently we had a technology-based customer whose keys to success were in developing, marketing, and educating its customers on a variety of technology products. After many years of growing, management found themselves spending an inordinate amount of time managing direct labor related to warehousing and order fulfillment, (i.e. labor that did not directly contribute to their success and growth) and constantly resizing (both increasing and decreasing) warehouses to accommodate new products that also became smaller over time. Scalability was a major challenge. While resisting the idea initially, frustration grew to the point that they decided to outsource one warehouse in one region. After the transition, despite some clear bottom-line cost savings, the conclusion was the biggest benefit was freeing up management time to invest in the core requirements of the company.
The cost /benefit of freeing management time and skilled labor time to focus on core requirements is hard to measure in dollars and cents; but it is quickly experienced by the personnel that is forced to respond to assembling a box, picking a product, labeling a shipment and ensuring it gets on a truck.
2. Reduce Fixed Costs and Transition to a Variable Cost Model
First, eliminating a warehouse or storage area that will never be the correct size (i.e. the running joke about leasing a warehouse: the last day that the warehouse was the correct size was the day the 5-year lease was signed), is a significant fixed cost elimination. By moving to a variable cost model with an outsourced provider your storage costs go up and down with your business cycle. Thus you don’t have to carry the fixed costs associated with the expected (and hoped for spikes). In the online selling world everyone is very aware of the impact ‘Black Friday’ now has on sales and order fulfillment volumes. Outsourcing typically provides scalability to a business; whether the requirement is to scale up or down.
3. Reduce Operating Costs
Understandably, when doing an operating cost analysis, it is easy to get caught up in comparing apples to oranges and deciding lemons taste better. Often fully burdened costs are understated, the ancillary costs of items such as payroll support, multiple vendor management and insurance costs are understated or ignored. However, in areas such as shipping costs, most online sellers can benefit from their outsourced suppliers’ volume discount rates. The same can apply for ancillary supplies like mailers and boxes. Labor costs per package may decrease due to cost efficiency, variable vs. fixed labor and scalability. Effective and efficient returns processing may reduce costly and interruptive customer phone calls as exchanges and credits can be applied more quickly. Finally, the ability to plug into a broader network of shippers for international orders may reduce the documentation and management of exception orders.
When to Outsource eCommerce Order Fulfillment
Given the above considerations, if you are shipping in the range of 20-50 orders per week, you should start considering your outsourcing options.
Benefits of Outsourcing Order Fulfillment:
1. Increase time spent on core competencies and requirements
2. Reduces fixed costs and replaces them with a Variable Cost model
3. Adds Scalability and Capacity to gain cost-efficiency
4. Reduces ‘End to End’ costs from Order Receipt to Final Product Delivery
