When Is 3rd Party Fulfillment the Right Outsource Option for Your Startup?

Jun 9, 2020

Orders are piling up, the website needs new prices, there’s more customer research to do, and you still have to be able to sleep at night. How does an entrepreneur do it? Well, in a growing number of cases, they’re outsourcing several aspects of the business once thought critical to control, starting with order fulfillment.

Outsourcing to a third-party logistics provider (3PL) gives you a chance to catch your breath and focus on the sales and business management needed to keep things running smoothly. And, when your customers start growing globally or you try new products that are tricky to get into a box, 3PLs have experts on hand to help you manage business lines and keep costs low.

It sounds tantalizing, but a little scary, when you think about handing your business off to someone else. That’s true for something as small as your first hire to large process offloading, like outsourcing fulfillment. So, let’s look at when it might make sense for you and your business with five questions to consider.

Here’s Why to Start with Fulfillment

So, first, let’s think about the value a 3PL may bring and why many companies choose fulfillment outsourcing. You’re a specialist in the products you sell. You know them better than anyone and you’re working hard to figure out how they deliver value to your customers.

3PLs do the exact same thing for fulfilling orders. They’ve hired experts, have the space, created relationships with carriers for lower shipping rates, and streamline processes to deliver the maximum value to customers — in this case: you.

Like any product or service, you have to pay for it. However, since this is B2B focused, much of the 3PL’s value proposition is based on saving you money while keeping your operations running effectively. So, our next questions will help you judge if the potential to save is something you need, or if this would be a change without much of a benefit.

1.    Do You Have the Time to Spare?

Fulfillment eats up more time as your business grows. Inventory needs to be ordered, counted, and put away. Orders need to be filled properly and boxes packaged. Then, you need to schedule a pickup and pay for postage, or head down to a carrier’s store and drop things off — as you grow, this because a daily task.

Every order you get makes this take longer. New products do too.

Do you have the time to manage this for your business? Does your team have enough time to not only pack orders but also accurately count your inventory, so you don’t run out? If you have your best week ever next week, can you handle the orders, or will you need to pay overtime?

With a 3PL, you only need to worry about having the inventory needed to fill orders. They have their own workforce who can increase or decrease activity alongside your sales, so you only pay a price per order. It means not needing to worry about time, but also not having to worry about paying for labor you can’t use.

2.    Do You Have the Space to Grow?

Damaged products are a major concern for startups, because they get returned and are a lost investment. Products are more likely to get damaged when stored incorrectly, which is often on the floor because shelves are full.

If you need to ramp up inventory to meet growing demand, do you have the space on your shelves or are you risking product and revenue because you don’t have the space to grow?

3PLs charge you for the space you use and are designed to have extra racks to scale with you. It allows them to control costs and

3.    Do You Have the Experts Already?

Some startups have their own warehouse teams. If you do, that’s great, and you likely won’t need a 3PL until you reach a point where you outgrow your space. Warehouse professionals know the processes and technology that you can use to run efficiently and keep customers happy.

This question is largely for startups where the people packing boxes are pulling double duty. They’re also marketers, salespeople, IT teams, buyers, or leadership. Fulfillment is just one thing on their list and that means it can get pushed at times, which may harm customer service and relationships.

If you don’t have experts and you’re experiencing unhappy customers — or unhappy employees — a 3PL can be an excellent choice to help you remove stress and worry. Plus, 3PLs tend to price themselves below market labor rates, so it’s often more affordable to hire them than it is to staff up with brand-new warehouse employees. (3PLs do this by working with many clients so that labor costs are split among many businesses.)

4.    Are Returns Impacting Your Viability?

Do your products get returned regularly because they’re damaged, or orders are incorrect? How much are you losing each month due to these problems?

There are many ways a 3PL can save you money, but returns are usually one of the most impactful. Not only do 3PLs use technology to triple-check orders as they’re picked, packed, and shipped, but they have trained staff and innovative software to help avoid confusion, like when two products look nearly identical.

Many 3PLs will offer you accuracy and shipping speed guarantees, and some will even pay you if they make a fulfillment mistake.

5.    Do You Want to Keep Doing It?

Here’s the big question for your business: do you enjoy fulfillment? Is it something you want to do, or does it feel like a chore you have to do?

3PLs genuinely enjoy this side of the business and that means they’re focused on it every day. It isn’t something on a checklist that they begrudgingly go through at the end of a shift.

If you or your team don’t enjoy fulfillment, you’re more likely to make mistakes. Avoid mistakes by outsourcing the work to someone who enjoys it and takes pride in getting fulfillment right.