To outsource or not to outsource order fulfillment? That is the question that today’s ecommerce businesses have to grapple with.
Many online retailers start off handling the storage, picking, packing, and shipping of their orders themselves, but – as their business grows and expands across new markets and product lines – they often realize that they don’t have the capability to effectively manage order fulfillment operations and consistently meet customer delivery expectations.
That’s why many ecommerce businesses decide to engage third-party logistics (3PL) providers – like Amazon Multi-Channel Fulfillment (MCF) – to help them handle order fulfillment operations.
Nearly two-thirds of ecommerce businesses managing fulfillment in-house today plan to outsource these operations to a 3PL in the future, according to a recently released Forrester Consulting study, commissioned by Amazon, titled From click to delivery: Unleashing the power of ecommerce fulfillment.
The study – which is based on a survey of 300 ecommerce executives in the US – delves into the order fulfillment challenges businesses today face, the reasons why many opt to outsource to a 3PL, and the benefits of effective order fulfillment.
But – if your business manages your fulfillment operations in-house – how do you know if it’s time to engage a 3PL?
In this blog, we highlight the four telltale signs that your business should start considering whether to make the shift to outsourcing your ecommerce fulfillment to a 3PL.
#1: Inability to meet customers’ expectations for order delivery speed
Perhaps the most clear and critical indicator that your business should start outsourcing is that you are not able to consistently meet customers’ expectations for order fulfillment speed.
Of course, these expectations are ever-increasing: According to the Forrester study, ecommerce executives say that five years ago, customers expected click-to-delivery speeds of 5.7 days on average, while customers today expect order delivery in 2.5 days on average, and five years in the future, customers will expect order delivery in 1.5 days on average.
If your business is not able to keep pace with customers’ order delivery expectations, you are not alone. The Forrester study reveals that 63% of online retailers report that at least one in 10 of their orders is delivered late, and 64% are unable to deliver orders as fast as their customers expect during peak shopping periods (and 27% have the same problem during non-peak periods). This inability to meet customer expectations during peak shopping periods is particularly prevalent among businesses that handle their fulfillment in house – with 42% stating that they are not able to handle spikes in demand and high order volumes.
Failing to live up to customers’ order delivery expectations can take a toll on your bottom line. According to the Forrester study, 79% of ecommerce leaders state that order fulfillment experiences impact whether customers purchase from a retailer again, and 78% say that poor fulfillment performance causes a loss in ecommerce sales revenue.
If your business is not able to reliably meet customer expectations for order delivery speed, you may want to make the shift to outsourcing to a 3PL provider. The Forrester study shows that ecommerce businesses improved their delivery speeds by an average of 24% by outsourcing – from 3.7 days for in-house fulfillment to 2.8 days for outsourced fulfillment, on average.
Working with a 3PL can help give you the order delivery speed you need to exceed customer expectations.
#2: Difficulties in ensuring a consistent order fulfillment experience across multiple sales channels
Today’s shoppers are buying items across a growing number of channels – from social media stores to brand websites to ecommerce marketplaces.
According to the Forrester research, the number of ecommerce channels is rapidly increasing: Five years ago, ecommerce businesses sold through 4.3 channels on average, and this figure has soared to 5.4 channels today and is expected to reach 6.5 channels within the next five years.
To capture wallet share from consumers, your business must have a presence on those online channels where they shop and must be able to deliver a consistent, first-class click-to-delivery experience across all the channels you sell through.
Managing inventory and order fulfillment across multiple channels, however, is a major challenge – especially for online retailers who handle their logistics operations in house. The Forrester research shows that 41% of ecommerce leaders whose businesses manage fulfillment in house say that they struggle to keep the order fulfillment experience consistent across various channels, and 48% state that in-house fulfillment issues have led to an inability to expand to new channels.
Outsourcing order fulfillment to a 3PL provider can help you standardize and optimize your click-to-delivery performance across channels. In fact, according to the Forrester study, 66% of online retailers who outsource have seen a transformational improvement in their ability to deliver a consistent customer experience across channels since they started working with a 3PL.
#3: Trouble reining in logistics costs
The third sign that it’s time for your business to make the move to outsourcing is that you are not able to get your logistics costs – including costs for picking, packing, and shipping, warehousing, and workforce – under control.
According to the Forrester research, 43% of ecommerce executives who handle their own order fulfillment state that they haven’t been able to reduce their logistics costs – making this the number one issue with in-house fulfillment.
Engaging a 3PL provider, however, can open up opportunities for cost reduction across your order fulfillment operations. The Forrester research shows that 77% of ecommerce leaders who outsource to a 3PL provider have experienced “transformational improvement” in reducing the operating costs associated with order fulfillment. Additionally, online retailers who outsource report a 28% reduction in average fulfillment cost per order.
How can a 3PL provider help you lower your logistics costs? There are many ways, for example:
- A 3PL can help you improve inventory turnover and reduce storage costs by consolidating your stock into a single pool that can be used across all of your sales channels.
- A 3PL can enable you to leverage their fulfillment network and state-of-the-art technologies – rather than having to invest in building or buying your own.
- A 3PL can negotiate better shipping rates for you with carriers, so that you can minimize shipping costs.
#4: Order fulfillment taking up too much of your time and energy
Another clear signal that your business should make the shift to outsourcing is that handling your order fulfillment operations is eating up an inordinate amount of your time and energy – and preventing you from focusing on other critical areas of your business such as product development, sales, and marketing.
If you have this problem, you are in good company: 41% of ecommerce executives with in-house fulfillment say that they spend too much time and energy managing their fulfillment operations, according to the Forrester study.
Let’s face it: Order fulfillment is not a core competency for most online retailers. By outsourcing the storing, picking, packing, and shipping of your online orders to 3PL provider (that specializes in these areas), you can dedicate your time and energy to the parts of your business where you can truly excel.
According to the Forrester research, 79% of ecommerce leaders state that outsourcing to a 3PL has freed up their time to concentrate on other areas of their business.
If you are getting bogged down in managing orders and would like to refocus on other parts of your business, you should look at engaging a 3PL to take fulfillment off your plate.
Conclusion
Are you experiencing any of the signs we discussed in this article? If so, it’s probably time to seriously consider engaging a 3PL provider to handle your ecommerce fulfillment.
Outsourcing order fulfillment to a 3PL can deliver a whole host of benefits including a 29% improvement in on-time delivery rate and pick-to-ship cycle time, a 28% reduction in cost per order, and a 24% improvement in delivery speeds, according to the Forrester research.
Once you decide that you want to work with a 3PL, you should conduct a thorough search and evaluate the various providers out there – so that you can ultimately choose the right 3PL for your business.
