Every eCommerce business shoots for a 100% order fill rate, but not every method is the same. While attempting to emulate the processes of big companies like Walmart and Amazon can work for some, it may not be worth it for others.
The way you take care of your inventory can singlehandedly determine the difference between profit and loss, which is why you might be at a dilemma in choosing which warehousing and shipping method to pursue.
Fortunately, both third-party logistics (3PL) and self-fulfillment have pros that may boost your business and help you achieve that desirable fill rate. So before you switch to one or the other, consider the benefits of each to decide which method is best-suited for your business.
Here are some specific solutions that 3PL and self-fulfillment each offers.
Third-party logistics: Save time, reduce cost and scale
If you have a large business, working with a 3PL may be your best option. Its primary benefits include:
- Saved time so you can focus on other things
- Increased efficiency, allowing you to scale fast
- Reduced costs on things like warehouse leases, staffing and technology
3PL is a great time-saver for businesses
When growing a business, the last thing many people want to do is be burdened by time-consuming tasks related to operations, which is inevitable when you have an in-house supply chain. Outsourcing these tasks to a 3PL company means you no longer have to worry about paperwork related to leasing and staffing.
Simply put, there will be less things for you to manage, freeing up more time for things like growth strategies, product management and customer success. If your priority lies in any of these arenas, it may be worth it to hand the fulfillment reins over to a reliable 3PL company.
3PL allows you to operate at scale
Scalability is perhaps the biggest reason why 90% of Fortune 500 companies work with 3PL companies. A fast-growing business is good news, but your ability to handle the volume of orders may be limited by your in-house resources. 3PL companies often have the latest technologies, a large pool of staff and access to ample space for a sizable inventory.
If you find that your business is rapidly expanding and want maximum efficiency and flexibility, working with a 3PL will allow you to scale at a much faster rate.
3PL saves costs on multiple fronts
In addition to saving time, 3PL outsourcing is a cost-effective solution if you’re sick of expensive, long-term leases, since it allows you to pay month-to-month instead. You also don’t have to spend money on recruiting, training and maintaining staff, or invest in the latest technologies to optimize your fulfillment process.
According to the 2016 Annual Third-Party Logistics Study, 70% of 3PL users stated that working with a 3PL provider reduced overall logistics costs, while 75% responded that 3PLs allow for greater efficiency.
A 3PL company invests in all the latest industry developments already, so the only cost for you is that of the contract. Considering how expensive it can be to keep your own staff and technology, 3PL becomes a cost-effective solution for large-scale operations.
Self-fulfillment: Total control, cash flow and customization
Self-fulfillment can be ideal for smaller businesses that want to save as much cash as possible, or those who operate in niche markets. Some of its benefits are:
- Total control over management
- Increased cash flow if you have a low profit margin
- Ability to invest in your branding through customized packaging
Take control of your internal operations
While staff management is time-consuming, it can also be rewarding if you want to build up a company culture. Platforms like Wonolo provide on-demand staffing that can help prevent overstaffing and overspending, making it easier to manage an efficient fulfillment team. You also have more control over company operations, which may be ideal for businesses that prioritize branding.
If you’d rather oversee internal operations and keep processes in-house so you retain ultimate control over your company culture, self-fulfillment is your best bet.
Generate more cash flow by doing the work yourself
If you find yourself with a limited budget, working with a 3PL company may not be the best use of your funds. In this case, self-fulfillment is a great way to increase cash flow, especially for small businesses with low profit margins. In principle, this simply means you can save money by doing the work yourself.
A study from the National Center for the Middle Market revealed that most companies face a supply chain crisis every four to five years. This means keeping the cash flowing by saving on outsourcing costs is especially vital for smaller or mid-sized businesses, since the cost of the contract can dampen the company’s cash reserve, while their expenses may not be high enough to merit a 3PL provider’s services to save on other costs like labor.
Not everyone has the funds for 3PL outsourcing, and if keeping things in-house is still a viable option that doesn’t put too much strain on resources, it may be wiser to keep the cash available for other purposes.
Customize packages and products for niche branding
Another aspect of control through self-fulfillment is that you can customize your packaging, keeping it in line with your branding. If you’re a small or local businesses with loyal customers who love your branding, you may want to keep control of your packaging and distribution to keep it unique.
The way you package your product also has direct correlations with sales. When Miller Lite revamped its packaging in retro-style, it resulted in a 5% increase in sales, even though there was zero change to the product itself. The prevalence and popularity of unboxing videos today also offer a great chance for publicity if companies have specific packaging, from the outer to inner wrappings. According to The Dotcom Distribution Packaging Report 2015, 60% of respondents said they would be more willing to share an item on social media if the item “if it came in gift-like box rather than in a traditional brown box.”
If good packaging increases sales and visibility, poor product packaging can conversely cause poor sales, leading consumers to choose a competitive product just because it comes in a nicer package. This is especially relevant for businesses operating in a niche market, where it’s particularly important to stand out from the competition, or invest in highly customized branding, from the box down to how the items are wrapped inside the box. So if you know your customers’ behavior is greatly influenced by your branding, choosing self-fulfillment and control may be the better choice.
Determine your needs and choose accordingly
Decide where your priorities lie, and calculate costs to see if your budget allows for a 3PL company or whether it would be better for you to keep the supply chain in-house. Rushing the decision could make you regret it later, as thorough research will also help you select which 3PL company offers the best solution, through warehouse matchmaking services like Warehouse and Fulfillment, which pre-screens 3PL companies.
Since both 3PL and self-fulfillment offer different advantages, it’s important to figure out which method better suits your business. One isn’t inherently better than the other, and as your business shifts, you may find that it’s time to switch as your business needs change.