Outsourcing fulfillment is top of mind for most brands in 2023. A focus on supply chain resilience and access to greater automation and fulfillment capabilities is leading many merchants to look to outsourced cowarehousing solutions in 2023 and beyond.
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, and many are looking for outsourced fulfillment option. Merchants noted that their top challenges with in-house fulfillment in 2022 included:
Increased warehousing costs (79%)
More complex labor management (36%)
Concerns about the environmental impact of their fulfillment model (30%)
The truth is, most brands excel in product development, marketing, and customer service. Logistics and fulfillment can be a drain on internal resources and a distraction from those core competencies. In fact, 45% of small to mid-sized businesses (SMBs) report that they would like to divert their team’s time away from logistics management and back to primary business functions.
The good news for SMBs is that the warehousing and fulfillment industry is quickly-evolving to meet the needs of today’s digitally-connected merchants, and outsourcing fulfillment to a tech-enabled provider can decrease capital expenditure, streamline operations, and improve service levels.
Ahead we’ll discuss the new outsourced fulfillment options you should explore and how to evaluate the capabilities of potential partners.
Asset-Light Outsourced Fulfillment
Today’s merchants need to stay nimble to react to market changes. A mixed outlook on consumer spending means that most brands are looking to increase margin wherever possible. One of the fist places a merchant can look to increase margin is reducing operating costs, specifically in the supply chain. According to McKinsey, fulfillment and shipping are some of the most expensive line items in an ecommerce merchant’s budget — accounting for up to 35% of a company’s total revenue.
The costs of owning and operating a fulfillment center or warehouse are fixed costs. In today’s market supply chain resilience is key to success, and reducing investment in fixed assets is a great step towards building resiliency. However, simply outsourcing fulfillment to a traditional 3PL can come with its own limitations.
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.
In a cowarehousing model, multiple merchants inventory and order volume is aggregated to negotiate better storage and fulfillment rates as well as guarantee labor and competitive service level agreements (SLAs). Cowarehousing agreements are usually brokered and managed by a neutral third party, often called a 4PL.
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. Ahead, we’ll unpack each of these advantages and outline the key capabilities to look for in a cowarehousing solution.
Supply Chain Technology
Most merchants recognize the need for deeper business intelligence insights and more automation within the supply chain. In fact, merchants report that their top priorities for supply chain technology in 2023 include:
Real-time inventory visibility (44%)
Ability to allocate inventory between warehouses and sales channels (36%)
Insights into order fulfillment and delivery status (35%)
Predictive analytics to assist with forecasting and procurement (34%)
Insights on customers’ locations and buying behaviors (33%)
A cowarehousing partner should offer fulfillment software with all of these capabilities. A 4PL or cowarehousing network is heavily reliant on technology to connect every 3PL within their network as well as connect all sales channels to fulfillment operations.
Optimized Inventory Distribution
The most effective way to meet consumer expectations for fast shipping is to forward-stock inventory as close as possible to the end customer to decrease time in transit (TNT) on final mile deliveries, otherwise known as inventory distribution. However, SMBs often have a hard time justifying the increased inventory carry costs of stocking multiple warehouses.
In a cowarehousing model, merchants can more easily distribute inventory because they aren’t required to carry as much inventory in each warehouse. By aggregating the volume of multiple merchants, warehouses can optimize storage space and offer competitive rates to small to mid-sized merchants.
A cowarehousing agreement typically does not require a long-term commitment to an average daily order volume. This makes these agreements perfect for testing new products and launching large sales or promotional opportunities. SMBs can scale up quickly to support an influx in volume, then scale back down to keep operating costs low in times of lower demand.
What’s more, emerging partnerships with large retailers like the Gap, give SMBs access to some of the country’s largest and most robust supply chains, giving them virtually unlimited capacity for future growth.
When to Outsource Fulfillment
Outsourcing fulfillment is a big decision for any business, but waiting too long to outsource can stagnate growth and lead to poor customer experience. Below are three tell-tale signs that it may be time to consider outsourcing.
1. Service levels are suffering.
Timely fulfillment is key to retaining valuable customers and growing customer lifetime value (CLV). If your in-house operations are struggling to keep up with demand, it’s time to start looking for a fulfillment partner that can meet your customers’ expectations.
2. Fulfillment costs are damaging margins.
If you’re over-indexing on long-zone ground shipments or next-day air, you could be losing margin on every sale. The right fulfillment partner can recommend warehouse placement to decrease TNT and optimize fulfillment and delivery costs.
3. Other areas of your business are suffering.
Most SMBs have deep expertise in bringing great products to market, finding their customers on the right sales channels, and offering excellent customer service. If your team’s attention is diverted away from their core competencies to manage fulfillment and logistics, you’re not using your internal resources effectively. Look for an outsourced fulfillment solution that will free your team up to focus on the things they do best.
Building a Lasting Partnership
Above all else, a fulfillment partner should be fully committed to the long-term growth of your business. Finding a partner that prioritizes upholding their SLA’s and making your brand look good through exceptional customer experiences will transform outsourcing your fulfillment from simply looking for a new vendor to searching for a valuable addition to your team.
To learn more about how Ware2Go is simplifying fulfillment for merchants of all sizes, take a look at our solution.
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