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Warehousing & Fulfillment

Outsourcing Fulfillment: Manage Orders Seamlessly in 2024

Warehousing & Fulfillment
April 29, 2024
18 min read
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Streamline operations, reduce costs, and scale efficiently. This guide is geared toward eCommerce entrepreneurs seeking advanced, cost-effective solutions.

Outsourcing fulfillment has become top of mind for most brands in 2024. According to McKinsey, fulfillment and shipping are some of the most expensive line items in an eCommerce merchant’s budget — accounting for up to 25% of a company’s total revenue. 

If your business is at a point where it’s struggling to manage your shipping in-house, outsourcing fulfillment is the way to go. You can outsource your entire shipping process or specific shipping needs like warehousing, packing, shipping, or returns processing. 

Outsourced fulfillment has many benefits, such as not managing boxes or running a warehouse. It also allows you to receive analytics and reports that help your business grow while providing a platform to scale so you can concentrate on other areas of your business. 

In this guide, you’ll learn how to streamline your operations, reduce costs, and more — all with the assistance of outsourced fulfillment.     

What is Outsourced Fulfillment?

Outsourced fulfillment is when you hire a third-party provider to handle your entire order fulfillment process, from inventory storage to shipping. 

A third-party provider takes care of all the nitty-gritty of your fulfillment strategy, from storing inventory to receiving and processing orders and choosing the best mode of transportation for the delivery. They use deep shipping expertise and cutting-edge technologies like inventory tracking and reporting systems to provide lightning-fast shipping and value-added services like customer support. 

Outsourcing Fulfillment vs. In-House Fulfillment

Outsourcing fulfillment offers efficiency, scalability, and cost savings that in-house fulfillment can’t match. 

In-house shipping requires managing a team and setting up warehouse space and equipment. You’re also responsible for all operational tasks and dealing with challenges such as delays, incorrect shipments, and unhappy customers.

Unlike in-house shipping, fulfillment outsourcing eliminates the need to invest in shipping personnel and infrastructure while providing greater control and visibility over your shipping process, offering customizations, and handling customer care.  

Outsourced fulfillment services are the ultimate solution for entrepreneurs seeking to streamline operations, reduce costs, and scale their businesses.  

How Outsourced Fulfillment Works

There are several steps to operate an outsourced fulfillment center. Let’s look closer at the inner workings.

Step 1 – Receiving Inventory

If you’ve been managing your shipping fulfillment in-house, transporting your inventory to your outsourcing fulfillment partner’s warehouse is the first step. You can then schedule an inbound freight shipment and prepare an Advance Shipment Notice (ASN), which tells the warehouse exactly where SKUs and quantities are positioned in an incoming shipment. 

When drop shipping, you can send your supplier’s order confirmation to your fulfillment partner so they receive the goods you ordered going forward. Either way, the fulfillment company will receive, inspect, log, and tag the ordered items as the first step.

Step 2 – Storage and Organization

Your inventory is assigned a designated storage location within the fulfillment center. The fulfillment company will use sophisticated inventory management systems to track every item, from SKU numbers to stock levels, allowing real-time visibility into stock levels and warehouse capacity.

Step 3 – Order Processing

The order is routed to the warehouse via a backend integration between the order management system and the warehouse management system. 

Step 4 – Delivery and Tracking

The final step is getting the orders to your customers. The fulfillment company works with trusted shipping partners for timely delivery, taking into consideration consumer expectations around price vs. speed.

Step 5 – Returns Management

If a customer needs to return an item, the outsourced fulfillment company can help retrieve the returned product and assess the damage. Happy Returns is an excellent third-party returns software that’s easy to use, doesn’t require packaging for returns, and immediately refunds customers. 

infographic 5-step fulfillment process

Outsourcing fulfillment streamlines shipping operations with a few steps, including receiving, storing, processing, and delivering inventory.

Why Outsource Fulfillment?

A recent merchant survey revealed that 89% of merchants currently handle at least some of their fulfillment operations in-house. But it’s not working. 

Merchants noted that their top challenges with in-house fulfillment in 2022 included:

  • Increased warehousing costs (79%)
  • More time-consuming labor management (36%)
  • Concerns about the sustainability of their fulfillment model (30%)

Logistics and fulfillment can be overwhelming and hinder your company’s opportunity to grow on a much larger scale. In fact, 45% of small to mid-sized businesses (SMBs) want to divert their team away from logistics management and back to primary business functions.

The good news for fast-growing brands is that fulfillment outsourcing to a tech-enabled provider can decrease capital expenditure, streamline operations, and improve service levels.

When to Outsource Fulfillment

Below are three tell-tale signs that it may be time to consider outsourcing fulfillment.

1. Service Levels Are Suffering

If your in-house operations struggle to meet demand, a fulfillment partner can meet your customers’ expectations.

2. Fulfillment Costs Are Damaging Margins

You could lose profits on every sale if you overspend on long-zone ground shipments or next-day air. The right fulfillment partner can recommend warehouse placement to decrease your time in transit (TNT), increasing your fulfillment time while reducing costs.

3. Other Areas of Your Business Are Suffering

If your team’s attention is diverted away from their core competencies to manage fulfillment and logistics, consider an outsourced fulfillment solution to free your team’s time to focus on other areas of your business.

The Advantages of Outsourced Fulfillment

Unpack the main benefits of switching to outsourced fulfillment solutions.

1. Supply Chain Technology

Merchants report that their top priorities for logistics include real-time inventory visibility, insights into order fulfillment status, and predictive analysis. An ideal outsourced warehousing partner carters to these priorities with top-draw fulfillment software solutions. 

These solutions can include warehouse management systems for managing inventories efficiently and predictive analytics tools to track customer behavior and market trends. They can also offer augmented reality (AR) and virtual reality tools to create 3D simulations, allowing clients to remotely optimize their storage and picking processes.

These software solutions can help businesses supercharge their fulfillment strategy, optimizing inventory management and ensuring fast cost-efficient deliveries.

2. Optimized Inventory Distribution

The most effective way to meet consumer expectations for fast shipping is to decrease time in transit (TNT) on final mile deliveries. Outsourced fulfillment partners enable this by utilizing a dedicated expert team, technologies for optimizing delivery processes, and fulfillment centers that are closer to your customers. 

3. Scalability

A co-warehousing agreement typically doesn’t require a long-term commitment to an average daily order volume. These agreements are perfect for testing new products, launching promotional opportunities, and scaling production based on demand flux.

As your business grows, outsourced fulfillment partners can make it easier to scale your operations cost-efficiently with flexible service agreements that adapt to rising needs. 

the benefits of co-warehousing

Fulfillment outsourcing offers businesses the benefits of advanced supply chain technology, optimized inventory distribution for faster shipping, and scalability through flexible service agreements. This enables cost-efficient operations and adaptability to demand fluctuations.

What Types of Outsourced Fulfillment Options Fit Your Business?

Fulfillment companies offer various service packages. Here, we’ll examine the main types of services offered to help you decide what to look for in a company.

Niche Fulfillment

Some companies offer tailored expertise for businesses shipping in specific verticals.

Examples include:

  • Apparel fulfillment services
  • Electronics
  • Jewelyr
  • Cold chain

Their dedication and vertical expertise can facilitate a streamlined shipping process. They can help you navigate the nuances of shipping in your industry, giving you control over factors and trends peculiar to your business.

3PL Companies

3PL companies will be the baseline outsourced fulfillment option. They offer receiving, storing, picking and packing, rate shopping, and carrier pickup. 

However, many 3PLs require long-term contracts or commitments to an average daily volume (ADV) that may be hard to guarantee year-round. Additionally, they often require expensive technology solutions to connect to their warehouse management system (WMS). That’s why 74% of SMBs agree that cowarehousing solutions are the future of outsourced fulfillment.

4PL Services (Cowarehousing)

A cowarehousing company aggregates the inventory of multiple merchants to negotiate better storage and fulfillment rates, labor, and competitive service level agreements (SLAs)

A cowarehousing model also gives SMBs access to enterprise-grade capabilities like supply chain technology, optimized inventory distribution, and scalability to respond quickly to shifts in demand. 

The right 4PL partner will be an extension of your team, offer in-depth reporting, uphold high SLAs, and more. 

Streamlined fulfillment service icons

Factors to Consider When Choosing a Fulfillment Company

Ensure you choose the right shipping partner with these factors: 

Delivery Speeds

In today’s highly competitive business world, speed is of the essence. Look for a fulfillment partner capable of meeting customers’ expectations for fast delivery. Customers today expect deliveries within 1–2 days or even the same day. 

Fulfillment Center Locations 

Choose a fulfillment company with warehouses close to your target markets to minimize transit times and shipping costs. Make sure to check the areas that they cover, too, especially if you require international shipping. 

Costs

Cost-effectiveness is one of the most crucial considerations for fulfillment companies. Depending on sales velocity, product size, and handling requirements, it may make sense to move some SKUs into an outsourced fulfillment provider and keep some in-house.

Software Integration and Fulfillment Technology

Choose a partner that seamlessly integrates with your eCommerce platform and other business systems to ensure efficiency, accuracy, and security throughout the fulfillment process. 

Ware2Go offers various fulfillment technologies, including warehouse management, order management, and transportation management systems. 

Thanks to over 250 connectors to major eCommerce technologies, Ware2Go clients can easily access swift shipping integrations for seamless shipping operations. Their ERPs (Enterprise Resource Planning Systems) enable centralized data management and automate various shipping management processes. 

Plus, their open APIs (Application Programming Interfaces) let businesses easily integrate their internal software with their fulfillment systems to streamline operations and improve visibility.

Packaging and Branding Options

Select fulfillment services that offer customizable packaging and branding options if you want to provide a memorable unboxing experience. Think about this endeavor as a partnership to establish pack out SOPs that balance safety in transit against cost-effectiveness of the packaging/sustainability.

Returns Management

We’ve teamed with Happy Returns to provide a better customer experience, save money for merchants, and reduce the impact of returns on the planet. Happy Returns handles automation to process and ship returns for ease.

Versatility and Scalability

Your fulfillment partner should be capable of adapting to your evolving needs and growing alongside your business. 

They should allow you to adjust your storage space based on fluctuating inventory and seasonal demands. Also, check for real-time visibility into inventory levels, order status, and shipping information so you can make informed decisions and respond promptly to changing market conditions. 

fast delivery when outsourcing fulfillment

As you expand your business, your fulfillment partner should also be able to expand their network of distribution centers to reach new markets and customers efficiently. 

Security

Outsource order fulfillment to secure warehouse facilities with advanced security measures such as surveillance cameras, access control, and alarm systems. Your fulfillment partner should also employ trained personnel who adhere to strict security protocols to ensure the safe handling and storage of your products. 

They should also have sophisticated inventory management systems that track the movement of goods in real time, providing visibility into inventory levels, locations, and transactions. 

Also, ensure robust data security measures to safeguard sensitive information such as customer data, order details, and financial records. 

To enjoy efficient operations when outsourcing fulfillment, choose a shipping partner wisely by prioritizing delivery speeds, fulfillment center locations, cost-effectiveness, software integration, packaging options, scalability, and security.

Dos and Don’ts of Outsourcing Fulfillment

To help improve your chances of success when outsourcing shipping services, here are some do’s and don’ts to consider: 

Do’s

Set Clear Goals and Expectations

Clear goals provide direction and clarity for you and your fulfillment partner. Define specific, measurable, achievable, relevant, and time-bound (SMART) goals. Regularly communicate with your partner to review their systems.

Prioritize Seamless Integrations with Advanced Software Solutions

Selecting fulfillment partners with a robust technological ecosystem, including a diverse range of connectors to major marketplaces, ERPs, and open APIs, can benefit efficiency and scalability. Such integrations facilitate seamless communication and data exchange between your eCommerce platform and the fulfillment center, streamlining order management processes and reducing the risk of errors or delays. 

Additionally, open APIs provide flexibility and customization options, allowing businesses to tailor their shipping integrations to specific requirements and preferences. 

Stay Informed About Industry Trends

Staying abreast of industry trends, best practices, and technological advances can help you innovate in your fulfillment operations and stay competitive. 

Emerging trends include sustainable logistics, last-mile delivery solutions like drones and delivery robots, and blockchain-based supply chain solutions.

To build a strong foundation when fulfillment outsourcing, set clear goals and expectations, prioritize seamless integrations with advanced software solutions, and stay informed about industry trends. Doing so helps provide direction, efficiency, innovation, and competitiveness in your fulfillment operations.

Don’ts

Decide Solely Based on Pricing

Prioritize value over lower cost, weighing service quality, reliability, and scalability factors. Conduct a thorough cost-benefit analysis to ensure your provider offers the best balance of price and performance.

Settle For The First Fulfillment Company You Meet

Failing to explore multiple fulfillment companies can lead to missed opportunities for better service, pricing, or compatibility. Research multiple providers, request quotes, and conduct site visits or consultations. 

Rely Solely on Website Claims

A company’s website may not accurately represent its capabilities, performance, or suitability for your business needs. Dig deeper into their backgrounds, reviews, and industry reputation. Schedule an introductory in-person meeting or video call to ask detailed questions (if they don’t already offer this).

Building a Lasting Partnership

Finding the right outsourced fulfillment partner can enhance the shipping experience for your business and customers. Outsourcing fulfillment to a reputable company can streamline operations, reduce costs, improve scalability, and enhance customer satisfaction, all while freeing up more time for you to focus on core activities for growth and innovation.

You’ve learned the critical factors to consider when partnering with a fulfillment provider, including setting clear goals, evaluating facility features, prioritizing communication, and embracing technology.

Take control of your fulfillment process today. Implement the strategies discussed, and watch your business transform into a powerhouse of efficiency and customer satisfaction.

Get closer to your customers with guaranteed two-day delivery when you use Ware2Go’s service.

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