If you run an eCommerce, eRetail, or subscription service, odds are good that you have already heard of order fulfillment by now. The process, while hardly revolutionary, remains somewhat mysterious to the general public. While many companies can handle order fulfillment in-house, there are significant financial benefits to outsourcing fulfillment that become highly evident as your order volume grows proportionally higher.
What Is Outsourced Fulfillment?
Before we can discuss the financial benefits of outsourcing fulfillment, it would be useful to have a working definition. Fulfillment describes every step of the process from the moment the customer places the order to the moment it arrives in their possession. Every step along the way is known as the fulfillment process.
This means warehousing your inventory, allocating it into quickly-identifiable bins, tabulating “on hand” and “allocated” inventory, picking the items from bins, packaging the products appropriately, shipping them off to your customer, and providing any necessary tracking information. But fulfillment doesn’t necessarily stop at that moment. For instance, lost packages will need to have claims filed. Customers will want to return or exchange items, and these items will need to be catalogued and either returned to inventory or granted special dispensation. As I’m sure you can see, there’s a lot to think about.
Time and money are both at a premium for most small businesses, so many of these companies turn to outsourcing fulfillment as a way to make increases in these categories. Outsourcing fulfillment means delegating some or all of the fulfillment process to another company that specializes in it.
So, for example, a customer could order a product from your website, and the order would go to a fulfillment center, and they would be responsible for ensuring that the customers’ product reached them.
Financial Benefit #1: Space
Whether it’s an additional storage unit, your air-conditioned garage, or a rented out shared-warehouse space, you will need space to put your inventory.
Granted, this may not be a major concern if your product’s dimensions are small and your turnover is light. However, if you ship more than 100 units of a product that can fit in an 8-cube box every month, odds are good that you are either paying for space explicitly or cluttering your own working area. The last thing you’d want to do is guide potential investors or partners through a labyrinth of pallets containing your product.
By going with a fulfillment center, you will be paying a nominal amount for “bin space” or “pallet space”. You will only be charged for the space your product occupies, and this can be a big help in either decluttering your workspace or shaving your storage unit costs.
Financial Benefit #2: Software
Order and inventory management software can get pricey, as can software that enables you to customize and print labels. You might also need to pay more money to integrate your shopping cart with these disparate programs.
By going with a quality fulfillment center, this will be a non-issue. All your integrations and software will be handled by your fulfillment partner, and you can say farewell to the copious recurring charges.
Financial Benefit #3: Packaging
Boxes, tape, tape guns, inserts, bubble wrap, and crinkle paper are some of the packing materials that you are going to be responsible for if you are handling fulfillment in-house. Not only do the prices on these materials add up, but they need their own storage, and you will need space to pack your products. If inventory storage was an issue, you can bet that setting up a makeshift packaging station will be yet another.
Fulfillment companies not only have all the packing material you could possibly need, but they also know exactly where to purchase these products and the total order quantity necessary to secure the best price. These savings are commonly passed down to you.
Financial Benefit #4: Shipping
Thanks to Amazon, WalMart, and other fast-turnaround companies, customers expect to receive their products in a timely fashion. There are dozens of shipping options and carriers that you can choose to get your product from your company to your customer by the specified delivery time. Unfortunately, due to the nebulous zone-based pricing structure surrounding these options, it is somewhat unlikely that you will choose the most cost-effective option.
The best fulfillment companies have algorithms in place that will determine the best shipping option for you. In other words, if you are using a California-based fulfillment center and you have a customer in Phoenix who is expecting a package within 2 days, you don’t necessarily need to ship the product through express mail. Certain non-express (and therefore significantly more cost-effective) shipping methods may be available that your fulfillment company can identify.
Even better, because fulfillment companies operate at tremendous volume, they are in a position to pass cost savings down to you. This might not make a big difference if you are only shipping twenty packages per month, but if you are responsible for hundreds of shipments, these savings can add up very quickly.
Financial Benefit #5: Time
Saving the most important financial benefit for last, outsourcing fulfillment provides you with more of the scarcest resource: time. If you are working by yourself, from the time you receive the order to the time it has gone through your shopping cart platform, to the time it takes for you to reconcile your inventory totals, to the time it takes for you to set up the shipment, box the order, print out a shipping label, and drop off the package, you might have spent over an hour on a single order. Even if you operate on higher volume and have a systematic process in place, you are still going to be spending a considerable amount of time setting up and breaking down the processes and then taking the packages to their delivery location (or spending even more money by having carriers pick up in bulk).
Outsourcing fulfillment eliminates this obligation entirely along with each of the aforementioned hurdles. Whether you are working alone as a solo-entrepreneur or with a team in a full-fledged startup, you will have more time to focus on what you are truly good at – marketing, branding, item curation, user experience, etc. – and less time on rote fulfillment-oriented tasks. Consider outsourcing to a fulfillment company like ShipMonk today!
I hope you enjoyed this article about the financial benefits of outsourcing fulfillment services for your company.
Interested in more articles about business outsourcing?
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