Beginner's Guide to Third-Party Warehousing and Fulfillment
Everything You Ever Wanted to Know About Third-Party Warehousing and Fulfillment
1. You sell a product from a dropshipper who will fulfill orders for you.
Whether you’re thinking about starting an ecommerce business, or you’ve been selling products for a while, you’ve probably thought about warehousing, shipping, and fulfillment.
Sure, making sales is the exciting part. But what happens after the order is placed? Somehow your product needs to end up in your customers’ hands.
There are three ways this could happen.
2. You fulfill your own orders, either independently or with a team.
3 .You work with a logistics company who will handle your warehousing and fulfillment.
There are clear benefits to packing and shipping your own orders: it’s flexible and cheap. For these reasons, businesses that are just starting out, and or businesses that have unique packaging needs, often choose to handle their own logistics.
And regardless of age or industry, any business that is struggling with cash flow will be better off handling things in-house. Sometimes you have more time to spend than money.
But if your business is growing quickly and you have the cash on hand to outsource, you may be interested in exploring third-party warehousing and fulfillment.
There are many logistics companies that will store your product, and take care of packing and shipping your orders.
Working with logistics companies can be intimidating if you’ve never done it before. We chatted with Paul Van Remortel from Ottawa Logistics to find out everything you’ve been too afraid to ask. Here’s what we learned.
The Benefits of Using Third-Party Logistics
The obvious benefit to using a logistics company is that you don’t have to do it yourself. But the benefit really goes deeper than that. Outsourcing warehousing and fulfillment can have a meaningful impact on your business's growth.
1. Avoid Long-Term Leases
Many logistic companies offer flexible pricing. This means that as you grow—
or go through slow periods—they will be able to adapt to your needs and adjust cost accordingly. Renting your own warehouse space usually requires more of a commitment.
“First, companies don’t have to lock into long-term fixed warehouse leases. Instead, our customers only pay month-to-month for the amount of space they occupy, which saves them money, especially when inventory levels fall during non-peak seasons.”
2. No Staff Required
When you fulfill and ship your own orders, you’ll likely need to hire staff as you scale. Managing staff takes time. If your business is still in flux, you may be wary of promising someone a job. Instead, you can outsource the work to a logistics company and let them be responsible for finding and hiring good people.
“Second, companies don’t have to manage warehouse staff and personnel. We manage all of the labor needed for receiving, inventory management, and order processing and shipping.”
3. Be More Effective
Chances are, you didn’t start a business because you’re really good at packing boxes. There are other skills you bring to the table that are harder to outsource. When you let someone else take care of logistical details, you can focus on the things that will have a greater impact on your bottom line.
“Third, by using a professional logistics provider, companies have more time to devote to other important business functions. For ecommerce merchants, this valuable time can be spent on product sourcing, sales, or online marketing activities instead of back-end logistics.”
4. Save Money
Although doing it yourself is mostly free, in the long run, hiring a logistics company can save you money as you grow. If they’re operating at a larger scale than you, you can benefit from their efficiencies and leverage their buying power on packaging and shipping costs.
“Fourth, outsourcing will likely save companies money, either through lower warehousing costs, decreased employee costs and taxes, or lower shipping costs received because logistics companies leverage their combined shipping volume to obtain lower overall rates.”
When Is the Right Time to Switch?
Most companies start out fulfilling their own orders, and some eventually add a third-party solution as they scale. The problem is, it’s difficult to know when to make the switch. Especially if you’re bootstrapping your business.
It turns out, businesses of many sizes can benefit from warehousing and fulfillment services. There are a variety of companies to choose from, some of which specialize in smaller or larger-scale operations.
However, there are clear signs that it’s time to start outsourcing.
1. Cyclical or Uneven Sales
If the number of orders your process fluctuates throughout the year, it probably doesn’t make sense for you to commit to running and staffing your own warehouse. A logistics company will be able to adapt to your needs.
2. You’re Too Busy
If you’re so busy dealing with order fulfillment that you don’t have time to focus on growth, it might be time to start outsourcing it. As a business owner, you need to be able to devote time to sales and marketing if you want to be around for the long-term.
3. Lack of Infrastructure
If you’re growing quickly, you may outgrow your current infrastructure before you can adapt. This can add a lot of stress and hamper growth. When you outsource to a business that specializes in logistics, they’ll be better equipped to adapt to the changes quickly.
“In particular, ecommerce companies may find themselves at the tipping point if they experience cyclical sales (uneven sales levels throughout the year), if marketing and sales are being hampered by a lack of time to appropriately grow the business, or if they can’t internally support their growth with the current infrastructure.”
Third-party warehousing and fulfillment isn’t right for everyone, but if you find yourself in one these situations, it might be time to start calling around and chatting with logistics companies.
Who Should Not Work With a Logistics Company
The fact is, no single solution is perfect for every business. There are times when using a logistics company doesn’t make sense, no matter what size your business is.
1. Businesses With Limited Cash Flow
Whether you’re a startup or not, if you don’t have the funds available, you may need to do it yourself. Sometimes your biggest resource is time and you have to work with what you have.
“Typically, there are only a few cases that might not make sense to use a third party fulfillment service. First, if a company is a true start-up without significant cash flow to pay for a third party service, using an outsourced provider will likely not be the best decision. In these cases, oftentimes the business owner must literally bootstrap the growth of the business, leveraging his or her time instead of paying employees or contractors.”
2. Highly Specialized Businesses
You may be surprised at the amount of customization many logistics companies offer—I certainly was. Still, not everyone will be able to find a company that can do what they want. If your business has highly specialized needs, it might make more sense to handle your fulfillment internally.
“Second, there are companies that have uniquely specialized needs. An example might be a company that manufactures customized orders using specialized equipment. But for most other companies, third party fulfillment services can be a huge time saver that also offers cost savings.”
If you fall into one of the above categories, think carefully and do your research before considering third-party logistics.
What Does the Fulfillment Process Look Like?
Once your business is set up with your logistics company, your fulfillment process starts to look pretty simple. In fact, all you really need to do is make sure they have enough inventory. In many cases, your orders can be sent directly to your logistics company and they’ll take care of packing and shipping the order.
If you run a Shopify store, there are several apps available to streamline your integration a third-party logistics. As you can imagine, this frees up a lot of time to work on other parts of your business.
“For most ecommerce business owners, we change the order fulfillment process by giving them back some of their most precious commodity—time! When order fulfillment is managed in-house, most business owners spend a significant amount of time managing staff, providing customer support, and generally managing the entire process. When order fulfillment is outsourced with a competent provider, such as Ottawa Logistics, business owners simply don’t have to spend unnecessary time worrying about shipping orders.”
What About Refunds?
Many logistics companies can also solve order fulfillment problems on your behalf. This includes processing and issuing refunds.
“Many fulfillment companies can process returns as well—and Ottawa Logistics does offer this service. Returned product can be shipped to our facility, where we inspect it for damage. If the product is damaged, we simply inform the customer and will handle it according to their specifications. If the product is in good/sellable condition, we will return it to inventory to be used on future orders.”
Can You Still Use Custom Packaging?
A great unboxing experience can be a solid point of differentiation. Customers feel more satisfied with their purchase, and are more likely to buy again or recommend you to their friends.
Unfortunately, finding a great logistics company that will work with you on this can be challenging.
“Many logistics companies, especially the larger companies, force clients to use their rigid standards when it comes to packaging and other custom needs.”
But many companies do offer this service. Even better, since warehousing and fulfillment companies have so much experience in this area, they may be able to make recommendations and help you you save money on packaging.
“However, at Ottawa Logistics, we allow companies to utilize their own custom branded packaging on all orders shipped from our warehouse. We routinely help customers by recommending creative custom packaging as well as sourcing packaging at a fraction of the cost.”
If custom packaging is important to you, make sure you ask potential companies about their options, and willingness to use custom packaging.
How to Choose a Logistics Company
If you want to hire a logistics company, the first thing you’ll probably do is head to Google. If you’re lucky, maybe you have a friend or colleague who can make a few recommendations. Now, how do you choose the right one?
1. Similar Industry Specialization
More than anything, it comes down to finding the right fit. Just like every ecommerce system functions a little bit differently, so does every fulfillment company. Many of them specialize in certain industries or types of business.
“One of the most important things that business owners should consider when choosing a logistics company is specialization. There are a wealth of fulfillment companies out there—and each company has a unique focus.”
2. Similar Existing Clients
Try to find a logistics company that already works with businesses similar to yours. This is particularly true for ecommerce merchants who have their own sets of needs.
“For ecommerce merchants, choosing a company that has experience fulfilling ecommerce orders is vitally important. First, experience shipping these types of orders means that they will be able to do it accurately and timely. Second, as a strategic partner, they will better be able to assist you with any business challenges and might be able to offer advice that helps propel the business forward because they understand the nuances of ecommerce in general.”
Your best bet? Hop on the phone or send an email. Chat with someone one-on-one about your business. Don’t be afraid to ask a lot of questions, including asking for references. Most importantly, be upfront and clear about your needs so there are no surprises down the road.
Most Common Pitfall
According to Paul, the most common pitfall is choosing a company based solely on price. Although price is important, finding a company that is a good fit is just as important. Unhappy customers could end up costing more in the long-run.
“The biggest pitfall we see companies make is that many tend to judge a fulfillment company largely based upon price. Without a doubt, it is important to get a competitive price proposal from a logistics company. However, many companies choose a provider based solely upon price, only to find out that quality is absent from the equation. This can be very painful, when shipments are delivered without the proper items or are not delivered on time.”
Number One Piece of Advice
Do your due diligence when searching for a logistics company. Take the time to check them out, talk with them, make sure they’re competent, and be certain it’s a good fit for both of you. You really don’t want to have to switch companies three months later.
“Our advice for first time users of logistics services is to complete a detailed due diligence on each provider considered. A company can never be too careful to check out the claims of the logistics company and speak with customer and trade references in order to make sure that it is a legitimate operation. It’s very similar to trying to choose the best employee—taking extra time up front to make sure the best decision is made will pay dividends in the long run and avoid any potential pitfalls by having to switch providers or bring the entire process back in-house.”
This is especially true if you’re not sure about whether you’re ready to make the switch to third-party warehousing and fulfillment. As a potential customer, you can and should ask a lot of questions before choosing a company to work with. If it doesn’t feel like a good fit, don’t be afraid to say no.
Original link: Beginner's Guide to Third-Party Warehousing and Fulfillment