May 4, 2023
The report also highlighted that the cost of transport services such as shipping increased by 6.2% at the same time – the highest rate of increase in this sector since the first quarter of 2009. There are no signs that demand for warehousing and shipping will slow soon, which means the need for cost-effective solutions to fulfil online orders will be much greater for eCommerce businesses. After all, profitability isn’t all about the number of sales you rack up, but also the cost of operations in relation to the growth of your business.
You might think fulfilling orders in-house can keep your operating costs low, which is often true for companies in the start-up stage. Indeed, the ‘do-it-yourself’ approach is vital to better understand your unique business needs and how to meet them. However, as your business grows and your operational expenses change, you could find yourself outgrowing your storage space, struggling to fulfil higher order volumes, and forking out a great deal more on shipping – not to mention spending more time on logistics!
This is when outsourcing your fulfilment to a third-party logistics (3PL) provider can provide significant savings. In this blog, we will explore how fulfilment centres work, the differences between 3PL fulfilment and dropshipping for eCommerce, and what savings online brands can make by working with a reliable 3PL provider.
A 3PL provider is simply an external company that handles the order fulfilment process on behalf of eCommerce businesses. The fulfilment process encompasses everything it takes to get an online order to a customer on time and in perfect condition, from inventory storage and order processing, to shipping and returns management.
A fulfilment centre is the heart of a 3PL’s operations and is typically defined as a large warehouse space where products are stored before they are fulfilled by the 3PL. When a customer places an order online, the fulfilment centre receives the order, picks and packs the product(s), and dispatches them to the customer on behalf of the eCommerce business. Fulfilment centres generally work in the following way:
1. Receive & store inventory - You send your inventory to the fulfilment centre, where it is checked, processed, and stored until a customer orders from your online store.
2. Pick the order - When a customer places an order with you, the fulfilment centre will automatically receive the order and begin picking the product(s) from your stored inventory.
3. Pack the order - Once the products are picked, they are packed using the appropriate packaging, along with all the necessary documentation such as shipping labels and invoices.
4. Ship the order - The packed order is then collected by a courier from the fulfilment centre and delivered to your customer via the desired shipping method.
5. Manage returns - In cases where a return or exchange is required, the fulfilment centre handles the process for you, ensuring resalable items are booked back into stock and non-resalable items are processed according to your policies and procedures.
Dropshipping is a popular order fulfilment method within the eCommerce space as it relies on a model where the business does not own or keep the products it sells in stock. Instead, the business purchases inventory as needed from a third-party – usually a wholesaler or manufacturer – to fulfil online orders. This business model enables you to launch an eCommerce store without having to make significant upfront inventory investments, which has obvious appeal to many new business owners.
Dropshipping is also generally perceived as a cheaper alternative to 3PL fulfilment as there are no storage or handling fees associated with it. However, dropshippers typically charge a higher price per unit than if you were to purchase products in bulk, which means you may therefore have to charge your customers a higher price to maintain your profit margins. As the dropshipper is also responsible for shipping the products, you might not have control over delivery costs. This can lead to unexpected fees that can hurt your bottom line.
Furthermore, most eCommerce brands get better value from 3PLs as it means they have more control and visibility over the fulfilment process and can work closely with the provider to deliver the best experience, where customers receive the right products on time and in perfect condition. A lack of control and visibility with dropshipping can ultimately result in issues such as late deliveries, inaccurate orders or damaged products, which can negatively impact customer satisfaction and retention.
There are multiple savings to be made from partnering with the right 3PL provider. Firstly, outsourcing fulfilment to a 3PL means eCommerce brands can reduce overhead costs that come with establishing and operating an in-house solution. These costs can include leasing storage space, purchasing equipment, hiring and managing dedicated warehouse staff, and maintaining inventory.
Secondly, the most reliable 3PL providers have the resources, expertise, and infrastructure to efficiently fulfil thousands of orders per day, which not only results in potential cost savings in the long-term, but also means the 3PL can grow alongside your business. They have the sophisticated warehouse management systems (WMS) and quality control processes to ensure orders are fulfilled quickly and accurately. This can therefore reduce the costs associated with returns and exchanges due to a poor fulfilment experience.
Moreover, shipping fees often account for a substantial portion of an eCommerce brand’s expenses, especially for those selling products internationally or offering free delivery to their customers. By working with a 3PL, brands can take advantage of the provider’s buying power and strong relationships with couriers to negotiate and secure more competitive shipping rates, the savings from which will pass down to you and your customers.
Perhaps one of the most significant savings that eCommerce businesses can also make from 3PL fulfilment is that from time and stress. The right 3PL will ultimately take care of your fulfilment operations, alleviating the pressure on your team and enabling you to spend more time on other areas of your business such as product development and marketing. For online brands operating in highly competitive, fast-changing spaces, the time and stress savings of outsourcing fulfilment can be extremely impactful.
Although many eCommerce businesses are anxious to outsource fulfilment, the reality is that continuing to fulfil orders in-house can be expensive, complicated, and time-consuming as consumer demand increases along with current logistics costs. Dropshipping may offer an alternative solution to some businesses, but it is not necessarily the most cost-effective option for ambitious, fast-growing brands. In this case, working with a 3PL provider could prove invaluable, as it enables eCommerce businesses to enhance profitability and focus on growth-led initiatives. It also helps businesses rapidly scale and streamline their operations so they can provide unbeatable shopping experiences.
If you are looking for a reliable fulfilment solution that delivers maximum return on your investment, contact Zendbox today and let’s discuss your specific business requirements.
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