The decision as to whether an Ecommerce brand should outsource their order fulfilment to a fulfilment centre or keep it in-house is a complex and challenging decision. We have put together this blog to try and flesh out some of the key concepts we think you need to consider as you tackle this decision.
The Economic Imperative of Specialisation
Specialisation is a fundamental concept in economics and is a crucial concept for every e-com brand owner to be familiar with. As a concept, it essentially boils down to doing what you do best and outsourcing the rest. There are plenty of great articles kicking around the web if you want to learn more about specialisation (Investopedia has a good article on this).
There are 4 areas that we commonly see outsourced as the business grows so that the owner(s) can spend more time doing what they do best and devote themselves to working on the business rather than for it:
- Marketing (Paid, organic, influencer etc)
- Customer Service (VA’s from upwork seem very common)
- Finance (Getting yourself a quality accountant +/- book keeper is an absolute must)
- Fulfilment Centre (Outsourcing your order fulfilment, storage and receivals)
What is a Fulfillment Centre?
Fulfilment Centres, or 3PL’s are basically warehouses, but with many additional services. They not only provide storage for e-commerce Brands, but they also carry out the entire order fulfilment process as well. Most fulfilment centres will provide services for everything from picking and packing to high level inventory management, to working with the best courier companies all with the singular purpose of shipping your orders as efficiently and cheaply as possible. For a more detailed breakdown of the services a 3PL offers, take a look at our services page.
In-House Fulfilment Solutions
There are some amazing ecommerce brands like LSKD out there that have successfully scaled using their own in-house fulfilment solutions. Likewise there are some that have leaned heavily on 3PL’s at a national and international level (e.g. Gym Shark). However, we do find that the brands that come on board with us tend to experience significant growth. Espescially when the owners are able to take advantage of their additional time to focus on doing tasks that grow the business rather than operating it. One of our clients, WPN, is a great example of this (WPN Case Study).
In-House Vs Fulfilment Centre
There are many differences between in-house fulfilment and using a 3PL or fulfilment centre. The table below outlines some of the most important of these differences:
|Fulfilment Centre or 3PL
|No working capital investment required.
|Significant working capital tied up in bonds, pallet racking, forklifts, WMS software, security systems etc.
|As your brand grows, 3PL’s will provide more storage space and order fulfilment capabilities, the opposite is also true, if your brand requires less storage 3PL’s will scale back the space available for your brand.
|Storage space is generally limited to the size of the warehouse. When you reach the limits of the current warehouse, shifting can be incredibly costly and challenging to manage as you scale.
|Staff are hired and managed by the fulfillment centre.
|Its up to you to manage all of the HR, OH&S, rostering and training requirements.
|A 3PL will have access to resources that the average eCommerce owner won’t. Things like packaging, relationships with courier companies, quality software are just some examples.
|Access to large amounts of storage space.
|Most 3PL’s that are confident in ther services offer accuracy and speed gaurantees of some sort on the work they do. So if something goes wrong, you get re-imbursed.
|All risk lies with the ecommerce business.
Which one do I need?
If you are a growing e-commerce business, then you’re probably reading this to help decide which is the best option for you. Generally, the most common reasons an online retailer might look to outsource their order fulfilment is time and storage constraints. Running a growing business is hard work and takes up a lot of your time. This is where fulfilment centres or warehousing solutions can be a great help to you and your business.
Generally speaking, smaller (<150 order/month) e-commerce brands might not have a high enough order volume to warrant the cost of outsourcing the fulfilment process. In this situation, having access to larger storage space for inventory may be all your company needs. On the other hand, if you’re having a hard time keeping up with orders or you just need more time in the day, your best option is likely to find a 3PL whose services meet your business’ requirements.
If all you need is more space, then leasing or purchasing a warehouse to store your inventory is likely the option for you. However, if you’re looking to seriously scale your business, then your time is going to be your most valuable commodity. This is when the value proposition for using a 3PL really starts to stack up. Outsourcing the entire fulfilment process frees you up from working for the business and allows you to spend significantly more time to working on the business. For more detailed information on the costs of using a 3PL, take a look at our pricing page.