When a customer makes a purchase from your eCommerce business, he is not thinking about all of the steps needed to turn his order from pixels on a screen into a box on his doorstep. As every eCommerce retailer knows (or should know), the action that takes place in the background — the order fulfillment — is what will make or break your business. You need to ensure that each of your products makes a seamless transition from production to warehouse storage to packaging and shipping. You have a lot of balls to keep in the air to run your business; outsourcing your fulfillment ensures that this vital part of your operations will run smoothly. That is just one of the many benefits of a fulfillment center.
If you are still picking and packing your orders in-house, you could be setting your business up for failure. As your order volume grows, the benefits of a fulfillment center to boost that growth also increase. If you wait too long, you could find yourself overwhelmed and falling behind. Late shipments and incorrect orders could torpedo your growth and chew through your profit margin, just when your business is about to fulfill its potential.
Running a growing business is always a balancing act. You’re looking for the sweet spot where your growth justifies the next step in expanded infrastructure. You don’t have to wait to outsource your order fulfillment; you can start small and grow with your fulfillment warehouse.
Growth of the Fulfillment Center
Less than a decade ago, most people hadn’t even heard of an order fulfillment center, but with the growth of Amazon.com, the concept of strategically placed fulfillment centers has become part of the lingo of eCommerce startups, even for those starting small or mid-sized online companies.
In 2017, Amazon Prime alone was responsible for shipping a mind-boggling 5 billion items to customers around the globe. Amazon is responsible for more than 40 percent of all online sales and about 60 percent of its customers use Prime. When you add in all of the other eCommerce sales from sites large and small, the total number of eCommerce orders shipped is staggering. As the demand for order fulfillment grows, the number of fulfillment centers has increased and 3PL providers have become more sophisticated and specialized. Fulfillment warehouses have the expertise to handle even the most fragile or bulky items. Many 3PL providers have programs to work with even the smallest eCommerce startups.
According to 3PL market researcher Armstrong & Associates, Inc., an estimated 85 percent of domestic Fortune 500 companies use 3PL services for logistics and supply chain functions. This figure has increased by more than 10 percent in just five years. The 3PL business has gone from a narrow resource used by a few large corporations to an essential component of the retail economy. Just among Fortune 500 companies alone, the value of the 3PL industry has increased by nearly 70 percent since 2005, signifying major growth within the logistics industry. Major retailers are doubling down on their investment in these services, as companies such as Wal-Mart and General Motors each use 50 or more 3PLs.
Businesses that Will Benefit from the Use of a Fulfillment Center
Amazon uses its own network of fulfillment warehouses to ship Amazon.com orders, but most eCommerce sellers aren’t big enough to support their own fulfillment operations. If you are a small or mid-sized company, and especially if you have a multi-channel sales approach, outsourcing your warehousing, picking, packaging, and shipping to a standalone third-party logistics company just makes sense.
It can be hard to figure out the right time to make the leap from packing boxes in your own facility to warehousing your inventory at a fulfillment warehouse and using 3PL services to ship your orders. Here are some decision points you should consider.
How much time do you spend on fulfillment vs. marketing and business development?
Your time (and your staff’s time) is valuable. Customer service, marketing, and planning will grow your business. It doesn’t make business sense for you to spend your time picking and packing orders. If your sales have grown to the point where fulfillment, returns, and customers service are taking time from your business development, it’s time to outsource.
Can you handle your next big order?
A big wholesale order or a rush of business from a new sales channel is a shot in the arm for an eCommerce startup. However, if you’re unprepared to handle the volume, it could bring your operations crashing down. One of the major benefits of a fulfillment center is that it gives you the ability to expand quickly without the time and hassle of bringing on more staff or leasing additional space.
Do you need help with customer service?
Add returns and customer service to the benefits of using a fulfillment center. You no longer have to worry about your time being hijacked by customer service problems; the fulfillment center can handle that. Your fulfillment warehouse can also take returns and quickly put your merchandise back in stock so it’s ready to sell to the next customer. Your customers will appreciate the ease of the service, and your business will benefit from the extra time you’re able to spend on critical tasks.
Is your business ready for its projected growth?
Where do you want your business to be in a year? In five years? Outsourcing your order fulfillment operations can help you bring your expansion plans to fruition. Not only will your time be freed up, but your stock in the fulfillment warehouse is in position and ready for the next phase of your successful eCommerce startup.
Do you want to make the leap from brick and mortar to eCommerce?
Order fulfillment services can simplify the process for brick-and-mortar companies looking to jump 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. With a fulfillment center, you simply send a few pallets of your product to the warehouse, 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, since the online sales and shipping portions of the business are delegated to a specialist. This makes adding an online component to your small business a very manageable transition.
Financial Benefits of a Fulfillment Center
Your customers probably won’t notice whether you use a 3PL provider or not, but you’ll see the difference in the benefit to your bottom line. Using a fulfillment center provides even the smallest online retailer the opportunity to reduce inventory and shipping-related costs, while still offering customers the most efficient shipping practices available.
You might think about outsourcing your fulfillment as an added cost, but it’s more accurate to think of it as saving your business money.
- You will have to pay for shelf space at the warehouse, but the cost per square foot in a large fulfillment center is probably less than what you would pay to rent a smaller space by yourself.
- You will have to pay for the services provided by fulfillment center employees — but only when they’re picking and packing your orders. You get helpers who work on-demand, whenever you need them, and then disappear when you don’t.
- You will have to pay for shipping, but you might pay less. Fulfillment centers are big volume customers for the major shipping companies. You get to pool your shipping power with other small businesses in order to receive the best shipping routes and rates.
Your Fulfillment Center Is Your Silent Partner
Most consumers choose an online retailer for the quality of the products offered, not for the warehousing practices. Your customers aren’t aware of your packaging and shipping efforts unless there is a problem. But those problems can cost you goodwill and repeat business.
As an individual small business, you can only do so much to improve the value of your shipping services. You can try to streamline your in-house logistics, but there’s a limit to the amount you can save when you go it alone. Plus, penny-pinching in the order fulfillment department could decrease quality and increase customer complaints.
Using a third-party logistics provider gives your online business a number of benefits, no matter the size of your operation. Your 3PL company gives you bargaining power that you, as a smaller company, simply would not have on your own. And when you delegate warehousing and shipping to a specialist, then you can go back to focusing on the more important parts of your business.
Online businesses of all sizes, and across all sectors, use fulfillment centers to save money and streamline their logistics processes. What are you waiting for?
If you have an online business or are considering adding an eCommerce component to your current business, what do you need to know before you partner with a fulfillment center? If you’ve already made that leap, what tips do you have for others?