In July 2019, a DHL survey of 900 retailers uncovered an intriguing statistic: Approximately 60% of retailers now use 3PLs for at least some of their eCommerce fulfillment, and another 6% expect to completely outsource fulfillment over the next few years.
But if you think this means insourced fulfillment operations are on their way out, think again. The survey also revealed that 48% of retailers currently insource and outsource fulfillment. And they don’t expect to deviate from that mix anytime soon.
Surprised? If so, you’re not alone, because many people are under the impression that working with 3PLs is an all-or-nothing proposition and that in-house and outsourced fulfillment operations tend to be competitive rather than complementary.
In reality, nothing could be further from the truth. There are numerous examples of highly successful in-house and outsourced fulfillment partnerships -- and many scenarios, such as the following, when it might make more sense to operate a hybrid fulfillment network rather than trying to go it alone.
Entering new ventures or introducing new product lines
When companies make a significant change, such as launching several new products, acquiring another company, or entering into long-term distribution partnerships, it can often lead to substantial growing pains, particularly at the fulfillment level.
Bringing in a 3PL to help handle the additional volumes or complexities can buy your in-house fulfillment operations the time they need to get up-to-speed, achieve heavy initial objectives, and get through the highly critical launch phase. Just as important, it can often be the start of a productive collaboration.
New geographic markets
Another key opportunity for 3PL/in-house teamwork arises when companies want to reduce parcel shipping times. Although it’s possible to expand your in-house network to achieve this end, it’s not always feasible – at least not if your company wants to ramp up quickly in a new market.
In these cases, adding a 3PL location or two to your network frequently offers a faster, easier alternative because many fulfillment 3PLs already operate state-of-the-art facilities in the largest consumer markets. Plus, most have dedicated start-up teams that can help bring in your inventory, interface with your systems and have you ready to ship within 30 to 60 days.
Scaling during seasonal surges
Whether you’re one of the many companies that experience a huge holiday rush or your sales have a different kind of cyclicality, it’s important to note that many 3PL contracts feature flexible working arrangements.
Such arrangements allow your company to make heavy use of 3PLs’ personnel, systems, and facilities when times are busy (so you won’t miss critical shipping deadlines) and to use significantly less of their help when order volumes are lower (so you won’t have to pay for more labor than you need). All of which can make them an ideal add-on to a more fixed and less agile in-house fulfillment network.
Significant expansion without significant capital investment
The need to add more space or throughput to your fulfillment network is a good problem to have, because it means your sales and order levels are growing. However, it can also place a huge financial burden on your company.
So, what happens if your company doesn’t have the significant capital investment required to fund an in-house fulfillment expansion? Simple. You can use a 3PL’s facilities to augment your fulfillment network as needed while also continuing to rely on your existing in-house locations.
This approach allows your company to avoid the high cost of investing in additional fulfillment facilities and systems – and to share day-to-day operational costs across the many clients who are also working with your 3PL at that facility. As a result, you can benefit from a broad allocation of expenses and far fewer up-front bills than you’d pay if you were establishing a new, standalone fulfillment center.
Choosing the right outsource fulfillment partner
By providing you with details about these scenarios, we don’t mean to imply that using a 3PL/in-house fulfillment model is child’s play. You’ll still need to find the best fulfillment company – one with ample experience in your industry and a good culture fit with your own organization. In addition, you’ll want to ensure that your 3PL routinely engages in best teamwork practices, such as:
- Spending ample time at your in-house operations to observe your pack-out and other SOPs – with the end goal of ensuring that your customers won’t be able to tell the difference between which of their orders are coming from “your” facilities vs. which are coming from the 3PL’s
- Reporting on all of your KPIs in a manner that’s consistent with how your in-house operations are reporting so that you can use the same standards for measuring and monitoring all of your facilities
- Routinely sharing best practices and ideas for ways your SOPs might be able to be tweaked to be more efficient and cost-effective without compromising quality
Last but not least, if this is your company’s first venture into working with outsourced fulfillment providers, you’ll want to do everything to ensure your in-house facilities’ buy-in. They’ll be just as responsible for working well with your 3PL as your 3PL will be for working well with them.
For more insights on effectively working with fulfillment 3PLs, contact Amware today. We’re always happy to provide advice about how to better leverage your outsourcing spend – and transform your fulfillment into even more of a competitive advantage.