Outsourced Fulfilment: Meaning, Uses and Best Practices

As an online business owner, you will inevitably come across the need to improve and optimise your order fulfilment process so that your customers remain satisfied and loyal to your business. 

It is important to keep in mind that the efficiency and performance of your online business relies almost completely on the success of your order fulfilment process.

Having said that, you have the option of carrying out the entire process in-house or outsource fulfilment operations to a 3PL partner that can help you not only carry out the process effectively but also optimise it as required.

For now, let us start with the definition of outsourced fulfilment.

What is Outsourced Fulfilment?

For many eCommerce businesses, fulfilment is the business area that demands the most amount of investment, and also the one that creates the most impact. 

With that in mind, online stores may want to outsource their fulfilment process and its aspects to a third-party logistics (3PL) provider who has expertise in the area. This is known as outsourced fulfilment. 

As an online business, you may want to outsource either some aspects of your order fulfilment process or the entire thing to a service provider. 

It would be incorrect to assume that outsourcing fulfilment services is only for businesses that lack the expertise or bandwidth to carry out their fulfilment process. It can also be when a business is scaling up or does not want to hire extra personnel to manage its fulfilment process.

4 Benefits of Outsourcing Order Fulfilment

With that definition in mind, let us now look at some of the biggest benefits you can stand to gain as an online store by outsourcing your order fulfilment.

1. Enable Business Growth

Businesses more often than not, outsource ecommerce order fulfilment processes to third-party fulfilment companies because they lack the space or resources to carry out the necessary steps. 

If your online store is still small, you will find that relying exclusively on your in-house capabilities will limit your growth, and you will need to outsource fulfilment operations to a third party. 

Meanwhile, you can focus on other business areas such as marketing, expansion, or product development.

2. Get Help From the Experts

If you have an online store selling makeup and beauty products, your expertise may be in manufacturing and curating these products, and not in the logistics of it all, and that is fine. 

This is the point at which you may want to reach out to a 3PL service provider so that they can aid your fulfilment process with their expertise and experience. 

Businesses can ensure that their processes are optimally managed for better efficiency and productivity by partnering with the right fulfilment partner.

3. Save Costs & Money

By outsourcing order fulfilment, you can eliminate the need to hire full-time personnel or to purchase a warehouse or equipment to empower it. 

Instead, you will only have to spend a fraction of that shipping cost to a fulfilment company that has the infrastructure and personnel to manage it for you.

4. Gain Edge Over Competitors

The lower costs associated with the decision to outsource ecommerce order fulfilment , and the bandwidth it frees up for you can let you concentrate on other areas of your business. 

Combine this with conscious efforts to grow your business and improve your strategies, and you will surely be able to gain a prominent edge over your competitors—regardless of whether they operate on the same level or higher.

3 Challenges of Outsourcing Order Fulfilment

Now that we have looked at the benefits of outsourced order fulfilment, there are also several challenges you should consider in a typical outsourced ecommerce fulfilment process. Let us look at some of the primary ones that you should know about:

1. Loss of Control

When you manage your fulfilment process in-house, you will be able to control every little aspect associated with it. But when you outsource e-commerce fulfilment process, you will have far less control over it. 

While the process will still carry on as it should, you will not be able to micromanage any aspect of it. This loss of control can often leave businesses in a disadvantaged situation especially if they deal with fragile or handmade items and you are outsourcing warehousing and shipment.

2. Risk of Dependency

When you outsource an order fulfilment process, you are also heavily depending on the fulfilment partner for all the aspects related to it.

This means that if the fulfilment company runs into any kind of issues, it will directly affect the satisfaction of your customers and their trust in your capability to meet their demands.

3. Communication Challenges

Regardless of how hard you try, you will not be able to prevent every single issue that comes with outsourced warehousing and fulfilment processes. 

There are several challenges that you could mitigate just by strengthening your communication with your fulfilment provider. 

Any breakdown of communication or miscommunication can cause errors in orders, delays in fulfilling them, and eventually unsatisfied customers.

5 Key Steps Involved in Outsourcing Fulfilment

Now that you know about the benefits and challenges associated with outsourcing your order fulfilment, here are some of the primary steps involved in the process:

1. Sending Products to 3PL

If you have enough products in stock and stored in your inventory, you can go ahead and ship all your products to fulfilment service providers right away. 

You can ensure that your products will go from your manufacturers to your fulfilment providers directly. These future transactions will be carried out with the help of purchase orders or suppliers’ order confirmation making it easier for your fulfilment company to receive goods.

2. Processing Inventory

The fulfilment company you partner up with will manage your entire inventory process too. The process of inventory processing will include three main steps, which are: receiving products, sorting these products, and storing them safely and appropriately. 

Your fulfilment provider will inspect your shipments for any damaged or missing items. Your SKUs and barcode numbers will be used to track the products in your inventory and also help you track sales volumes and maintain stock levels effectively.

3. Sending Order Updates to 3PL

Now that you have set your expectations clearly with your fulfilment service provider, and processed your inventory, it is time to go ahead and process customer orders. You can seamlessly manage and process your orders by effectively integrating your POS system with other tools and software that will help you elevate your fulfilment process. 

If the data related to your order processing is managed manually, there is room for inefficiencies and human errors, which is not a possibility with automated order processing systems.

4. Process Order Shipments

Once you have incoming orders from your customers, and they are redirected to your fulfilment service providers, it is time for them to step in to process your cargo shipping. 

It is the onus of your fulfilment provider to ensure that your order items are selected and packed carefully for shipment. 

Moreover, they will also seal the boxes, custom-package them if necessary, and ship them out after assessing that it is in perfect condition. 

While this is also the process that costs the most for you when you are outsourcing it, you can get bulk discounts if you deal with a large volume of packages.

5. Returns Management

Managing your returns is undoubtedly one of the more complex parts of a business’ fulfilment process. Several businesses conduct the rest of the fulfilment process in-house but opt for outsourcing the return management due to the complexities involved in it. 

In most cases,  either the customer will ship the product back to the fulfilment provider or in some cases, your 3PL provider will pick it up from the customer.

They will then inspect the package and ensure that it is in brand-new condition and meets the conditions for returns specified by your brand. 

If everything is in order, they will approve it for a refund. After this point, you can decide what happens with the returned product - whether you want to store it in your inventory, donate it or discard it completely.

7 Factors to Consider When Outsourcing Fulfilment

By now, you must be clear about what outsourced fulfilment entails, the pros and cons it offers for your business, and the steps that a typical 3PL service provider is likely to follow in the process. 

Even then, you should know about some of these primary factors that are important to consider when you are outsourcing your fulfilment:

1. Identifying Your Fulfilment Needs

Before you even consider outsourcing your fulfilment process, you should start by assessing your fulfilment needs. 

This will give you a better understanding of whether you can manage these needs in-house or consider outsourcing them to a 3PL service provider. 

Another question you need to ask yourself is whether your business is at the stage at which outsourcing fulfilment may be necessary.

Outsourcing your fulfilment may be the right decision for your business if you find yourself answering affirmatively to the following questions:

• Have you run out of storage for your inventory?

• Do you spend a lot of valuable time packing and shipping your orders?

• Are you left with less time for strategic projects because of your fulfilment process?

• Do you not want or afford to spend money on a distribution infrastructure?
  
  

2. Get Your Specifications Ready

Not having the exact specifications for your order fulfilment process ready will only complicate the process of outsourcing to a 3PL even further. 

These specifications will also allow you to narrow down the right 3PL service provider for your needs and meet the customer qualifications they may have. Most of them will have qualifications in the form of:

• Minimum or Maximum monthly orders

• Limit on SKU count

• Dimensional and Weight Specifications

• Limitations on features or capabilities that they do not provide

• List of prohibited items or materials
  
  

Even if a specific 3PL service provider fits the bill in terms of helping you with your preliminary fulfilment requirements, you should check whether they are able to accommodate all of your needs. 

More importantly, their ability to be flexible is important for you to decide whether a specific 3PL service provider will be the right fit for your business.

3. Establish the Budget-Cost Fit

Beyond your requirements, what is the most influential factor affecting whether you would associate with a specific fulfilment company or not? 

Every business has a predetermined budget that they have to stick to, for their order fulfilment process. 

Any fulfilment partner you associate with will have you consider several costs, taxes and charges that you should account for in your budget. 

Additionally, you should leave a little room in the budget for any miscellaneous expenses and costs you may have to incur in the process. All in all, a fulfilment partner should help you reduce shipping costs, instead of increasing them.

4. Assess the Scalability of the 3PL Services

Even if your online store is limited to a certain scale and can only be considered a small business right now, there is no pinpointing the extent to which your business may scale up shortly. 

When it happens, you need your fulfilment partner to be capable of scaling up their processes with you. Professional 3PL service providers will tell you in advance about the process they will follow in such a situation.

5. Ascertain Flexibility and Adaptability

Other than scalability, the other two crucial aspects that you want to see in your fulfilment partners are their ability to be flexible and adaptable to your changing requirements. 

When you carry out order fulfilment in-house, you will be able to ensure that your process is flexible enough to accommodate any last-minute changes or updates. 

Additionally, you will also ensure that the process adapts according to recent market trends and useful technologies.

Ensure that your 3PL partners are just as flexible and adaptable if not more so that they can deal with any updates or changes in the process seamlessly, without disrupting it. 

They should help you not worry too much and continue to outsource order fulfilment services to them, regardless of how much you grow.

6. Ensure Quality of Customer Support

When you are giving up so much control over your process to an external 3PL service provider, the last thing you want is to be chasing them around for updates. 

Communication is the basis for any successful client-service provider relationship. So, before you partner up with any logistics company, ensure that you have assessed their customer support quality.

You should also ensure that they have robust reporting and live tracking mechanisms that help you monitor the fulfilment processes of your shipments. 

Ask about the customer support-related services you can expect when you associate with a specific 3PL partner.

7. Ask About their Technological Infrastructure

As a growing eCommerce company that wants to get more done by outsourcing its fulfilment processes, having a strong technological infrastructure to support it is even more crucial. 

Most 3PL partners will offer you access to a comprehensive dashboard where they will post live updates of your shipments and the stages of fulfilment they are at.

With that in mind, it is good to ask a specific 3PL partner you are considering associating with, about the technological infrastructure they use.

What are the tools they are using to track your shipments?

What kind of reporting and data analytics can you expect from the software?

To what extent is this data and tool boosting the overall efficiency of your fulfilment process?

6 Best Practices for Outsourced Fulfilment

So far, we have discussed the definition of outsourced fulfilment operations, the benefits and challenges associated with the process, and the steps you need to follow in the process. 

We have also looked at the primary factors you should consider while choosing a 3PL partner to associate with.

Now, let us look at some of the best practices you should consider when you choose outsourced e-commerce fulfilment:

1. Associate With Multiple 3PL Service Providers

Keep in mind what they say about putting all your eggs in one basket, and the earlier challenge we discussed about having too much dependency on a specific 3PL partner. 

The biggest problem with this scenario is that in case there is an issue on the 3PL service provider’s end, and they are not able to fulfil an order as planned, it will hamper your reputation and customer satisfaction levels.

To prevent this kind of scenario, you want to be using multiple 3PL service providers so that you will have a backup option to mitigate an emergency situation.

In a situation where a specific 3PL partner is unable to fulfil an order, you will be able to reach out to seamlessly complete the process.

2. Ask the 3PL Provider to Give You Periodic Reports

Most 3PL providers will give you access to a dashboard that tells you about the primary metrics you need to know,  but it is a good idea to ask for additional reports that will help you make strategic decisions. 

You will be able to make clearer and more effective decisions if they are data-driven and rely on historical data.

To ensure this, you should also ask your outsourced fulfilment partner to send you periodic reports that you can use to monitor the usual metrics and create strategies for the foreseeable future. 

These reports should include metrics such as the number of orders fulfilled, the turnaround time for fulfilling a specific order, and statistics associated with returns and cancellations of orders, if applicable.

3. Implement Clear Service Level Agreements (SLAs)

When you have multiple fulfilment partners associated with you and a bunch of specific expectations from them, you need to have clear and comprehensive agreements in place with them. 

Service level agreements set down the expectations from the association clearly, and help you and your 3PL partner to be on the same page.

Additionally, your service level agreements will ensure that both parties are fully aware of the expectations on both ends and that they agree to satisfy all of those requirements. 

The failure to do so on either party’s end gives the other one the right to sue or nullify the terms of the agreement. 

So, in case a fulfilment partner does not render services as promised in the agreement, you have the right to suspend the partnership or withhold payment, depending on what you have specified in your SLA.

4. Keep Communication Clear and Transparent

Creating an agreement that both parties need to thoroughly read and sign is one of the ways to ensure that the communication between you and your service provider is seamless. 

Another great way to ensure that you are always able to have a clear bilateral communication process is to assign a point of contact on both ends. 

Doing so eliminates the need for multiple resources to get involved in the communication and thus helps you avoid ambiguity. 

It is also recommended that you designate a specific communication channel between you and your outsourced fulfilment service provider. 

This can be in the form of emails, phone calls, or applications such as Slack where you carry out your official communication. 

Lastly, it is important to define the stakeholders for this association and loop them in for all communication so that the process remains transparent for all the relevant parties.

5. Prepare Your Business Properly For the Switch

The worst thing you can do for your business is to make a decision such as outsourcing a warehouse fulfilment process in haste, and proceed without preparing your business in advance. As an online store, you will have a few employees assigned to managing your order fulfilment process, that are carrying out the related day-to-day operations.

If you as a decision maker want to outsource your fulfilment, you must inform these employees and clarify their new roles in the process. 

You will also need to involve multiple departments to get them all to be in sync with the updated process, and avoid any confusion.

Lastly, train your employees before the switch happens, and explain what kind of changes they can expect. 

Only then would you be able to avoid the kind of loss of revenue or sales that can be unintentionally caused by confused or uncertain employees?

6. Optimise Your Fulfilment Process and Strategies Consistently

You have got a growing online store that is constantly expanding its product catalogue, and successfully fulfilling customer orders. 

And you have strategies that are firmly in place to guide your order fulfilment so that it translates into more revenue and profitability.

But if you think this is all you need to do, think again.

As an online store, you want to keep improving on your fulfilment process, and related techniques so that your customers remain satisfied and keep coming back. 

For this, you must track the performance of your fulfilment process, monitor the necessary metrics, and seek feedback from your customers.

Then you need to integrate the insights you will generate from all these mediums into your strategic discussions and decisions. 

Keep updating your strategy to do better and keep improving your performance to ensure that your business enjoys prolonged success.

Concluding Remarks

Outsourced fulfilment is a fairly common strategy among online stores today, but there are several considerations to keep in mind before you can get there. 

You need to have experienced personnel who can deal with the fulfilment partner, and a 3PL service provider who can understand and fulfil your requirements. 

More often than not, the effectiveness of this process often boils down to the quality of services your 3PL partner provides, which is why it is important to have the right one by your side.

Contact PACK & SEND, if you are thinking of outsourcing warehouse/fulfilment in Australia and get a quote so that we can get in touch and discuss your fulfilment requirements.

Frequently Asked Questions (FAQs)

What is outsourced fulfilment?

Outsourced fulfilment is the process of getting your fulfilment process carried out by a third-party logistics service provider who has the necessary experience and resources. 

As an online store, you can either have a specific step of your fulfilment process carried out by a 3PL service provider or have them help you with the entire process. 

Regardless of what you choose, it will still be termed as outsourced fulfilment.

Is it cheaper to outsource fulfilment to a 3PL?

The costs associated with outsourcing your fulfilment depend on your shipment volume and the nature of your business. 

Carrying out the process in-house will require you to invest in setting up a warehouse, adding the necessary infrastructure to it, and then hiring personnel to take care of it. 

Whereas, you can outsource the entire process to a 3PL service provider for a fraction of that cost, making it the cheaper alternative.

How to outsource fulfilment services?

Even before you decide to go ahead with outsourcing your fulfilment process, you want to analyse your business needs so that you can narrow down any specifications that are necessary for your 3PL service provider to know. 

Then, you should ensure that the costs associated with the selected 3PL partner fit with the budget you had in mind, lastly, you want to ask and understand the level of automation in their process and the quality of customer support you can expect.

How to select a fulfilment partner to outsource operations?

To begin with, you want to ensure that you conduct thorough research and find the right 3PL service providers for your fulfilment requirement. 

Then consider the various factors and features that would weigh in on your decision such as location, cost, scalability,  flexibility, automation and more to see if you should partner up with them. 

Lastly, draft a detailed SLA to ensure that all the requirements are documented and agreed upon by both parties formally.