To insource or to outsource: that is the question. It can be hard to decide which is the best ecommerce fulfillment method is for your business. Insourcing fulfillment is what it sounds like: processing all orders internally, without outsourcing any part of the process. Outsourcing fulfillment is, you guessed it, trusting a third-party logistics (3PL) company or other fulfillment company to handle the entire process for you. When trying to decide which fulfillment option to go with, it’s important to audit your current operations and completely understand your order volume, operating procedures and challenges to determine what the best solution is for you. Read on to learn about the advantages and disadvantages to both insourcing and outsourcing order fulfillment.
Advantages to insourcing fulfillment
If you run a smaller business, insourcing might be the solution for you. Insourcing fulfillment means you hire team members who are responsible for picking, packing and shipping orders, as well as managing inventory and processing returns and exchanges. Insourcing can offer the following benefits:
- Cost-effective: For small businesses, insourcing order fulfillment can be the most cost-effective solution. It allows you to determine exactly how much money you want to spend on each step of the process and find savings in different vendors or processes.
- Product engagement: You can see and touch the product every day. This allows to further improvement packaging or other aspects of the product if you are introducing new products to the market.
- Ideal for startups: When your company is first getting started, it doesn’t make sense to go straight to a 3PL when you don’t have much volume. Insourcing your fulfillment allows you to get on your feet without spending too much money until you might be ready to scale your business.
Disadvantages to insourcing fulfillment
Although insourcing your order fulfillment process can be advantageous for some businesses, there are also some disadvantages to consider.
- Time intensive and costly: While insourcing can be cost-effective, you often have to play your cards just right. Insourcing can be more costly in the long-term, especially if you’re paying employees to do time-intensive tasks like picking, packing and shipping in-house, which can be very time intensive. Insourcing can also require separate warehouse space All these costs can add up very quickly.
- Lack of flexibility: Often when you handle fulfillment in house, there is a lack of flexibility if you want to diversify your products or scale your business. Without the proper space to do so, this can be tricky. You also don’t have the redundancy of multiple providers, which can help in a crisis.
- Greater risk of error: Insourcing can increase your risk of making inventory errors and processing orders incorrectly. Backordering is frustrating both for you and your customers.
- If logistics is not your core competency – it will be hard and costly.
- It takes your focus away from developing products and moving sales when you are worrying about logistics while you could be working on continuing to grow your business!
Advantages of outsourcing fulfillment
Outsourcing fulfillment offers a plethora of advantages, including:
- Cost-effective shipping and handling: Outsourcing can save your business a large amount of money over time. When you pay a 3PL or other fulfillment provider to handle your order fulfillment, they don’t charge you for each box or package, they offer fee structures that take everything you need into account. It can also be convenient because these providers are all-in-one, meaning you don’t have to worry about paying for separate storage, packaging and shipping costs every month. Additionally, most 3PLs get reduced shipping rates from preferred carriers (UPS, FedEx, DHL) and can pass those savings on to you!
- More efficient: Outsourcing can save business owners a ton of time that would otherwise be spent filling orders, managing returns and dealing with a myriad of shipping solutions. Outsourcing fulfillment allows you to focus on your business without having to worry about the logistics.
- Scalability: When you outsource your fulfillment, it allows you more flexibility when it comes to scaling your business. That way, you don’t have to worry about additional labor, increased warehouse space, equipment, racking, technology and more if you experience an increase in volume or want to introduce a new product line.
Disadvantages of outsourcing fulfillment
Outsourcing fulfillment isn’t for everyone, read on to see what disadvantages exist with this method.
- Investment: Although outsourcing your fulfillment is likely to be more cost-effective in the long run, the investment can seem like a lot of money upfront.
- Custom packaging: Depending on your business and branding, you may offer highly customized packaging or kitting. Sometimes, 3PLs or fulfillment centers don’t offer high levels of customization, although most do offer branded packaging and some level of kitting.
- Less control: When you outsource this process, you will have less control and often less flexibility.
“To make this decision, it’s important to completely understand your order volume, operating procedures and challenges, as well as the pros and cons of each fulfillment option. Insourcing fulfillment can be a good option for smaller businesses that are just getting started, while outsourcing can greatly increase your efficiency and the ability to scale your operations.”
Ryan Martin, President of Distribution Services, ITS Logistics
Learn more about outsourcing fulfillment with ITS Logistics
Deciding whether to insource or outsource your fulfillment can be a difficult decision. There are pros and cons to each method and the right call for you really depends on your specific business. At ITS Logistics, we are well-versed in outsourcing fulfillment for all kinds of companies: from ecommerce businesses to retail suppliers and everything in between. If you’re struggling to determine the right solution for your business, give us a call today. We’ll be happy to talk through your situation to determine if we can help you, and if we can’t, we can recommend other options for you.