The Ultimate Guide to Outsourced Fulfillment

November 01, 2024

by Lori Boyer

Outsourced fulfillment is just what it sounds like—handing over the work of your order fulfillment operations to a third-party provider, or a third-party logistics (3PL) company. They handle everything from inventory storage, picking and packing, to shipping—all those things that can drive you nuts if you’re doing it yourself.

Picture this—you’re an online retailer struggling to keep up with fulfillment during the busy holiday season. Your small in-house team is overwhelmed, leading to late shipments and unhappy customers—a situation many growing businesses know all too well. You try to optimize processes and hire more people, but despite your best efforts, the sheer volume of orders becomes too much to handle. Eventually, you decide to move your fulfillment over to a 3PL to help you scale operations effectively. This partnership ensures that all holiday orders are delivered on time, relieving the pressure on your team and allowing you to keep your customers satisfied.

By handing over the complexities of warehousing and shipping, you can focus on creating great products and enhancing customer satisfaction. While this outsourced approach can often bring a ton of benefits—the latest study found that 90% of Fortune 500 companies use a 3PL—it's not without some drawbacks. It's crucial to weigh both the positives and the negatives to determine if outsourcing truly fits your business model.

Is outsourcing right for your business?

If you're considering outsourcing your fulfillment, there are several key factors that can help you determine if it's the right move for your business.

Current fulfillment costs. Start by crunching the numbers on staffing, warehousing, and shipping costs. Compare these costs with what you’d save by outsourcing. For example, if your in-house fulfillment requires a dedicated team and warehouse rental, calculate those monthly expenses. Outsourcing may help you cut down on these fixed costs, especially if you’re dealing with inconsistent order volumes. Generally, if your costs are rising and becoming unsustainable as you grow, it's a good time to consider outsourcing.
Warehouse capacity. Are you bursting at the seams? If your current space isn’t cutting it or you're considering moving spaces, that may be a signal that it's time to consider outsourcing.
Delivery times. Are you keeping up with customer expectations for quick shipping? As a baseline, if your shipments are not arriving on the scheduled date at least 95% of the time, it is likely that you are not staying competitive and may need to reevaluate your fulfillment strategy.
Order volume fluctuations. Does your order volume spike heavily during the holidays or other busy seasons? Outsourcing is a good way to manage the surge without hiring extra hands.
Focus on core competencies. If logistics are taking your attention away from core activities like product development or customer engagement, outsourcing could be the answer.

Cost-benefit comparison

To help you decide, here's a cost-benefit comparison between in-house fulfillment and outsourced fulfillment:

Criteria	In-house fulfillment	Outsourced fulfillment (3PL)
Cost	High due to warehousing and staffing costs	Potentially lower due to shared infrastructure
Scalability	Limited by available space and resources	Easily scalable with fluctuating order volumes
Control	Full control over all processes	Relinquished to an external provider
Technology	May require significant investment	Access to specialized technology and expertise

For more details on fulfillment options, check out our fulfillment center guide for ecommerce businesses.

Negotiation tips for service agreements

If you decide to outsource, it's important that you find the right fit for your specific business. Setting clear expectations is key to a successful partnership. Start by defining important metrics in your service agreements to keep everything on track.

When negotiating, make sure to discuss:

Pricing structure. Negotiate a pricing model that aligns with your business needs. Whether it's per-item fees, storage costs, or shipping rates, make sure you understand all charges to avoid surprises later.
Service level agreements (SLAs). Define clear SLAs for key metrics like order accuracy, shipping times, and response times for customer support. Aim for an Order Accuracy Rate of at least 98% and on-time delivery rates of 95% to 98%. This will help ensure reliability and customer satisfaction.
Flexibility and scalability. Ensure that the provider can handle fluctuations in order volume, especially during peak seasons. Ask for clauses that allow for flexibility without significant cost increases.
Exit strategy. Discuss exit terms in case the partnership doesn't work out. Make sure there are clear processes for transitioning out of the agreement without major disruptions to your business.
Reporting and transparency. Make sure your provider commits to regular updates so you can track performance effectively. Transparent reporting helps you stay informed about inventory levels, shipping times, and any issues that arise.

Selecting an outsourced fulfillment provider

Choosing the right fulfillment partner is a crucial step in streamlining your operations and ensuring customer satisfaction. Inventory management is one of the key factors to consider—your provider should have a solid system for tracking stock levels to prevent over-selling or stockouts. Efficient order processing is another important element. Look for providers who guarantee fast and accurate order fulfillment, as this will play a major role in keeping your customers happy and loyal.

Additionally, evaluate their shipping and logistics capabilities. Strong shipping partnerships help cut costs and reduce delivery times, enhancing the overall experience for your customers. Technology integration should not be overlooked; seamless integration with your ecommerce platform will help reduce errors and speed up the fulfillment process. If you're looking for a fulfillment partner who can receive, warehouse, pick-pack, and ship your inventory, EasyPost’s network is here for you.

Questions to ask potential providers

When evaluating a potential fulfillment partner, consider asking the following questions to ensure they are the right fit for your business:

What is your average order processing time? Are they fast enough to meet your customers' expectations?
How do you handle peak season demand? Do they have a plan for handling busy periods?
What technology do you use for integration? Make sure their tech plays nice with yours.
What kind of support do you offer? How do they handle customer service issues?

Why some businesses prefer to keep fulfillment in-house

While outsourcing fulfillment offers many advantages, there are reasons why some businesses might prefer to keep things in-house. One of the main reasons people shy away from using a 3pl is simply control. When you manage fulfillment internally, you have direct oversight over every detail, which is crucial for maintaining quality and brand consistency. It can be very uncomfortable for many businesses to no longer be able to see, touch, or smell their beloved products! To mitigate this, it's essential to set clear service-level agreements (SLAs) and ensure that your provider offers regular performance reports to maintain transparency.

Another common concern revolves around communication. Handling fulfillment in-house allows for real-time, direct communication between teams, which can reduce errors and ensure things move smoothly. Outsourcing can introduce challenges, especially if communication isn't seamless, leading to delayed shipments or mistakes. Establishing consistent communication channels with a third-party provider, like regular check-ins or using shared project management tools, can help bridge this gap.

Quality assurance is another thing to keep in mind. By managing fulfillment internally, businesses can maintain a high standard of quality control. When outsourcing, there is always a risk that quality could slip, especially if the provider doesn’t fully understand your brand's expectations. Regular audits and performance reviews are effective ways to ensure that a 3PL partner meets your standards and keeps customers happy.

Finally, some businesses—especially those of a sensitive nature—have data security concerns. Sharing customer information with a third-party provider can feel scary. Ensuring your partner has strong cybersecurity measures is crucial, but for some businesses, the safest option is to keep data management and fulfillment internal.

Ultimately, the decision to keep fulfillment in-house or outsource depends on the specific needs and priorities of your business. If direct control, quality assurance, and data security are top priorities, keeping fulfillment in-house might be the better option. However, with careful planning and clear agreements, many of the challenges of outsourcing can be effectively managed to create a successful partnership.

Outsourced fulfillment the easy way

Outsourcing fulfillment has tons of benefits—lower costs, scalability, and greater efficiency. EasyPost works with many great 3PL partners to help streamline your fulfillment process. Through our technology, efficient shipping options, and logistics expertise, we make it easy to connect with the right 3PL for your needs. Check out our list of partners here to find the perfect fit for your business. Our tools also help you manage fulfillment, providing the best shipping rates and integration options, so you can focus on growing your business.

Ready to make fulfillment easy? Try it for free today!