Should Your Order Fulfillment be Done In-house or Outsourced?

Does your condo have the look and feel of factory floor? Then it could be a sign that you need to change your approach. You have to decide if you want to fulfill or outsource your customer orders.

It is is one of the biggest challenges most business owners face. There comes a point when they cannot physically package and ship every item themselves… however, it would be cool to have superhuman speed like the Flash to get everything done.

Alas, no one I know is blessed with superhuman speed, so let’s create some real world solutions for our order fulfillment.The question comes down to should you either continuing fulfilling orders in a factory or reach out to third party logistics (3PL) company to handle your order systems. The choice is yours, and below I’ll show you the benefits for both arguments.

Why outsource?

Ecommerce stores today have so many more options than what they had even 5 years ago. With the rapid pace of technological advancement, I am seeing a new era for ecommerce store owners who want to get their business off the ground.

Below I’ll discuss a number of reasons why many of these new stores outsource many of their key manufacturing and fulfillment duties to third parties.

No storage… or overcrowded homes. When James Whitely started garden furniture maker White Stores from his Essex home seven years ago, he was not able to handle the overhead and expenses of fulfilling orders himself.

He said: “All I needed to do was generate orders, forward them to the supplier, get them to dispatch the goods, and it meant I could work from home. It allowed me to start with absolutely no capital as well as no overheads.”

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For ecommerce store owners who do not have the space or ability to ship all the products themselves, working with third party suppliers is a great way to maximize your sales without risking much capital.

Take BeardBrand for example. This Shopify ecommerce site sells products to gentlemen with beards.

The business began “with only $30 and a commitment from a vendor. I hustled and pieced together a store which launched the day before the article posted.”

Founder Eric Bandholz stated, “Our shipping and fulfillment has been a dream for us… I do pay more for the company to handle the fulfillment for us, but I think it’s totally worth it. If I didn’t do it; I’d be sitting around in a warehouse labeling orders and sending them out.”

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The biggest hurdle for new ecommerce store owners is how do they handle inventory. By outsourcing this to a third party vendor, BeardBrand focused on what they do best: marketing. They were able to get the publicity they needed immediately to grow their business.

Keep expenses down when you start drop shipping large amounts.

While drop shipping might have higher per item costs when you start, it is also possible to work with the vendor to lower those prices to the point where you are on par or better than if you manufactured the products yourself.

For example Element Brands CEO Bill Dalessandro discusses how his company went from a 15-20% margin on their product to a 40% margin when they started purchasing products directly from their supplier wholesale.

Essentially, buying products in large quantities is key. Remember the scene in Batman when he starts ordering the different parts he needs for his uniform. He buys 10,000 parts for something to avoid suspicion. That is exactly what you are doing when buying wholesale from suppliers.

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By purchasing in bulk, you can receive access to volume discounts on your inventory. It is a leap of faith, but if your site wants to increase revenue, you need to maximize profits first. That sounded like something my dad would say, but it is true.

Therefore, if you want the massive discounts outsourcing can provide, make sure you build up to purchasing orders in bulk. You get a discounted product, and the company gets a large order to help their revenue.

Keep in mind a few things when you do this.

  1. You need to make a large up front purchase not only for the goods, but the extra cargo space needed for the volume you purchase.
  2. If the inventory does not sell, you still have to pay for the storage of the items.
  3. Because of 1 and 2, know your numbers. Do not just purchase 10,000 items because you get a good deal. Think about how long it takes to sell the products, and if it is more profitable to buy in bulk over the long term.

If you are new to ecommerce, ask yourself where you see your business in 1, 3, and 5 years based upon current revenue. Is there enough growth to justify buying products in wholesale quantities?

Are you not the dealing with employees sort? Then outsourcing is the greatest thing since sliced bread for you. Outsource your manufacturing processes to 3PL companies or suppliers like Amazon FBA and Shipwire.

If your greatest benefit is that you do not want to hire employees that is okay. In today’s regulatory environment in the United States it can be very complicated to hire employees.

Instead, let Amazon and Shipwire’s employees do all the work. All you need to do is send your products to their storage facility. Once that is done, your logistics company automatically processes your orders through their Shopify plugin.

Case in point, eCommHub integrates your Amazon shop with your Shopify shop. Orders are automatically tracked and inventoried through this system to minimize mistakes.

This means, you do not have to hire employees to send the order forms over to Amazon for shipping. The software does it for you.

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Shipwire Order Fulfillment does the same thing that eCommHub does for Shipwire customers.

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One of their clients, Juicies+ said, “You will be amazed at how convenient it is and how much time you can gain back by no longer having to worry about doing your own packing and shipping. The setup takes a bit in the beginning, but from then on you are FREE!”

By using software and third party services, you can get around hiring employees when your company is growing.

Do you use any Shopify automation software to outsource your fulfillment? Let us know in the comments below.

Increase your reach with outsourcing. Outsourcing your order fulfillment allows you to expand your reach faster.

Take new swimwear company, Southern Swimwear. Within months of launching their site, they were able to start selling their product around the world. This would be extremely difficult for a company that did everything in-house.

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Plus, using other features like re-stock notification buttons they are able to keep their customers in the loop when their suppliers have the products available to ship to customers.

New companies sometimes struggle to keep up with established ones because they do not have their systems in order. The best way around that is to partner with experienced outsourcers.

How fast do you want to grow your business? If the answer is quickly, then you want to consider leveraging other people’s talents.

Why keep it in-house?

While growing fast and minimizing employees is always a positive, some businesses prefer to manufacture their own products. While a number of reasons exists, below are the most common reasons a company would want to keep their manufacturing and fulfillment in-house.

Less control over your inventory. Some ecommerce models require you to be at the center of the manufacturing process. If you were to give up that control early on, it might be detrimental to the success of your store.

Take Alison Arnold’s ecommerce site Vintage Fabric. Allison collects materials and fabrics at local fairs to sell custom handbags.

All of her handbags are made from the comfort of her home, and she exports products across the UK, as well as overseas locations in the US and Japan.

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Arnold dedicates a specific room in her house to order fulfillment. As I discussed on order fulfillment in the past, having a defined space for your in-house order fulfillment is essential.

Plus, she is very close to her own supply chain… the nearby flea markets give her inspiration and the excuse to get out of the house every once in a while.

However, being near the supply chain is not the only reason to control your inventory.

Another person who is interested in her supply chain is Laura Layton from ShopTinLizzy.com. Her fashion ecommerce store is an extension of the mobile boutique she runs out of a UPS style van.

She purchases merchandise from impoverished artisans at a fair living wage.

Her entire brand is built on the idea that she only buys merchandise at fair wage levels. This means she needs to control the fulfillment process to ensure she has a quality product to sell.

She then sells her boutique designs to “thoughtful shoppers” via her ecommerce site and mobile boutique. Without being in control of her inventory this would not be possible.

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Therefore, the question you need to ask about controlling inventory is the following. Will your company suffer if you outsource products to a third party?

Lower your costs by in-housing larger orders. Some reasons for keeping your product creation in-house have more to do with saving money than controlling your inventory.

Experts note that the best companies to outsource their products are those that have between 30 to 1400 sales per month. For smaller companies, the per cost is too much with outsourcing.

Conversely, larger companies with over 1400 orders per month pay about the same or less for labor and storage costs than going with a 3PL company.

Most drop shipping arrangements include the ecommerce site paying for the storage and shipping of the product. They pay this price at a premium in many cases compared to wholesale buyers.

Remember when you use sites like Shipwire, they charge you for shipping per order, as well as charge for storage. However, at a certain point their prices do not decrease substantially enough to save you money.

This is the point when you should consider hiring employees to reduce costs.

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If you have enjoyed outsourcing up to this point, ask: Do you care more about increasing revenues or maintaining your freedom?

Personalize your products. Not all issues about supply and profit however.

Take Emily and Liam. They run two family friendly websites SillMillyMoo.com and TeethingJewellery.com (and .com.au). This power couple manages all their products through their site, so they can personalize every order before shipping it out. This is despite the fact they are raising two daughters and have a full day of balancing work and family life.

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Emily and Liam understand the benefit of running a small ecommerce store is you are not stuck with standard packaging options that a large store like Amazon decrees if you use their service.

This is where your personality can shine. Set the bar high and show your customers how much you care by delivering a little extra with each package.

Along this line, Gem Chocolates is a superb example of what you can do to customize your products yourself.

Owner Glen Knowles set out to create custom packaging to emphasize the company brand before shipping his first order.

His chocolate boxes packaging costs $4 per box. The box is based on a hand drawn sketch Glen made to give it a premium look and feel.

If Gem Chocolates did not manufacture and ship these custom designed chocolates in his physical store, then chocolatier would not be able to add these personal touches that make Gem so popular.

Think about what makes sense for your clients. How can you the shipping stand out? Then find out if you have to customize the packaging yourself, or can it be done through a 3PL company?

Final thoughts

Whether you decide to set up a complete in-house facility or outsource your order fulfillment, ask yourself these questions.

  • How does in-housing or outsourcing affect the rest of my business?
  • Do I have the time to fulfill these orders properly?
  • Is this my super power?

When you can answer those questions, you know what the right choice is for you. Let us know what you decide to do below in the comment area, and why you decided to go in that direction.