5 Signs It's Time to Outsource Fulfillment to a Third-Party Logistics Provider (3PL)
As your online store grows, you have more and more to do with less time to do it. Landing more sales means more inventory management, packing up more boxes, getting them out the door and onto trucks at the right time, and hoping that everything inside was correct and arrived undamaged. At the same time, you’re also managing marketing, updating your website, and growing your team.
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When it all starts to feel like too much to do, especially if your current space is getting too cramped, it might be time to outsource to a third-party logistics provider (3PL).
What is a 3PL?
3PLs, or third-party logistic providers, are companies that specialize in getting your products to customers on-time, with orders that are always accurate and packaged safely.
Shipping products and slapping labels on boxes doesn’t have to get in the way of the fun stuff when you outsource correctly. Unfortunately, there’s no guaranteed time when a company knows that they’re ready to outsource.
So, instead of looking for a magic bullet, pay attention to your pain. If any of these things are getting in the way of running your business efficiently, it’s time to start looking for a fulfillment partner. For more information about eCommerce logistics overall, check out our guide.
Why should companies outsource fulfillment?
There are many distinct reasons why you’re likely thinking about outsourcing parts of your business. The most significant benefit is that it can turn a problem with your operations into a competitive advantage because it enables you to deliver high-quality customer service while reducing errors that cost you money.
Professionals focused on fulfillment spend time and money on the right tools, software and workflows to ensure orders are correct and packaged safely. 3PLs are training every day to keep orders accurate and minimize costs because that’s how they stay competitive.
This drive also means they keep an eye on the systems you use and know how to integrate, allowing your eCommerce website to generate shipping rules, printing labels, order information, and more. However, this time it goes directly to the 3PL. They’ll utilize this information so that you don’t need to worry about it.
Their job is to save you money and hassle. When fulfillment is either too expensive or burdensome, then it’s time to give yourself a break and let someone else do the tough work.
So, without further ado, here's 5 signs that it's time to use a 3PL:
01. Filling orders impacts running your business
How many different tasks do you need to do with your eCommerce business each day?
If you’re like most stores, there are almost too many to count. And when you think about the ones you enjoy the most, running the warehouse and taping up boxes probably doesn’t make the top 20. So, if you’re spending the majority of your time ensuring picking and packing operations run smoothly or pinch-hitting to meet jumps in demand, it might be time to turn those operations over to a company that specializes in getting things right and scaling at a moment’s notice. Your warehouse operations today can’t get in the way of securing tomorrow’s customers.
Start looking at your 3PL options when there’s just not enough time in the day to both fill orders and set up new ones. It frees up you and your leadership to focus on the big picture and overall market. You might be able to launch a big sale or try a new product, or even discover where a competitor is lacking by eliminating the time you need to spend on fulfillment.
Watch to see when fulfillment becomes a stressor that prevents you from tackling core activities. Nip it in the bud and give yourself some breathing room by working with someone who specializes in getting your products to customers. It’s worth it just for the extra sleep you’ll get each night.
02. Your inventory is out of control: Ordering too much or too little
One of the worst things an eCommerce store can do is take someone’s money for an order and then not be able to fill it. This issue impacts trust significantly and can lead to cancellations and refund requests because you’ve got many competitors who might be able to ship something out sooner.
Stock-outs not only prevent a sale from occurring, but they can reduce the chance that someone comes back to your store next time. Avoiding them requires you have intimate knowledge of the inventory you have right now.
Ordering too much inventory, on the other hand, eats away at the revenue you might need for things like hiring a bigger team, launching a new product or advertising for a big sale. You’re also paying for more storage than you need. If your products have specific needs, such as climate control, then you can significantly run up costs while you try your best to increase sales and get rid of excess inventory.
Inventory awareness takes time. You’ll need to count everything, track levels as they’re sold and resupply before you run too low. At the same time, every order that goes out with mistakes or is returned changes your inventory counts. Managing this and adjusting to changes — like a shelf breaks and falls on items or someone drops a glass jar when trying to put it into a box — is a full-time job. Just trying to eyeball levels and stock can quickly lead to having too much empty space on the shelves or order more products than you can fit.
When either seems to be happening more often than not, it’s likely time to look for a 3PL partner.
The most significant advantage of working with a 3PL here is that they run comprehensive, sophisticated analytics on inventory and sales to help you determine the right inventory level to keep. At the same time, they’re using similar tools to track your inventory accurately, so you never secure too much or too little. So, no stock-outs but also no need to have high volumes that you pay to store month after month.
By integrating with tools like your Wix-based storefront, a 3PL can also ensure that you’re using the best data to meet customers as you need. That means, together, you’re working on how summer differs from winter and how your business should adapt.
03. Orders are wrong, and returns are becoming an issue
Repeat business is the lifeblood of any store, and one of the biggest threats to this revenue stream is when someone has an unpleasant experience and returns a product.
When there’s a growing number of returns, start analyzing why they’re happening. Customers who are not satisfied with a product or who feel like they’re not getting what they order might mean your ads or website copy are promising too much. However, if orders are incorrect, late or products are damaged, it’s something happening in the warehouse.
Outsourcing can help you to tackle these with industry best practices, and you might even secure a guarantee that this won’t happen again. Some 3PLs are willing to pay you if shipments are wrong, which is a big incentive for both you to do business with them and for that company to have orders go out the door right.
Order accuracy reduces returns, especially if you promise two-day shipping and can deliver it. Making good on these promises also improves your customer experience. Your 3PL partner might be able to double that experience if they provide you with special packaging or infill in brand colors, support stickers of your logo or ensure that boxes are otherwise nice-looking compared to traditional cardboard.
Reducing the number of returns that you have right now is one of the best things you can do to improve cash flow immediately. So, if you’re noticing a trend in this risky area, it’s time to reconsider your fulfillment operations. Even if you’re not ready to commit to a 3PL, elevated levels of returns are a sign that something needs to change. Don’t let risks persist.
04. You need more people to do the job but aren’t sure who
Growing your business is stressful. Sometimes it might be updating a website or trying to choose from more than 40 leading payment providers to highlight during checkout. Or you could have grown enough that it’s time for a custom logo and branding to stand out from the crowd.
While all of that is happening, you’ve got internal processes that have to change and expansion, too. Many small business owners know products and eCommerce first but lack expertise in the warehouse arena as well as things like production and manufacturing. There’s a lot to learn, and you need plenty of help.
The question is, do you know the right people to hire and put in charge of such a mission-critical business operation as fulfillment? How do you know who can protect you as you grow?
Increasing customer demands are going to put more significant pressure on you and your warehouse teams, too. There are needs for fast shipping, immediate access to tracking numbers, and plenty of email support when an order is late, incorrect, or the customer is impatient. If you don’t know the space, you’ll need to find someone who does and who can also get your software, workflows, and other operational elements up and running quickly.
For many small businesses, once you grow beyond being able to fill a small set of orders with your core team, this extensive knowledge jump is too much to handle. It’s why, across the industry, it’s common for companies to outsource once they outgrow their first location.
A 3PL will hire the right people, install the right software, and have the right relationships to keep things moving quickly and smoothly. They work across multiple customers like you, so you’re getting expertise at a fraction of the cost — especially when you factor in advanced warehouse and inventory tools, forklifts, and insurance.
Don’t let managing warehouse become painful . If the HR and inventory demands are too much, and you’re not sure if you know how to hire internally to fix it, give yourself a break with a partner who specializes in all of that work.
Outsourcing also allows you to address any immediate changes without having to pull someone off of sales or IT and have them package your products instead. It keeps your workforce focused on where they’re best, while also generally costing you less than hiring warehouse leadership and staff.
05. There are better deals that you aren’t able to get
Ever notice how some competitors can offer equivalent products and shipping times, but at lower costs?
Sometimes, they’re competing solely on margins as a way to train and gain more business — hoping volume makes up for a lower profit per item. However, they might also be able to ship more affordably because they get better rates on their packages from carriers like UPS and FedEx.
The amount that a carrier charges you specifically for shipping a product depends on many factors. Weight, box size, and distance all play a role. Work with DIM weight calculators to see your costs and potentially find out if packaging things differently may save you more over time.
However, there’s another hidden factor: discounts. Leading carriers negotiate discounts on packages and can push things down a good bit below standard rates. But this is only if you have a significant enough volume to make it worth their while.
Ship more. Save more.
The unfortunate side of this is that most small and growing eCommerce businesses aren’t going to meet the scale of packages to get discounts. That’s why a 3PL often comes with immediate, built-in savings. They’ll typically meet carrier requirements because they ship for many different eCommerce stores. The larger their operations, the better the discount they can get.
Most 3PLs will pass on some of these savings directly to you. It keeps them healthy and big, making it easier to reduce churn and grow their operations. If you work with a 3PL that specializes in your type of product — such as hazardous, high-value, large, or heavy — then their carrier deals will be optimized for those product characteristics.
If your average order value is getting swamped in shipping costs, or you feel like you’re paying too much with each package, start with a DIM weight calculator to better prepare. Then, consider a 3PL to secure deeper discounts while also reducing some warehouse costs.
Bonus, sign number 6: Things are going too well
One bonus element for considering a 3PL is when your eCommerce store is going better than expected. Cash is up, orders are booming, and you’re mostly worried about ensuring you can have the right product supply to meet demand.
It’s the perfect position to be in for any online shop.
The reason to consider a 3PL, in this case, is to maximize those benefits and capitalize on that potential. Instead of waiting until you hit some of the pain points discussed above, you can proactively find partners who are there to help your business grow and thrive.
Don’t wait until products are being returned, the warehouse is too small, or you outgrow your teams but lack the capital to scale management. Start looking at 3PL partnerships today, and you just might discover that the best path to prosperity and profitability is one where you work on your favorite parts of eCommerce and leave the fulfillment to someone else.
Director of Marketing for Red Stag Fulfillment
Jake Rheude is the Director of Marketing for Red Stag Fulfillment, a fulfillment service provider that was born out of eCommerce. He has years of experience in digital business development and growth planning. In his free time, Jake enjoys reading about business and sharing his own experience with others.