Dramatic Views: Fulfillment Outsourcing, Pros and Cons

Editor’s Note:”Notable Views” is a series where we ask leading experts to deal with critical, ecommerce-related topics. With this setup, we corresponded with John Lindberg, president of eFulfillment Service, a Michigan-based ecommerce fulfillment company. He’s also a Practical eCommerce contributor, addressing shipping and satisfaction matters. Lindberg’s perspectives on outsourcing satisfaction are below.

I have an arrangement fulfillment company. So you may assume that I need all merchants to outsource their order fulfillment. However, I don’t see it that way in any way. There are a lot of scenarios that outsourcing makes sense, but there are many where it does not. The purpose of this guide is to offer my perspectives — that any online merchant can use — on if satisfaction outsourcing is appropriate.

Reasons Not to Outsource Fulfillment

To begin with, there are numerous reasons not to outsource satisfaction.

A recent blog post on Practical eCommerce did a fantastic job of describing why outsourcing might not be perfect for you. In “Top 7 Reasons Why You Shouldn’t Outsource Fulfillment,” blogger Jamie Salvatori — a successful ecommerce entrepreneur — explained his opposition to outsourced fulfillment.

  • You need to rely on your fulfillment center’s delivery reliability and speed.
  • Your satisfaction provider may make more errors than you or your employees would.
  • The yield processing employees might not be able to estimate the salability of your returns.
  • The outsourced cost might wind up more than you’d pay doing fulfillment by yourself.
  • The fulfillment house may not package your product carefully enough.
  • You’ll need to rely on your satisfaction firm’s stock packaging.
  • And you’ll need to adapt to your satisfaction center’s generic systems, rather than creating a exceptional processing solution of your own.

Reasons to Outsource Fulfillment

John Lindberg

But, there are a few compelling reasons why the opposite could be true.

  • Outsourcing can consume seasonal spikes in returns and shipping quantity.
  • Most fulfillment houses offer access to FedEx and UPS discounts.
  • All established satisfaction providers guarantee that their work.
  • Outsourcing converts fixed costs like rent and labour to pure variable cost per purchase.
  • You can concentrate on what you do best by outsourcing unfamiliar tasks.

Additionally, there are scenarios for which there is not any viable alternative to outsourcing. Examples include: (a) foreign exporters selling expensive-to-ship product into the U.S.; (b) online merchants avoiding order processing due to lifestyle choices, (c) the physical workload might be too much for the online merchant to manage by themselves, and (d) the merchant’s geographic location may be too distant from its clients. In all these situations, fulfillment outsourcing is often chosen regardless of what costs are involved.

Calculating the Per-Order Fulfillment Cost

In most circumstances, however, reduced per-order satisfaction cost is the key element. The beginning point in the cost comparison procedure is to carefully calculate your current or projected fulfillment cost per order and to compare this to the cost per order quoted by reputable order fulfillment companies.

To start, use your most recent profit and loss statement or your company plan to identify all of the costs that you would reduce or remove if you should outsource order fulfillment. Then, simply divide this total by the amount of orders that you’ve shipped or intend to ship in exactly the exact same time frame. The result is your ordinary fulfillment cost per order.

By way of instance, suppose you send 12,000 orders annually and the total of your shipping-supplies cost — UPS, FedEx, USPS cost; satisfaction labor cost, including benefits and taxes; total facility cost, including utilities, rent and depreciation — came to $180,000. Your satisfaction cost would thus be $180,000 divided by 12,000 orders or $15.00 per order. Here is the figure to compare to your outsourced cost per order.

Compare Costs: In-House vs. Outsourced

The next step takes some shopping, but the effort is well worth it. As soon as you understand your own fulfillment cost per order, collect quotes from several fulfillment companies based on (a) the amount of orders and items to be sent, and (b) the delivery fees using their speed charts and including their storage and receiving fees, return processing costs etc.

Just as you guessed your inner fulfillment cost per order, now you can project all of the costs for outsourced fulfillment for a year and divide by the same number.

By way of instance, suppose your very best outsourced-fulfillment fee averaged $2.20 per purchase, average shipping cost was $7.50 per order and the yearly storage and other fees divided by your orders annually was $.80 each. This would mean that your outsourced would be $10.50 ($2.20 + $7.50 + $.80) per purchase and this is the element that you would compare to your inner fulfillment cost per order in earning your outsourcing decision.

Low Volume Shippers

There’s an integral cost that affects the outsource choice for most low volume . FedEx and UPS charge from $520.00 to $1,040.00 a year to get their everyday pickup prices and negotiated volume discounts. These reduced prices are approximately 25 percent less than prices charged at their retail outlets, but you have to sign a contract and give the necessary equipment and materials.

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Endicia.com and Stamps.com fees for access to USPS digital rates run from $120.00 to $420.00 per year depending on service plan and rate-shopping applications like TrueShip or ShipWorks costs an extra $180.00 to $600.00 per year, depending on features.

The total of these costs plus shipping equipment and supplies cost is typically $2,000 to $3,000 annually, which means an internet merchant with package ship quantity less than 1,000 yearly parcels may have a $2.00 or $3.00 per purchase cost before adding in the cost of delivery, facilities and labour. Because outsourced per-order pick-pack prices tend to be less than that, outsourcing can provide free access to reduce ship rates without needing to invest in the needed equipment and applications. Likewise, partial outsourcing may be an effective solution for some.

Since the trend toward free transport continues to build, we’re seeing more midsize and small ecommerce merchants outsourcing particular fulfillment orders while retaining the remainder in-house. This is particularly common among shippers located in the far Western or Eastern U.S.. This implies a fulfillment house could send orders as, state, zone 2, 3 or 4 which otherwise could have been zone 6, 7 or 8. This feature alone could earn a free shipping offer workable — rather than cost prohibitive. The exact same can be true when there’s a large quantity of slow-selling stock to be saved, or storage of large individual items is necessary.

Conclusion

There are pros and cons to pre-order fulfillment. For many online merchants, the essential element is their inner fulfillment cost per order in contrast to the outsourced cost per purchase. For startup and low volume merchants, the fixed cost of monthly and weekly common carrier and applications fees — and the initial cost of package and warehouse processing equipment — often makes outsourced fulfillment pick-and-pack fees”free” by comparison. However, careful attention to some possible satisfaction company’s customer service record and service guarantees is a very important part of the decision-making procedure.