Although growth is good for your business, it does mean your operations have to change to meet the changing demands of the business.
An important decision that most businesses end up facing is whether they should handle their own process with a warehouse or outsource e-commerce fulfillment with a 3PL.
If you are trying to decide which option is best for your business, check out our key differences below. We have everything you need to know before making a decision. Let’s get started.
Warehouse vs outsource e-commerce fulfillment?
Some key differences between a warehouse and outsourcing your e-commerce fulfillment are the capital and capacity they take.
A warehouse not only has land and construction costs, but also the costs and increased capacity associated with hiring, onboarding, and maintaining a staff to operate the warehouse. Outsourcing your e-commerce fulfillment doesn’t require companies to increase their capacity, hire new employees to meet the demands of their growing business, or pay to have a warehouse built on newly purchased land. It is also important to note that your company would need to be able to offer the services that most 3PLs offer with their fulfillment services. These services include inventory storage, cross-docking, generating pick lists, assembling items, order fulfillment, managing returns, freight transportation, and customer service.
Why do businesses outsource e-commerce fulfillment?
No Capacity: To fulfill your own orders, your company would need to hire a full staff of supply chain, logistics, and fulfillment employees to manage the operation. With the small margins that come with e-commerce, many businesses find that it is more cost-effective to outsource their operations.
Sudden Growth: A spike in sales can push businesses over their capacity limit. And with the time commitments it takes to build your own warehouse and staff it, many businesses turn to a 3PL to outsource their e-commerce fulfillment needs.
Market Capacity: As your demand changes throughout the year because of market trends, weather, or seasonality, you don’t have to worry about the changes that they make to your shipping capacity.
Expertise: The 3PLs that businesses outsource their e-commerce fulfillment to are experts in the supply chain, logistics, and order fulfillment.
Funding: There are many fees associated with managing your own warehouse-like land, leasing, construction, staffing, and warehouse equipment. When businesses outsource their fulfillment, their resources can be used elsewhere to focus on things like marketing or product development.
Geographic Footprint: Since 3PLs have a larger footprint, they are able to store your inventory in multiple locations to be closer to your customers. This allows you to be able to get your product to your consumers quicker.
Why businesses manage their own warehouse
Operational Control: Running the process on your own allows you to customize your space, tailor your processes to your preferences, and control how your items are handled.
Maximize Efficiency: Since your business would be the only one using the warehouse, you are able to customize your space and maximize the efficiency of your supply chain.
Order Customization: Many businesses that use unique packaging or have order customization decide to manage their own warehouse. This is because most 3PLs charge extra to fill customized orders like made-to-order or any sort of subscription boxes.
Need to determine which is best for you? Here are 7 Questions to ask yourself:
- 1. What is Your SKU Volume?
A 3PL will charge you for each SKU they house, whereas your own warehouse will allow you to organize and operate how you see fit.
- 2. Are you handling freight shipments okay?
Many 3PLs have established systems to easily handle freight shipments. They are able to easily book LTL or Full Truckload shipments to fulfill your needs.
- 3. What Does Capacity Look Like During Busy Seasons?
Outsourcing e-commerce fulfillment needs help to smooth out the transitions from busy seasons to not-so-busy seasons. Oftentimes it is hard to predict demand due to external factors, so outsourcing can be a cheaper option for the times you may not be busy and also offer the needed capacity for the busy seasons.
- 4. Are You Able to Optimize Shipments Based On Your Customer’s Location?
With the scale that 3PLs offer, outsourcing your e-commerce fulfillments allows you to get your product to your customers faster. Rather than keeping all of your products in one place, a 3PL has the ability to spread out your inventory across the nation to be closer to where your customers reside - shortening the delivery time.
- 5. What is Your Current Plan For Growth?
A 3PL makes it easy to navigate through planned and unplanned spikes. If you plan on fulfilling your own orders, you will want to ensure you have a plan for needed space or more employees when you spike and unneeded space and staff when you die down.
If your business stays pretty consistent, it is also important to forecast when you will need more space since it will take time to get that new warehouse space ready for operations.
- 6. Where is Your Supply Chain Struggling?
Knowing where your supply chain can improve can help determine if a 3PL could easily turn things around for your business.
- 8. What Does Your Return Process Look Like?
A complex returns process can add additional costs to a 3PL. If your business has an extensive return process, you might want to look into a 3PL that specializes in your industry or keep your operations in house.
- 9. Are You Able to Manage Fulfillment Yourself?
It takes a lot of work to maintain the expectations your business has on delivery times. It will take a good chunk of your time and effort to ensure order fulfillment is going smoothly. If you don’t have the time to monitor and improve the process, it might be best to have a 3PL fulfill your orders. It also allows you to focus efforts on other aspects of your business.
Want to learn more? Read our latest blog comparing the differences between fulfillment centers and warehouses.