In-House vs. Third-Party Fulfillment Services: A Detailed Comparison
Have you run out of storage space in your business? Or are you struggling to find the workforce to handle your orders? If so, you may be considering using a third-party fulfillment service.
And you’re probably wondering if it’s really worth it. We might be able to convince you it is.
This blog will compare in-house and third-party fulfillment in detail and help you select the right option for your business.
A Quick Look at Third-Party Fulfillment
First, let’s take a minute to nail down exactly what we mean by third-party fulfillment. In a nutshell, it’s when you outsource the fulfillment of orders: receiving and processing orders, picking and packing, inventory management, shipping, and warehousing. Unlike distribution centers, order fulfillment companies ship orders directly to your customers.
Wondering how this differs from 3PL, or third-party logistics? 3PL is the umbrella term that refers to all logistics services that could be outsourced – shipping or import/export, for example. So third-party fulfillment is simply a subset of 3PL.
Outsourced Fulfillment vs. In-House Fulfillment
It’s the big question. Do you continue to fulfill orders yourself, even if it means taking on more staff and extra warehouse space? Or do you embrace outsourcing fulfillment?
Consider the following:
Keeping fulfillment in-house is labour-intensive. You’re responsible for the entire process from when a customer clicks ‘Pay Now,’ from picking the order to labelling the package and tracking its delivery.
On the plus side, you retain more control of how your products are stored, packaged, and shipped – something to consider if your products require special handling.
When you work with a third-party fulfillment provider, you essentially hand over the whole process. It’s not a question of simply sending them your inventory and letting them get on with it (you’ll want regular reports from your dedicated account manager, for example). Still, it certainly affords you a lot more flexibility if you need to scale up quickly during busy periods.
Different fulfillment companies have different strengths – one might be adept at handling fragile products, while another might accommodate a low order volume for new businesses – and their pricing structure will vary accordingly. In general, though, you can expect the costs to include:
- Onboarding and setup
- Inventory storage
- Picking and packing
- Packaging materials
These costs do add up, particularly when you have to pay for services like account management or returns management on top of them.
So it’s cheaper to do it yourself, right? Well, not necessarily. As your business expands, you’ll need to pay for additional space (perhaps across multiple locations), plus the staff to take care of inventory management and customer support. And remember that the best fulfillment providers can leverage economies of scale – they can negotiate bulk shipping discounts, for instance.
Whichever route you choose, order fulfillment requires serious investment.
Every business knows that customer expectations around fast delivery are constantly growing. Customer satisfaction depends on fast and affordable shipping; on hearing the doorbell ring within days of placing their order.
It’s something to bear in mind when weighing up in-house vs. third-party fulfillment, and many merchants turn to an order fulfillment company for precisely this reason. They're often geared up to offer same-day fulfillment, and with multiple fulfillment center locations, they can ship orders to customers around the country far more quickly.
Third-Party Fulfillment: What to Expect
What happens, then, when you work with a fulfillment services company? While companies might vary in terms of their customer support, shipping services, and the additional services they offer, the process generally breaks down into these six steps:
1. Delivery of Inventory
First, you’ll need to get your products to the physical fulfillment center, either directly from your supplier or your manufacturing center.
Once the fulfillment center has received your products, they’ll check the quantities, assess any damage, and organize everything in the warehouse. This warehouse management, and the fulfillment software and systems they use (for example, many fulfillment services offer video monitoring), can be a big factor in choosing a provider.
3. Inventory Storage
Next, your products need to be stored. Fulfillment centers are designed for a quick turnover as opposed to long-term storage, which might be reflected in the pricing structure, with additional costs for products that fail to sell within a certain timeframe.
4. Order Routing
When a customer places an order in your online store, it has to be sent to the fulfillment center. Many fulfillment services offer integration into your system; otherwise, you can upload orders as a file or input them manually.
5. Packing and Shipping
Once a customer order has been received, it’s time to swing into action. Employees pick the correct product from storage and pass it on to be packed, with many providers offering custom packaging. Then, the package is labeled and shipped.
6. Processing Returns
Finally, a fulfillment company will handle any returned products depending on your requirements and send you a report so that you can issue a refund or store credit. There can be an additional cost for this, so it’s important to consider when shopping around for a provider or weighing up the costs of in-house vs. third-party.
Does Your Business Need a Third-Party Fulfillment Service?
Every business’s tipping point is different. It could be when you hit ten orders per day; it could be when you find yourself spending more than two hours per day fielding customer queries regarding the whereabouts of their delivery.
Here are a few signs that indicate it might be time to explore outsourcing your fulfillment operations to a third party:
Your Warehouse Is Bursting At The Seams
For many companies, the crunch comes when they’ve outgrown existing warehousing capabilities. That’s when the high in-house costs start to kick in: more space, more staff, a bigger commitment, and consequently, less flexibility. If you’re running low on storage space, it might be time to look at what a fulfillment service provider can offer before signing a new lease.
You Want To Broaden Your Horizons
It’s a big country and an even bigger world. If you’re looking to expand into new markets (or simply deliver faster to customers on the opposite coast), then it makes sense to partner with a provider that offers multiple fulfillment centers to open up a wider geographical area.
Your Cost Per Order Is Creeping Up
While the costs associated with fulfillment service providers might seem daunting, keeping the process in-house isn’t exactly ‘free.’ You’ll need to factor in everything from the cost of packaging to the manpower needed to process returns, as well as higher shipping costs due to not getting the bulk discounts that fulfillment providers have access to.
To get a true comparison of in-house and third-party services, it’s useful to work out the cost per order for each option and then compare the two.
Customer Service Is Slipping
As you expand, one thing will become clear: Your order fulfillment process very likely can't compete with that of the best third-party logistics companies. As the number of orders you’re handling in-house grows, you might find yourself struggling to keep up – and that’s when you could see standards starting to slip.
Whether negotiating the lowest shipping costs, using the latest technology to communicate with customers, or tapping into a fulfillment network that can deliver faster, third-party fulfillment providers can help you achieve excellent customer service every time.
Have You Seen The Signs? Call Ziing
Ready to take the next step into order fulfillment services? At Ziing, we help companies delight their customers by creating a best-in-class delivery experience customized for their business.
Thanks to our trusted fulfillment network and innovative use of technology and data, we’re leading the charge when it comes to fast, accurate fulfillment that allows you to expand your reach and your business at your own pace.