Outsourced Fulfillment Services: The Ultimate Guide

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Are You Actually Ready to Outsource Fulfillment?

Handling fulfillment in-house can drain a lot of time and resources, and, let’s face it, most online sellers want to focus on growth. Before shopping for an order fulfillment services provider, you first need to figure out if you’re ready to let go of your fulfillment operation. While the potential benefits might tempt you to outsource fulfillment services early, there are numerous factors to consider before you pass the reins over to a third-party logistics (3PL) partner.

• Do you have solid historical data on which to base eCommerce order fulfillment strategies? If you’re still pretty new to online selling, you won’t know the answers to some foundational questions: What are your most popular items? How often do they get ordered? How much inventory do you need to carry to avoid stockouts? How fast do your customers expect fulfillment? If you can’t answer these questions confidently yet, you might be better off keeping fulfillment in-house while you learn more about your customers and what they want from you.

• Will your order volumes require services beyond 3PL minimums? Before you outsource to a fulfillment services provider, you need to make sure you have enough consistent volume to make it worthwhile. Most 3PLs have minimum charges to cover their overhead, so make sure you’re moving enough product that the cost of the 3PL won’t put you in the red.

• Do you like being in charge of every detail? Handing off fulfillment operations to a service provider means giving up responsibility for how your inventory gets handled and shipped. You are still in control, but are trusting outside experts to manage the day-to-day details. If you’re not good at letting others handle aspects of your business, then partnering with a logistics provider may not be the best option for you.

A 3PL partnership is a big deal, so don’t rush into it. Make sure you are actually ready to outsource fulfillment before taking the leap.

Have You Outgrown Your Current Infrastructure and Capabilities?

If your central order fulfillment warehouse is busting at the seams or if you don’t have the internal resources to deliver world-class fulfillment service, that is good sign you’re ready to outsource fulfillment. Here are some specific signs to look for:

• You aren’t meeting your performance goals. Even the best warehouses miss the occasional deadline. If it happens too much, that’s a sign your warehouse can’t handle the volume you’re throwing at it.
• You have more sales channels than you did when you opened your warehouse. Multichannel fulfillment is more complex than brick-and-mortar or eCommerce fulfillment alone. If you set up your warehouse for a single channel, adding additional sales channels will probably require a different warehouse design, more space and possibly additional facilities.
• You can’t get packages to customers within expected windows. Running a single fulfillment center can make it difficult to meet tight shipping windows for customers outside your facility’s region. If your customers are getting upset about late shipments, it may be time to partner with a national fulfillment services provider that can quickly and easily shift your inventory to other fulfillment centers in its network.
• You need to make capital investments. As online businesses grow, advanced warehouse management systems and automation technology become increasingly important to control labor costs. That means investing money.  If fulfillment is a core competency of your business, then investing your capital to improve your internal fulfillment operations makes sense.  If not, it may be wiser to partner with a fulfillment company that has the systems and operational infrastructure already in place.  

If these challenges seem all too familiar, then it’s likely you’ve outgrown your fulfillment warehouse.

Is Outsourcing Fulfillment Services an “All-or-Nothing” Strategy?

Actually, no. Outsourcing fulfillment doesn’t have to be an all-or-nothing deal. In fact, almost half of retailers operate some hybrid of outsourced and in-house fulfillment operations.

If you like your in-house fulfillment operation and don’t want to give it up, then don’t. Keep your current operation and outsource fulfillment services to meet other goals that would strain your existing capabilities, such as:

• Entering new markets. You can save a bundle on shipping simply by being closer to more of your customers. If you want to target new markets that seem inconveniently far away from your established distribution center (DC), you can use a 3PL to reach those new customers more efficiently and affordably.
• Launching new products. New product launches can place a high burden on your fulfillment center. With advanced planning, you may leverage the expertise and capabilities of an order fulfillment services provider to take the burden of the new launch off of your existing DC.
• Meeting seasonal demand. Does your on-time delivery rate plummet during peak demand periods? If so, it’s likely that your fulfillment center can’t quickly scale up and down based on demand spikes. Lean on a 3PL to relieve some pressure on your internal operation during these times. We’re not talking about moving product in and out of flex warehouses within a period of months. We’re talking about making a 3PL a permanent part of a more agile, flexible fulfillment network. When peak periods hit, 3PLs are simply more adept at flexing to manage these spikes.

You might be hesitant to outsource your fulfillment to a service provider fully, but there is more than one way to outsource fulfillment. A hybrid model works best for some.

Outsource Fulfillment Services to Get a Leg Up

If warehousing and fulfillment are not core competencies of your organization, then outsourcing fulfillment may be required to maintain your competitive edge. Product and price are no longer the competitive levers they once were. You now have to find other ways to set your brand apart. By outsourcing to a 3PL expert in B2C fulfillment, you leverage their knowledge of best practices to improve service quality and operational efficiency – just the things that will build customer loyalty with a commodity product. Your 3PL should not be just a vendor but rather a partner and a competitive asset.

Specific benefits of a good fulfillment services provider include:

• Scaling operations, so fulfillment operations keep pace with sales volumes
• Expanding your warehouse network across multiple regional DCs
• Investing in automation and technology to reduce labor costs as order volumes rise (helping you avoid these capital investments)
• Leveraging carrier relationships to lower parcel shipping rates
• Handling fulfillment for all of your sales channels to simplify operations

If you decide to outsource fulfillment services, look for a provider with whom you can forge a strategic partnership for fulfillment services versus a tactical “company-vendor” type relationship.

Does Size Matter?

There are thousands of 3PLs out there of varying sizes and capabilities. When it comes to selecting a fulfillment provider, you might wonder: Is bigger better? In some cases, yes, and in some cases, no.

You need a 3PL that can scale when needed and reach all of the customers you want to reach. For that, size and national scope are necessities. But for some of the major global 3PLs, a business like yours could get lost in the shuffle of a thousand other customers. When considering huge 3PLs compared to smaller regional 3PLs, the best answer usually lies somewhere in the middle for most eCommerce sellers.

You will want to carefully consider your own needs and growth projections to find the right 3PL for you. Find one that is compatible with your business in these areas:

• Footprint. To reach US consumers, a bigger 3PL gives you immediate access to its national footprint. Establishing a similar network with a smaller partner will probably require using multiple regional providers. That means each player in your network has to be vetted separately, and you will have more management responsibility trying to keep them all organized and working together.
• Services. Many small fulfillment companies still have a broad service portfolio, so the size of the business isn’t the only factor here. If you want to know the 3PL’s full capabilities, it’s best just to ask and make sure it has the right capabilities to support your priorities.
• Shipping times. Do you need two-day shipping, or will your customers wait a little longer? Make sure your new 3PL can meet customer service-level demands. If two-day delivery is a must, you’ll need to position inventory in multiple locations.
• Parcel shipping costs. If you want to take advantage of lower parcel rates, you will need to use a bigger 3PL to leverage the discounted rates they’ve locked in with the major carriers.
• Scalability. A large 3PL can more easily support future growth than a smaller one. If your service provider is too small, you may get a high degree of personal attention, but the partner’s size may actually hamper your ability to grow.

The size of your third-party fulfillment provider does matter. Generally speaking, it may be best to avoid providers that are too small or too big. You’ll want a partner that’s big enough to grow with you over the long haul, but small enough to give you the degree of personalized service your business needs.

Fulfillment for All Your Sales Channels

The division between retail and eCommerce isn’t as straightforward as it used to be when brick-and-mortar retailers sold goods from stores and eCommerce retailers sold goods online. Today, most retailers are doing both, so distribution operations must be equally adept at direct-to-consumer fulfillment and retail fulfillment.

Companies can no longer think of their customers as "eCommerce" and "retail" customers because customers don't view brands this way; they don't want to feel as if they are dealing with a different company based on how and where they decide to buy. Despite this, many companies continue to segregate fulfillment for different sales channels, adding huge redundant costs in the form of inventory, buildings, people, and systems.  

Consider this when making the outsourcing decision and work with a partner that can fulfill orders for all your sales channels. Choosing the wrong partner for multichannel fulfillment can damage your business and your brand, so it’s essential to carefully choose a fulfillment provider with experience in all your sales channels.

Vetting Your Potential Fulfillment Provider

Choosing the right outsourced fulfillment provider can help you grow your business and free up time to focus on profitable activities like marketing or sales. In contrast, choosing the wrong provider can damage your relationship with customers and hurt your business. That makes it really important to thoroughly vet every potential partner. Here are some tips to help you avoid snags during your 3PL search:

• Big and flashy fulfillment providers are not always the best providers. What matters most is the candidate provider’s capabilities and their interest in working with you. A super-sized 3PL may have all the glitz and glamour, but that doesn’t necessarily mean they have all of the services or the collaborative attitude that you want in a partner.
• Narrow down your list of candidates BEFORE you send out RFPs. If your RFP goes out to lots of providers, some of whom you don’t know or hardly know, this is called a “cattle call.” Many qualified 3PLs won’t give this sort of RFP a second look, so it’s best to narrow down your list in advance and send your RFP out to a short list of providers that align best with your needs.
• Sign two-way non-disclosure agreements (NDAs). During the exploratory period, neither of you wants to give up proprietary information for fear that it will get shared with a third party. Signing NDAs in advance will help you feel more secure in discussing your exact wants and needs.
• Check out the 3PL’s employee retention rate. Remember that the warehouse staff will have a direct impact on the customer experience. If the 3PL has a high turnover rate, it suggests that your orders could be handled by inexperienced newer associates that are not fully trained. It also suggests that this situation may never change if the associate churn is continuous.
• Do a site visit if safe to do so. If allowed under COVID protocols, you shouldn’t commit to working with a 3PL unless you’ve visited one of its fulfillment centers to see how the hot dogs get made. Any 3PL can put together an impressive proposal, but you need to get through the door and find out if they can back it up. Be sure to ask detailed questions of the operations personnel accompanying you on the tour. Understand the technologies and tools in use to get an idea of how your operation would run.

There’s no comprehensive list of the right questions to ask when vetting the best fulfillment company. But make sure you go into the initial conversation with a solid idea of what you need from a partner in the areas of expertise, culture, services, throughput, and technology.

More Questions to Ask During the Vetting Process

When vetting 3PLs, sometimes it’s not about the questions you ask but how you ask them. Here are some suggestions.

• Asking about space. Probe for answers that go beyond a “yes” or a “no.” Instead of asking if the provider has a spare 10,000 square feet to accommodate your inventory volumes, ask if they have enough room in their facility for new business and listen as they provide the details.
• Asking about the workforce. Instead of asking how many employees they have, ask what the associate retention rate is compared to the industry average. If your contact doesn’t know the answer, ask to speak to the person in charge of human resources. That person can provide useful insights on churn rates, as well as what the company is doing to attract, keep and develop hard-to-find talent.
• Asking about the distribution network. Instead of asking how large the provider’s fulfillment network is, ask how much additional capacity the fulfillment center network has and where that capacity is located?General questions about their national fulfillment network won’t get you the more specific details you want.
• Asking about how their experience aligns with your specific need. If you are an online retailer, don’t just ask if the provider has eCommerce experience. Most will say “yes” and cite examples. Ask instead for the specific breakdown of their revenue and customer base by B2C versus B2B. Many 3PLs that market themselves as being proficient in eCommerce pick and pack operations are simply not. An honest look at their financials will reveal that.
• Asking about technology. If you ask what kind of logistics technology the candidate has, you might get a simple stock answer about WMS or EDI. Instead, ask about the volumes those systems are currently managing and how much capacity the existing system and IT staff have to support your orders. Also, make sure the system can scale to accommodate your growth projections.

What’s most important is to ask questions that will provide you with real actionable information. If they hesitate to answer questions like these, there’s a good chance they don’t like their own answer.

Building a Strong Partnership with Your 3PL

The process of finding 3PLs is hard work. However, once that’s done, your work is not over. It takes time and effort to build a strong fulfillment outsourcing partnership. Your 3PL will take a lot of responsibility and stress off of your plate, but to achieve these goals, you’ll need to:

• Organize internally. Ensure that your internal stakeholders understand the goals of the partnership so you don’t provide conflicting information to the 3PL. For example, if the CFO is only concerned with cost savings and your supply chain director is concerned with on-time deliveries at any cost, these goals may be at odds. Get your ducks in a row and present a clear message and direction to your 3PL partner so it can map out the best method to help you.
• Communicate. A lot of businesses still see their 3PL as a commodity instead of a strategic partner. In these situations, the shipper may not offer up all of the available insights and data the 3PL needs to bring fulfillment services to the next level. Give your 3PL the data they ask for. Share long-term business plans. Tell them what you need and check in frequently to see what they need from you. Without open lines of communication, problems can quickly arise that will build tension in the business relationship.
• Play nice. If your company’s history of working with “outsiders” (even non-fulfillment ones) has been more about conflict than cooperation, consider doing a root-cause analysis on the reason for the disconnect. Your company and any 3PL you eventually work with will be glad you did.  Without a different approach, there’s no reason to think your next attempt at outsourcing won’t have a similarly bad result. If your team doesn’t play well with others, you may be better off building an in-house fulfillment operation instead.
• Set reasonable goals. While it’s certainly okay, and expected, to have more aggressive performance goals for your 3PL than you have for your own company, it’s also imperative to make sure these expectations are realistic and not just wishful thinking. Set reasonable KPIs and then, after you’ve achieved them, set the bar higher.

They don’t have marriage counselors for business relationships, so it’s extra important to pay attention to your partnership’s health. The more forthcoming and collaborative you can be with your 3PL, the better the odds are that your outsourced logistics relationship will live up to its full potential. 

Outsource Fulfillment with Amware Fulfillment

If in-house fulfillment operations or a sub-bar fulfillment partner are creating barriers to company growth, it may be time to outsource to a new 3PL. Finding the right partner will take work, but if you do your due diligence the right partner for you is definitely out there.

Amware Fulfillment is a national 3PL that specializes in scalable fulfillment solutions for companies that are beyond the start-up phase and are in need of professional advice and execution for high-volume fulfillment operations.  If you’re interested in outsourcing fulfillment, please reach out. Our leadership team has worked on both the client side and the provider side and we’re happy to offer any advice we can on this important decision. Contact us to start a conversation.