How to Shift From In-House to Outsourced Fulfillment

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For most e-commerce businesses, warehousing and fulfillment start in-house. Many retailers begin by shipping products from their hallways, spare rooms, or small offices and only scale up warehousing when demand and profit allow. 

As you continue to grow, you’ll need to hire more people, expand your warehouses, and invest in additional infrastructure to maintain this fulfillment model. Inevitably though, you’ll find yourself spending a large portion of your day managing warehousing instead of running your e-commerce business. 

For an increasing number of sellers, the solution is to outsource fulfillment, which shifts the burden of fulfilling fast-moving inventory to a third-party logistics (3PL) provider (or several). Supplementing that with your own storage for slow-moving items, dropshipping for large and less common orders, and diversifying your fulfillment network will reduce in-house logistics and risk. You’ll also be able to provide customers with faster, more efficient delivery, which will improve your customer experience. 

That being said, outsourcing fulfillment can be a massive obstacle, but we’re here to simplify the transition. This article will help you begin making the shift to 3PLs and offer advice to reduce the headache.  

The Benefits of Outsourcing Fulfillment

Working with a fulfillment partner unlocks numerous benefits. Whether you source one major 3PL or connect to a network of smaller providers and supplement with your warehouse and FBA or similar services, your business can enjoy the advantages of an external logistics partnership. 

One of the most notable benefits is access to faster, more affordable shipping thanks to spreading inventory across multiple locations. That along with employing fulfillment providers that regularly ship in bulk will qualify you for reduced rates with end-stage delivery services. You can further cut costs through: 

• Access to a wider network of warehouses and carriers
• More resilient logistics since you’ll no longer have a single point of warehouse failure 
• Better technology and order management 
• More efficient packaging, delivery options, and other perks 
• Easier access to labor to meet peak sales period demands without taking on extra costs 
• A stronger ability to deliver to new geographic regions 

Although you’ll have to research and invest in your 3PL, you won’t have to hunt down warehouse management software, scanners, warehouse staff, pick-and-pack methodologies, storage methodologies, and other major components of a strong logistics strategy—your 3PL will take all of that off your hands. 

5 Steps to Shift to Outsourced Fulfillment

1. 1. Determine Your 3PL Requirements

Pinpointing what you need from a 3PL will help you choose a provider (or at least make a shortlist of organizations that meet those needs). A few pertinent questions to ask are:

• Does the 3PL have warehouses in your geographic delivery hotspots? 
• How large is the company? Can they adequately meet your needs? Are they small enough that you'll be a valued customer? Will they be a partner, or will you simply be another customer? 
• What kind of customization do they offer?
• What delivery services do they employ? Do those align with your customers’ expectations?
• Do they offer tracking that meets or exceeds your current offerings?
• Does their software integrate with yours, or will you need a new ERP or inventory management system? 
• How communicative are they? How communicative do you have to be?
• Is the company large enough to scale with you?

You’ll also have to answer internal questions like which products you want to move to a 3PL. Normally, fast-moving products that place the highest demand on your internal logistics are a safe option. Consider as well how much of your internal warehousing you want to keep. For example, if you have a large internal warehouse team, quickly switching to a 3PL could mean letting most of those people go with very little notice. Pick a timeline that works for your personnel and organization. 

2. Implement a Centralized Data System 

It’s important to have systematic internal data management in place before you move to a 3PL. That entails centralized inventory management, synchronizing orders across channels to a central point, and being able to see and track inventory in multiple locations. Solutions like Flxpoint fill this need, allowing you to monitor stock at all locations and channels so you can see where you need inventory. 

1. 3. Test the 3PL 

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It’s a smart idea to test a 3PL’s performance using one or two of your fastest-moving products. Once you set up a couple of products with a potential partner, you can run a few test orders. The process should include waiting for customers to purchase and placing a few orders yourself (anonymously). 

You’ll see how they’re delivered, if the data available to customers is enough to satisfy them, and if you like the delivery speed and order condition upon arrival. If you’re happy and early customer reviews are positive, you can move on to the next step. 

1. 4. Slowly Sell Through Your In-House Stock and Shift to the 3PL

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The easiest way to shift inventory to a 3PL is to send new shipments directly to your chosen 3PL. If you don’t have extensive prep requirements for manufacturer or supplier deliveries, doing so will save you time as well. However, if you do require prep, check if your 3PL provides that service as well. 

Moving new stock to the 3PL as your old inventory sells out allows you to shift to your new provider gradually. During this transition, it’s important not to move dead stock; slow-moving inventory will incur an extra expense with the 3PL. Either get rid of it or keep it in your own warehouses, where storage costs are minimal. 

1. 5. Track Progress

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It’s important to monitor your 3PL’s performance regularly. Do orders arrive on time and in good condition? Are shipping promises reliably met? Are deliveries affordable? Is their pricing reasonable? How does it compare to your own warehousing? To their competitors? 

Keep an eye on customer reviews as well to ensure they’re happy with deliveries. Additionally, you can leverage your centralized data to track key metrics, delivery points, and more. That information will help you identify which products you don’t want your 3PL to handle, which geographic locations you should focus on, and if you have gaps another provider could fill or reduce costs for. 

Reminder: Outsourcing fulfillment doesn’t mean you have to shut down all in-house capabilities. You may want to retain storage space for slow-moving goods (long-term storage costs are expensive), bulky products (3PLs often charge oversize fees), and low-margin items (where you’ll lose money if you incur extra costs). Some retailers also prefer to keep returns at their own warehouses so items can be properly checked, discarded, or repackaged as needed. 

Wrapping up — Know When to Shift From In-House to Outsourced Fulfillment

Outsourcing fulfillment can reduce the burden on internal management and free time to focus on other aspects of your business. It can also lower your total overhead costs since you won’t have to build and maintain infrastructure for logistics. Most importantly, outsourcing strengthens logistics by spreading inventory to multiple warehouse points, expanding the delivery options you can offer customers, and providing you access to professional inventory and warehouse management. 

Despite the multitude of benefits, moving your entire inventory to a 3PL may not be right for your business. Assess your inventory, determine what makes sense to keep in-house, and take a step-by-step approach to decide the best fulfillment option for you.

About the Author

This is a guest post from Rachel Go. Rachel is a content marketer and strategist at Flxpoint, an enterprise e-commerce operations platform. Flxpoint enables merchants and brands to unify and automate every aspect of your e-commerce operations, and scale without manual processes or custom development slowing you down.