Outsourced Fulfillment Services – A Detailed Guide
What Are Order Fulfillment Outsourcing Services?
Customers are embracing doing their shopping online from the convenience of their homes. As a business owner, there are so many things to be taken care of. The last thing on any business owner’s mind is the management of a warehouse, receiving goods, and getting hands-on with the shipping process. It can get really complicated and costly to do yourself.
At its core, order fulfillment outsourcing involves business owners hiring a 3PL (third-party logistics provider) to manage everything involved in the order fulfillment process. This includes managing inventory, kitting, packing boxes, shipping orders, and much more in-between. It’s necessary for this partnership to happen unless the business is very, very small. Spectra is one of the leading 3PL companies providing this solution with advanced technology to simplify everything.
Type of Services Offered by a Third-Party Ecommerce Order Fulfillment Company
Ecommerce order fulfillment is complicated but its importance cannot be denied. The customer experience starts with their ability to order and receive your products with ease, so it’s important to have a system in place to support them. Again, if your company is very small, you might be able to handle things for now. But as your business grows, it becomes necessary to find a fulfillment partner like Spectra that you can outsource your third-party logistics (3PL) needs to. Let’s talk about what your partner will do for you.
Some 3PL companies make things even more complicated by fulfillment outsourcing what you outsource to them by finding different warehouses with extra space to manage your distribution. Spectra actually utilizes multiple large warehouses and does everything in-house, even going the extra mile by developing their own technology to manage inventory.
The worker who retrieves your goods from the warehouse follows a customer-generated pick list right after the order is placed on your website. Spectra’s pick list feeds are synchronized with the customer’s Ecommerce sites to avoid mistakes on outsourced fulfillment.
After the items are retrieved, the next step is packing the items so that they are ready to be shipped. Spectra always has the needed packing materials for safe shipping. The shipping label is then added to the package. Everything is triple-checked in the online system before shipping.
Spectra has great relationships with shipping carriers that pick up packages from their warehouses daily. These packages are then shipped to your customers expeditiously along with their very own electronic order tracking information.
When it comes to Ecommerce fulfillment, returns are just part of the gig. When it happens, you don’t need to get involved as the business owner. Spectra will take the returns back into their warehouses, facilitating the returns process. The unused merchandise will go back in stock ready to be shipped again with full notifications back to you as the customer.
The Benefits of Outsourcing Order Fulfillment
As your business scales, having a fulfillment partner becomes a must so you actually have the time to market your business. Thankfully, we live in an era where there are partners like Spectra that will handle all your 3PL needs.
In order to make the important decision about whether or not outsourcing your order fulfillment is right for your business, let’s take a look at what the benefits are.
You Don’t Have to Store Your Own Inventory
This is the greatest benefit of all, saving both time and money. Whether or not you are filling up your basement or small warehouse with products and boxes already, managing storage can be an absolute nightmare. Your sales will fluctuate throughout the year, as they always do, leading to a potential shortage of space when new inventory comes. That, or you may have an equally frustrating issue being that you are paying for a bunch of space that isn’t being used all the time during order fulfillment outsourcing.
3PL companies like Spectra have the technology to efficiently track inventory levels without you even needing to be involved. If you are still on the fence, it’s important to also be aware that starting in 2021, warehouse tenants are experiencing an average of 10% or higher increase in monthly rent. This is mostly due to the high demand for warehouse expansion and construction.
You Don’t Have to Pick, Pack, or Ship Your Products
3PL partners like Spectra handle the receiving of your products, organize them, and keep them safe and in stock. When that special moment happens where your customer makes a purchase on your website, your product is quickly and accurately picked, packed, and shipped. It can be a hassle to try to do this yourself and mistakes are common. It also becomes quite an expensive feat.
Lower Shipping Rates
While we can’t provide exact rates due to variability in package contents, size, and quantity, we can say for sure that the rates are lower than what you would experience yourself when interacting with companies like USPS, UPS, and FedEx. Spectra has a special relationship with its shipping partners and we help our clients navigate the integration of Ecommerce and 3PL shipping.
Reduce Operating Costs Using Outsourced Fulfillment Service
Think about it. If you took everything to do with order fulfillment into your own hands, you would be paying thousands of dollars every month, not even considering all the time involved. The cost of rent alone for your warehouse would already be huge. You would also have to be paying for employees, insurance, dealing with returns, and many more hassles, all while not focusing on the most important aspect of your business; sales.
Broader Reach Into New Markets
New markets will open up as you spend less of your business time dealing with order fulfillment and inventory management and more of your time focusing on growth. While fulfillment is so important, it’s likely that you didn’t start your business knowing how much time and money it takes to get it right. The bigger you get, the more time and money fulfillment eats up.
If you haven’t realized it already, time is absolutely your greatest resource. With that in mind, scaling your business and working on things like branding, product development, and marketing should stay at the forefront of your goals. Smart business owners have already discovered that it’s more efficient to partner with a 3PL company to save them time and money.
Leverage Your 3PL’s Volume & Experience
Considering all the potential problems and little-known tricks in managing order fulfillment processes, there are many issues that come about when taking things on yourself. For third-party logistics companies (3PL), this is all they do. Spectra is used to and experienced with handling large shipments, negotiating shipping rates from carriers, managing returns, and much more.
Take solace knowing that your 3PL partner will have a network of partners to keep everything efficient and affordable. The best part is that no one on your side of the business has to become a fulfillment expert to get expert-level fulfillment.
Technology & Analytics
For in-house fulfillment, companies often resort to manual processes with little technological backing. This leads to many mistakes, especially at the picking and packing stage. Spectra is one of the only 3PL companies that have gone the extra mile by developing their own technology to maximize the efficiency of the order fulfillment process. Spectra’s technology is used by their employees to avoid mistakes. After partnering, Spectra links its tech into the backend of your company’s website.
How Do Outsourcing Order Fulfillment Services Work?
Businesses frequently partner with 3PL companies so that they can save time and money, focusing on doing what is needed to grow their business. 3PL companies will receive your order information, store inventory, process orders, and handle the shipping process. This is perfect for growing businesses as managing all this becomes cumbersome, particularly handling inventory and managing shipments.
Some 3PL companies have specialties like climate-controlled storage and variable shipping options. That type of 3PL company would be ideal for perishable goods. Others specialize in things like cars, which needless to say, take up a ton of space and can’t even have a scratch on them when they get to the customer. Since the majority of Ecommerce business has products that fit into boxes, these specialties aren’t needed for most.
1. Get a 3PL Partner
The first step in outsourcing your order fulfillment needs is to get a 3PL service partner. For this example, we will use Spectra. You will need to get in touch with Spectra and describe your needs through an online fillable questionnaire. Spectra is adaptable and adjusts to support your needs.
2. Processing Orders to Your Fulfillment Provider
Next, the onboarding process takes some collaboration as there is a process where Spectra has to link its network with the backend of your Ecommerce website. This is done so that electronic “feeds” are sent to Spectra in real-time when orders on your website come in. These feeds contain all the information that is needed for Spectra to pick, pack, and ship the orders to the customers.
The customers on your website don’t even know that Spectra was involved at all. They can just order from your website and receive their goods without the confusion that would come from realizing a third party was involved.
3. Deliver Current Inventory
You will need to ship everything that you currently have in stock to your fulfillment provider. If you don’t have anything yet, that’s fine. All future inventory that is purchased will go directly from the manufacturer to the fulfillment provider. What usually happens is you just give your purchase order or supplier’s order confirmation to the fulfillment provider so that they can receive the products.
4. Receive & Manage Inventory
This part will take some collaboration between the 3PL and your business. When the inventory tracking system is implemented and Spectra’s warehouses are receiving your products, you’re all set. Spectra’s employees inspect shipments for damage and missing products. Afterward, they will be passed along for sorting and storage. SKU numbers and barcode labels come in handy here.
5. Processing Customer Returns
Spectra has the ability to process your customer’s returns. Most Ecommerce businesses have a unique process that needs to be followed, so it takes some cooperation to set up. In general, customers will send their package back to Spectra’s warehouse where it will be inspected before the return is approved. From there, it is usually put back in inventory, put on clearance, donated, or discarded. It’s up to you.
Building a Strong Partnership with Your 3PL
After finding the perfect 3PL partner, it takes some time and effort on your part to build a strong relationship with them. There’s a bit more involved beyond just paying a bill. You will have to get involved. So how can you build a strong relationship with your 3PL? Communicate!
Many businesses think of their 3PL as more of a commodity rather than a strategic partner. When that happens, there is typically a lack of information that is being sent to the 3PL, meaning that your partner can’t utilize insights that they could have had into your business.
So with that in mind, share your long-term business plans, check in with them frequently, and ask your partner what more you can do on your end to maintain and improve the flow of everything. Also, remember to organize internally, set reasonable goals together, and play nice.
Best Practices for Choosing the Right Order Fulfillment Provider
Now that we understand why it’s important to have a 3PL partner and how to build a relationship with them, the question becomes revolved around who to partner with. Let’s talk about what to look out for.
- Location – You will need to be sure that your 3PL partner can speedily deliver to your customers without complication regardless of where they are.
- Cost – Weigh the amount of money that you will save from not managing a warehouse, paying workers, etc., against the cost of paying your 3PL. Make a decision from there.
- Scalability – While your business is currently one size, chances are you are going to expand and you need to be sure that your 3PL has the ability to scale with you without problems.
- Automation – Some companies, like Spectra, for example, have advanced technology and automation capabilities to speed up the order fulfillment process. This improves both accuracy and speed. Look out for this option.
Some other things that speak for themselves are reputation, commitment, and collaboration. For most people, the cost is going to be the biggest factor. So take the time that is needed to figure that out. Chances are, there will be savings and you will be able to focus your time on gaining sales.
The Differences Between In-House and Outsourced Fulfillment Service
At the start of this post, we talked about how some Ecommerce businesses attempt to go through the hassle of managing their own fulfillment processes before being overwhelmed and having to partner with a fulfillment company. Now we will go into more detail about it.
Since cost is the major deciding factor, it’s important to understand what you could be facing if you decide to take this on yourself. This includes:
After partnering with a 3PL, there are still costs to be considered. These are:
- Online technology fees
- Order fulfillment fees
- Inventory receiving fees
- Returns fees
- Customer service costs
- Storage fees
- Shipping material costs
- Drayage fees
It sounds like a lot, but it’s not nearly as bad as it sounds as the majority of businesses save a handsome amount of money annually and are then able to focus on growth.
Now, the major advantage of doing everything in-house is that you will have complete control over everything. Plus, since you are the expert on your products, you will know what to do when something goes wrong compared to a 3PL.
Unfortunately, many business owners who manage their fulfillment in-house get stuck in unreasonable leases with warehouses that have no ability to grow with your business. They get stuck accepting a limit to growth or then have to expand separately and take on concurrent leases with warehouses.
Handling the whole shipping process is really a hassle for anybody who isn’t strictly focused on order fulfillment as their business model. 3PL providers have the infrastructure, knowledge on picking, packing, and shipping. They often come with built-in technology and get better shipping rates. We discussed the benefits in further detail earlier, but there are so many.
There are a few possible downsides to partnering with a 3PL. The first is that you would have to relinquish control of the order fulfillment process. Also, it can take some time for the warehouse to become familiar with your products. Lastly, the 3PL has other companies that they are doing order fulfillment for, so you might not feel like a priority.
Spectra is committed to making every Ecommerce business know that they are always the priority. So consider the ups and downs (mostly ups) to partnering with a 3PL to handle the order fulfillment process for your business and make a decision.
When to Outsource Your Fulfillment Services
This will be the most detailed section in this post because of how important it is, so pay close attention.
It’s clear now that in-house fulfillment is the starting point for many Ecommerce businesses and that outsourcing fulfillment is the next step as your business becomes larger. The tipping point between this time is still up in the air. The time to make the change often comes with a variety of factors.
Delivery Standards Become Lower
At first, everything is a little complicated but then there becomes a method to the madness. Orders are coming in and going out smoothly.
After some time, it’s a little less fun when you start running out of time and space to do everything efficiently. When that happens, standards often become lower. Products are not organized properly, customers receive incorrect or damaged goods, while others receive very late orders. Worst of all, some receive nothing at all.
You can’t let this happen for long or your business won’t scale and competitors will come in and steamroll over all your hard work.
3PL companies have the expertise, the space, and the trained workers who know all there is to know about order fulfillment. They can scale with you, letting you relax and focus on growth. Customers will be happy due to their perfect experience with your business. Plus, there will often be fewer item returns. It’s important to have loyal customers to your brand since they are frequently repeat buyers and spread the word among friends and family.
Cart Abandonment Rates Increase
At checkout, your customers will see how fast that they will receive their products. Depending on the delivery time, it’s a major deciding factor of whether or not they will continue with the order. When it comes to gifts, this is especially important. If your products are often gifts, you need to have fast shipping. The majority of people order things just days before they want them. So when it’s longer than a few days, customers become reluctant to continue with the order.
Often, customers will close out your site honestly believing that they will come back later and proceed. The internet is just so distracting so your site becomes lost in their mind as they continue their shopping.
But the main reason for cart abandonment is still due to extended shipping times and products being out of stock. When you partner with a 3PL, cart abandonment rates are much less of a problem. Your partner will enable you to speed up your shipping rates in addition to having a variety of options and cost combinations.
Your 3PL partner likely has already secured discounted shipping due to bulk volume so both you and your customers pay less. No one likes paying more money than is needed for shipping.
Conversion Rates Are Low
Arguably the largest reason to outsource your order fulfillment, conversion rates are key. This ties into the cart abandonment section before this. Considering the fact that carts get abandoned at an astonishing rate of 69.89% of the time, you really need to be on top of this.
Chances are you’ve already tried a few things like lowering prices, offering free delivery, or even set up automatic cart abandonment emails. Hopefully those things helped a bit.
The biggest thing being missed that you can’t do much about alone is increasing the speed of shipping. When you outsource your order fulfillment, you are enabled with guaranteed faster shipping times.
Costs Are Too High
Obviously, you need profits in order to stay around long term and expand your business. When spending lots of money on rent, utilities, labor, insurance, supplies, software, and equipment, there is usually little left over to put in your own bank account, if at all.
Many businesses go into debt and fall apart before they secure a 3PL partner. It’s important to act fast and stay ahead of the game.
Your Business is Wanting to Expand
If you’re wanting to expand, chances are you’re doing a pretty good job in-house managing your own order fulfillment. That’s great for now. But when it becomes time to expand, you need to be sure that your fulfillment process is ready for the big change.
There will be an increase in space utilized for inventory, managing multiple sales channels, dealing with a higher rate of order numbers, and so much more. Is your business really prepared to expand while managing everything in-house? Doing all of these things really takes away from your time that you could better spend on growth.
When you partner with a 3PL, you’ll have more time and a lack of stress that comes from doing all this alone. There’s a lot of pressure that’s put on your own internal team when inquiring into the capabilities of your tech, staff, and warehouse to handle expansion. Your 3PL partner will take care of all that for you.
Maybe your business is already expanding. That’s another reason to partner with a 3PL.
You Aren’t Already Offering Fast / Free Shipping
Behind the price itself, fast and free shipping is absolutely the biggest factor that customers consider before making a purchase.
If, for example, your current shipping cost is $9.99 to the customer, you can just make it appear free but add the needed cost to the original unit price. That way, the customer sees free shipping and that has a major positive effect. But with the price appearing to go up, it’s still not a perfect system.
The best thing that you can do is keep the cost of your product fair and also offer fast and free shipping. Your 3PL partner will be able to keep your shipping costs low so you can charge a fairer price to the customer in addition to being able to speed up the delivery time.
It’s a win-win-win situation. You pay less, your 3PL pays less, and your customers pay less. Everyone is happy!
It’s Taking Up Too Much Time
You started your business with a vision. Chances are, that vision did not include managing a warehouse and spending hours of your day managing order fulfillment.
It’s common for businesses to get overwhelmed, considering none are equipped with the knowledge behind logistics. It’s simply not a part of your company’s core competency. Let your 3PL focus on fulfillment. Keep it simple. There’s a reason Amazon is so big – people want things fast for a low price.
You likely wanted to focus on pushing, improving, and expanding your products, marketing, making sales, and staying ahead of your competitors. These things become pushed to the side when you are so focused on order fulfillment.
So if you’ve done the math and for your unique situation it doesn’t appear that you will be saving much money from partnering with a 3PL, think a little deeper. First of all, the majority of businesses do save immediate money when the partnership starts. But if yours doesn’t, consider the fact that you will finally be able to focus on those things we just mentioned, all revolving around growth.
Therefore, you will absolutely save money.
How Spectra Works
Spectra is one of the leading 3PL fulfillment companies in the United States. Ecommerce is one of the fastest-growing spaces in the fulfillment realm and Spectra is a leader in the space. One of the best parts about working with Spectra is that your products are insured when they are in the warehouse. Beyond that, Specta’s ability to be flexible is noteworthy.
Many fulfillment companies have a certain way of doing things that they refuse to compromise. Spectra takes the time to learn how to work with each of its customers and adapt accordingly. Think “real-time adaptation”. It’s a pretty cool thing to have on your side.
Not all order fulfillment that Spectra does is Ecommerce. It’s B2B and B2C, so sometimes things go directly to businesses. Spectra prides itself on being involved with ethical companies and products.
With all things considered in this post, it’s clear that partnering with an order fulfillment company is a necessary thing for a growing business to do. Whether now is the best time for you is something that you will have to decide.
If your business is happy staying small, maybe just keep doing your thing. For everyone else, the best way to get started is to contact Spectra. Fill out the online form and you will get a quick response from Spectra’s internal team.
The President and CEO of Spectra, Walter Kohn, gets directly involved and frequently is a direct point of contact for customers. Expect to hear from him when you’re going through the onboarding process.