When a customer makes an online purchase, he or she is not thinking about all of the steps that will take place between when he clicks the “pay now” button and when his item arrives on his doorstep. But for an online retailer, these background steps can make or break your business. You need to ensure that the item makes a seamless transition from production to warehouse storage to packaging and shipping. And these responsibilities are in addition to everything else that you do to help your business run smoothly, from advertising to HR to keeping your accounts balanced. Running an online business is hard work, plain and simple.
And yet, the online retail economy is thriving. Companies are facing their storage and shipping challenges head-on and taking steps to save themselves both money and time–resources better spent focusing on improving their products and increasing their bottom lines. They are doing this by leaving their shipping and warehousing needs to experts in third-party logistics (3PL).
Growth of the Fulfillment Center
As recently as a few years ago, no one in the general public even knew what a “fulfillment center” was. But with the growth and proliferation of Amazon.com as a household name, the concept of “fulfillment centers” placed throughout the country became part of the conversation, even for those starting small or mid-sized online companies.
Today, fulfillment centers are essential for online businesses of all sizes. Large companies such as Amazon.com use their own fulfillment centers, but for smaller and mid-sized companies, outsourcing their warehousing, picking, packaging, and shipping to standalone third-party logistics companies just makes sense. The same concept used for internal fulfillment centers applies to external 3PL as well: specialization just makes good financial sense.
Using a third-party logistics provider gives online businesses of all sizes a number of benefits. Specifically, using a fulfillment center allows you to pool your “power” with other small businesses in order to receive the best shipping routes and rates. For example, a good 3PL company can negotiate agreements with larger companies to use their empty space to save money for both companies. Essentially, a 3PL gives you bargaining power that you as a smaller company simply would not otherwise have on your own. And when you can delegate warehousing and shipping to a specialist, then you can go back to focusing on the more important parts of your business.
Worldwide Utilization of 3PL’s
Worldwide leaders in commerce have utilized the power of fulfillment centers and other 3PL services to make their businesses more efficient. According to 3PL market researcher Armstrong & Associates, Inc., an estimated 85% of domestic Fortune 500 companies use 3PL services for logistics and supply chain functions. This figure has increased by more than 10% in just five years. And 3PL business has been booming over the last decade, going from a narrow resource used by a limited number of large companies to an essential component of our retail economy. Just among Fortune 500 companies alone, the value of the 3PL industry has increased nearly 70% since 2005, signifying major growth within the logistics industry. And major retailers are doubling down on their investment in these services, as companies such as Wal-Mart and General Motors are each using 50 or more 3PLs.
For the average e-commerce consumer, an online retailer’s packaging and shipping efforts mostly go unnoticed unless they are lacking. In other words, logistics usually only attracts attention when there is a problem. This means that resources spent trying to streamline logistics in-house are arguably wasted, given that they have a small impact on the business’s bottom line. As an individual small business, you can only do so much to improve the value of your shipping services. And most consumers choose an online retailer for the quality of the products offered, not for their warehousing practices.
Therefore, for most online retailers, 3PL services and fulfillment center usage will go unnoticed by the consumer, but will save the retailer both time and money. Using a fulfillment center allows even the smallest online retailer the opportunity to reduce inventory and shipping-related costs while still providing their customers with the most efficient shipping practices available, resulting in a win-win for both parties. And fulfillment centers also benefit the retailer when it comes to handling returns, which are a necessary component of doing business. Outsourcing these essential functions is simply the best option available for online businesses, and gives them the opportunity to focus on more core-related issues.
Finally, fulfillment services can simplify the process for brick-and-mortar companies looking to make the leap into the world of ecommerce. When a customer places an order from your website, you can, of course, pick, pack, and ship the order yourself. But with a fulfillment center, you simply send a few pallets of your product to them and they handle the rest. You likely won’t even have any involvement in the day-to-day online ordering and shipping processes (unless you want to, of course). What this means for small businesses who are new to ecommerce is that their day-to-day functions actually change very little, given that the online sales and shipping portions of the business have been delegated to a specialist. This makes adding an online component to a small business a very manageable transition.
Online businesses of all sizes, and across all sectors, are using fulfillment centers to save money and streamline their logistics processes. If you have an online business or are considering adding an e-commerce component to your current business, consider the value that using a fulfillment center can add to your company’s bottom line. Save time, money, and headaches by using a fulfillment center for all of your warehousing and shipping needs.