Outsourcing logistics can be a smart way to have your cake and eat it. Bringing in a logistics partner can free you from tasks while your logistics operations still run seamlessly.
But choosing the right logistics partner is key. A strategic logistics partner will maintain your shipping standards, communicate clearly, and provide transparent pricing. That way, you can focus on core business activities while still improving fulfillment efficiency.
This article discusses outsourced logistics, including what it means, its benefits, how it works, and how to choose the right logistics partner for your business.
- What Is Outsourced Logistics Fulfillment?
- Why Outsource Fulfillment?
- How Outsourced Fulfillment Works
- What Are the Benefits of Outsourcing Logistics?
- What Types of Outsourced Fulfillment Options Fit Your Business?
- 4 Key Third-Party Logistics(3PLs) Providers Shaping Shipping Strategies
- Factors To Consider When Choosing a Fulfillment Company
- What Are the Dos and Don’ts of Outsourcing Fulfillment?
- FAQ About Outsourcing Logistics
- Choosing the Right Partner to Outsource Logistics for Your Business
What Is Outsourced Logistics Fulfillment?
Outsourced logistics fulfillment involves hiring a third-party provider to manage your entire order fulfillment process, from inventory storage to shipping. This provider handles all aspects of fulfillment strategy, including storing inventory, receiving and processing orders, and selecting the best transportation method for delivery.
They use deep shipping expertise and technologies like inventory tracking and reporting systems to provide lightning-fast shipping and value-added services like customer support.
Outsourcing Fulfillment vs. In-House Fulfillment
Outsourcing fulfillment offers efficiency, scalability, and cost savings that are difficult to achieve with in-house fulfillment.
In-house fulfillment requires you to manage a team, set up warehouse space, and maintain equipment. You’re also responsible for handling all operational tasks and dealing with challenges such as delays, incorrect shipments, and customer dissatisfaction.
In contrast, outsourcing fulfillment eliminates the need to invest in shipping personnel and infrastructure. It also provides greater control and visibility over your shipping process, offers customization options, and handles customer care.
Outsourced fulfillment services are ideal for entrepreneurs looking to streamline operations, reduce costs, and scale their businesses.
Why Outsource Fulfillment?
A recent survey revealed that 89% of merchants handle some of their fulfillment operations in-house. However, this approach presents some challenges.
In 2022, merchants identified the following top challenges with in-house fulfillment:
- Increased warehousing costs (79%)
- More time-consuming labor management (36%)
- Concerns about the sustainability of their fulfillment model (30%)
Logistics and fulfillment can be overwhelming and may hinder your company’s ability to grow on a larger scale. In fact, 45% of small to mid-sized businesses (SMBs) want to shift their team’s focus away from logistics management and back to primary business functions.
The good news for fast-growing brands is that outsourcing fulfillment to a tech-enabled provider can reduce capital expenditures, streamline operations, and improve service levels.
When Should You Outsource Fulfillment?
Here are three signs that it may be time to consider outsourcing your fulfillment:
1. Levels Are Suffering
If your in-house operations struggle to meet demand, a fulfillment partner can help meet your customers’ expectations.
2. Fulfillment Costs Are Damaging Margins
Overspending on long-zone ground shipments or next-day air can erode your profits. The right fulfillment partner can recommend optimal warehouse placement to reduce transit time (TNT) and fulfillment costs.
3. Other Areas of Your Business Are Suffering
If your team’s attention is being diverted from their core competencies to manage fulfillment and logistics, consider outsourcing fulfillment. This will free up your team’s time to focus on other critical business areas.
How Outsourced Fulfillment Works
There are several steps to operate an outsourced fulfillment center. Let’s look closer at the inner workings.
Step 1: Receiving Inventory
If you’ve been managing your shipping fulfillment in-house, transporting your inventory to your outsourcing fulfillment partner’s warehouse is the first step. You can then schedule an inbound freight shipment and prepare an Advance Shipment Notice (ASN), which tells the warehouse exactly where SKUs and quantities are positioned in an incoming shipment.
When drop shipping, you can send your supplier’s order confirmation to your fulfillment partner, so they receive the goods you ordered going forward. Either way, the fulfillment company will receive, inspect, log, and tag the ordered items as the first step.
Step 2: Storage and Organization
Your inventory is assigned a designated storage location within the fulfillment center. The fulfillment company will use sophisticated inventory management systems to track every item, from SKU numbers to stock levels, allowing real-time visibility into stock levels and warehouse capacity.
Step 3: Order Processing
The order is routed to the warehouse via a backend integration between the order management system and the warehouse management system.
Step 4: Delivery and Tracking
The final step is getting the orders to your customers. The fulfillment company works with trusted shipping partners for timely delivery, taking into consideration consumer expectations around price vs. speed.
Step 5: Returns Management
If a customer needs to return an item, an outsourced fulfillment company like Ware2Go can help retrieve the returned product and assess the damage. Ware2Go partners with Happy Returns, an excellent third-party returns software that’s easy to use, doesn’t require packaging for returns, and immediately refunds customers.
How Outsourced Fulfillment Works
Operating an outsourced fulfillment center involves several key steps. Let’s take a closer look at the process.
Step 1: Receiving Inventory
If you’ve been managing your shipping fulfillment in-house, the first step is transporting your inventory to your outsourced fulfillment partner’s warehouse. You can then schedule an inbound freight shipment and prepare an Advance Shipment Notice (ASN), which informs the warehouse of the SKUs and quantities in the incoming shipment.
For drop shipping, you can send your supplier’s order confirmation to your fulfillment partner so they can receive the goods directly going forward. In either case, the fulfillment company will receive, inspect, log, and tag the ordered items as part of the receiving process.
Step 2: Storage and Organization
Your inventory is assigned a designated storage location within the fulfillment center. The fulfillment company uses sophisticated inventory management systems to track every item, from SKU numbers to stock levels, providing real-time visibility into inventory and warehouse capacity.
Step 3: Order Processing
When an order is placed, it is routed to the warehouse through a backend integration between the order management system and the warehouse management system.
Step 4: Delivery and Tracking
The final step is getting the orders to your customers. The fulfillment company collaborates with trusted shipping partners to ensure timely delivery, considering consumer expectations around price vs. speed.
Step 5: Returns Management
If a customer needs to return an item, a reliable outsourced fulfillment company, such as Ware2Go, can help manage the process. Ware2Go partners with Happy Returns, a user-friendly third-party returns software that doesn’t require packaging for returns and provides immediate refunds to customers.
What Are the Benefits of Outsourcing Logistics?
If you decide to outsource your fulfillment, here are seven gains your business will reap.
1. Improved Customer Satisfaction
Outsourced fulfillment companies are operated by supply chain experts with in-depth logistics knowledge. This expertise enables them to handle your business’s fulfillment with efficiency that results in faster, more accurate deliveries. As a result, you meet customers’ fast delivery expectations and raise their trust in your business.
2. Industry Best Practices
Your fulfillment partner’s deep shipping expertise benefits the end customer and your business. It grants you access to a wealth of proven logistics best practices. By implementing the experience-backed tips from your fulfillment partner, you can optimize your logistics processes and reduce delivery costs.
3. Supply Chain Technology
Merchants prioritize logistics solutions that offer real-time inventory visibility, insights into order fulfillment status, and predictive analysis. A reliable outsourced warehousing partner provides these benefits through advanced fulfillment software solutions. These can include warehouse management systems for efficient inventory management and predictive analytics tools to track customer behavior and market trends.
They may also offer augmented reality (AR) and virtual reality tools for creating 3D simulations, allowing you to optimize storage and picking processes remotely. These technologies can significantly enhance your fulfillment strategy, ensuring fast and cost-efficient deliveries.
4. Optimized Inventory Distribution
Reducing time in transit (TNT) for final-mile deliveries is crucial to meet consumer expectations for fast shipping. Outsourced fulfillment partners achieve this through a dedicated expert team, using technologies that optimize delivery processes and positioning fulfillment centers closer to your customers.
A co-warehousing agreement rarely requires a long-term commitment to an average daily order volume. This flexibility is ideal for testing new products, launching promotions, and scaling production in response to demand fluctuations. As your business grows, outsourced fulfillment partners make it easier to scale operations cost-effectively with flexible service agreements that adapt to your needs.
5. Seasonal Flexibility and Scalability
A co-warehousing agreement rarely requires a long-term commitment to an average daily order volume. This flexibility is ideal for testing new products, launching promotions, and scaling production in response to demand fluctuations. As your business grows, outsourced fulfillment partners make it easier to scale operations cost-effectively with flexible service agreements that adapt to your needs.
6. Cost Savings
Partnering with a fulfillment provider, as ECR4Kids did with Ware2Go, eliminates the need to build and manage a warehouse or distribution center and hire an in-house fulfillment staff. This approach reduces labor and infrastructure costs.
7. Greater Specialization
Outsourcing fulfillment frees up the time you would otherwise spend managing the logistics of getting products to customers. This extra time can then be dedicated to other business tasks where you can see a greater return from your efforts.
Disadvantages of Outsourced Logistics
Outsourcing fulfillment might offer many benefits, but it has some drawbacks. Here are four disadvantages you should be aware of.
1. Rigid Logistics Providers (e.g. 3PLs)
An ideal logistics partner ebbs and flows with your business’s logistics needs. In moments when your business strays from your typical logistics patterns—say you have a spike in orders or a reduction—your logistics partner should still be able to do their part well.
However, logistics partners like 3PL providers require you to sign a long-term contract specifying an average order volume year-round.
When your orders exceed or fall below this volume, you lose some of the partnership’s benefits, such as complete fulfillment handling or cost savings.
This is why Ware2Go operates as an on-demand warehousing or 4PL provider, offering flexible partnerships that truly align with your business’s supply chain, regardless of fluctuations in orders.
2. Software Incompatibilities
Successful collaboration with a logistics partner requires a unified communication and order monitoring platform that integrates seamlessly with your existing supply chain systems.
If your logistics partner’s software is incompatible with your current tech stack, you might face issues like data siloing and inefficiencies in order processing and inventory management.
Ware2Go addresses this by integrating with over 250 platforms and offering an open API for quick and easy setup.
3. Operations Not Aligned To Your Brand Strategy
A logistics partner might not deeply understand your brand values and fulfillment standards like you do.
If you partner with a fulfillment company that over-inflates its expertise and knowledge of your business, you are at risk of negative customer experience and brand perception.
This is why Ware2Go trains every warehouse staff member on each brand’s unique and specific product needs and pack-out standard operating procedures (SOPs). That way, your orders get packed and shipped to customers exactly the way you would do it.
4. Communication Issues
Outsourcing fulfillment can sometimes feel like losing control over your shipping operations. For supply chain managers accustomed to overseeing every process step, not having real-time visibility into order status might feel risky.
However, this risk can be mitigated by partnering with a dedicated logistics provider like Ware2Go, which guarantees a single point of contact for clear, consistent communication and quick responses to questions or concerns.
What Types of Outsourced Fulfillment Options Fit Your Business?
Fulfillment companies offer various service packages. Here, we’ll examine the main types of services offered to help you decide what to look for in a company.
Niche Fulfillment
Some companies offer tailored expertise for businesses shipping in specific verticals.
Examples include:
- Apparel fulfillment services
- Electronics
- Jewelry
- Cold chain
Their dedication and vertical expertise can facilitate a streamlined shipping process. They can help you navigate the nuances of shipping in your industry, giving you control over factors and trends peculiar to your business.
3PL Companies
3PL companies will be the baseline outsourced fulfillment option. They offer receiving, storing, picking and packing, rate shopping, and carrier pickup.
However, many 3PLs require long-term contracts or commitments to an average daily volume (ADV) that may be hard to guarantee year-round. Additionally, they often require expensive technology solutions to connect to their warehouse management system (WMS). That’s why 74% of SMBs agree that cowarehousing solutions are the future of outsourced fulfillment.
4PL Services (Cowarehousing)
A cowarehousing company aggregates the inventory of multiple merchants to negotiate better storage and fulfillment rates, labor, and competitive service level agreements (SLAs).
A cowarehousing model also gives SMBs access to enterprise-grade capabilities like supply chain technology, optimized inventory distribution, and scalability to respond quickly to shifts in demand.
The right 4PL partner will be an extension of your team, offer in-depth reporting, uphold high SLAs, and more.
4 Key Third-Party Logistics (3PLs) Providers Shaping Shipping Strategies
Below are the four 3PLs services that are changing how brands outsource logistics.
1. Dedicated Contract Carriage (DCC)
Dedicated Contract Carriage(DCC) is a 3PL service in which a specific shipper is provided with exclusive transportation resources (personnel, trucks, drivers, etc.).
With this service, you can easily customize your delivery patterns or time. You are also guaranteed consistent logistics capacity.
This transportation service usually involves long-term contracts with explicitly stated terms and conditions.
2. Domestic Transportation Management (DTM)
Domestic Transportation Management (DTM) is a logistics service wherein a logistics partner handles your in-country shipping operations.
Companies that offer DTM services have comprehensive knowledge of the peculiarities of logistics in your domestic country. Strategic planning and carrier management help optimize your national shipping operations to improve efficiency and reduce costs.
3. International Transportation Management (ITM)
Internal Transportation Management (ITM) services offer the same benefits as DTM services but on a global scale.
If you partner with an ITM service provider, you are bringing in a company that understands and can manage the complexities of global shipping, such as custom brokerage and multi-modal transportation coordination across borders.
4. Value-Added Warehousing and Distribution (VAWD)
Unlike traditional warehousing and distribution services, where your logistics partner just stores your goods and sends them to buyers as they were stored, Value-Added Warehousing and Distribution(VAWD) offers particular logistics services to shippers.
By providing additional services like custom packaging, knitting, assembling, labeling, etc., your VAWD partner will enhance your supply chain efficiency and product customization while increasing customer satisfaction.
Factors To Consider When Choosing a Fulfillment Company
Ensure you choose the right shipping partner with these factors:
Delivery Speeds
In today’s highly competitive business world, speed is of the essence. Look for a fulfillment partner capable of meeting customers’ expectations for fast delivery. Customers today expect deliveries within 1–2 days or even the same day.
Fulfillment Center Locations
Choose a fulfillment company with warehouses close to your target markets to minimize transit times and shipping costs. Ensure to check the areas that they cover, too, especially if you require international shipping.
Costs
Cost-effectiveness is one of the most crucial considerations for fulfillment companies. Depending on sales velocity, product size, and handling requirements, it may make sense to move some SKUs into an outsourced fulfillment provider and keep some in-house.
Software Integration and Fulfillment Technology
Your fulfillment partner should integrate seamlessly with your eCommerce platform and other business systems to ensure efficient, accurate, and secure operations.
Ware2Go offers various fulfillment technologies, including warehouse management, order management, and transportation management systems, with over 250 connectors to major eCommerce platforms. Ware2Go customers can easily access swift shipping integrations for seamless shipping operations.
Our ERPs (Enterprise Resource Planning Systems) enable centralized data management and automate various shipping management processes.
Plus, Ware2Go open APIs (Application Programming Interfaces) let businesses easily integrate their internal software with their fulfillment systems to streamline operations and improve visibility.
Packaging and Branding Options
If a memorable unboxing experience is part of your brand strategy, choose a fulfillment partner that offers customizable packaging and branding options. Collaborate to establish pack-out SOPs that balance safety, cost-effectiveness, and sustainability.
Returns Management
We’ve teamed up with Happy Returns to improve customer experience, save merchants money, and reduce the impact of returns on the planet. Happy Returns handles automation to process and ship returns efficiently.
Versatility and Scalability
Your fulfillment partner should adapt to your evolving needs and grow alongside your business. Look for flexibility in storage space based on inventory fluctuations and seasonal demands and real-time visibility into inventory levels, order status, and shipping information.
As your business expands, your fulfillment partner should be able to extend its distribution network to effectively reach new markets.
Security
Outsource order fulfillment to secure warehouse facilities with advanced security measures such as surveillance cameras, access control, and alarm systems. Your fulfillment partner should also employ trained personnel who adhere to strict security protocols to ensure the safe handling and storage of your products.
They should also have sophisticated inventory management systems that track the movement of goods in real time, providing visibility into inventory levels, locations, and transactions.
Also, ensure robust data security measures to safeguard sensitive information such as customer data, order details, and financial records.
To ensure efficient operations when outsourcing fulfillment, prioritize these factors: delivery speeds, fulfillment center locations, cost-effectiveness, software integration, packaging options, scalability, and security.
What Are the Dos and Don’ts of Outsourcing Fulfillment?
To increase your chances of success when outsourcing shipping services, consider these key dos and don’ts:
Do’s
Set Clear Goals and Expectations
Establish specific, measurable, achievable, relevant, and time-bound (SMART) goals to guide your fulfillment partner. Regularly communicate to review progress and ensure alignment.
Prioritize Seamless Integrations with Advanced Software Solutions
Choose fulfillment partners with a robust technological ecosystem that includes connectors to major marketplaces, ERPs, and open APIs. These integrations enable smooth communication and data exchange between your eCommerce platform and the fulfillment center, reducing the risk of errors or delays. Open APIs also offer flexibility, allowing you to customize your shipping processes to meet your needs.
Stay Informed About Industry Trends
Keeping up with industry trends and technological advances helps you stay competitive. Key trends to watch include:
- Sustainable logistics
- Last-mile delivery solutions like drones and robots
- Blockchain-based supply chain solutions
Don’ts
Decide Solely Based on Pricing
Value should take precedence over cost alone. Assess service quality, reliability, scalability, and price to ensure you get the best overall performance.
Settle For The First Fulfillment Company You Meet
Exploring multiple fulfillment providers can reveal better service, pricing, or compatibility. Research various companies, request quotes, and conduct consultations or site visits.
Rely Solely on Website Claims
A company’s website may not fully reflect its capabilities or suitability for your needs. Investigate further by reviewing their background, customer reviews, and industry reputation. Schedule a meeting or video call to ask detailed questions and better understand their services.
FAQ About Outsourcing Logistics
As you consider outsourcing your logistics operations, you likely have questions about the process, potential benefits, and risks. Let’s address some of the most common inquiries to help you make an informed decision.
What Are the Most In-Demand Outsourcing Services?
Domestic transportation, warehousing, custom brokerage, international transportation, and freight forwarding are the most in-demand outsourcing services.
What Potential Risks Should I Be Aware of When Outsourcing Logistics?
The potential risks to be aware of when outsourcing logistics include:
- Lack of flexibility with most 3PL providers. A better option is to choose a 4PL or co-warehousing service provider.
- Software integration challenges. Partner with a company like Ware2Go, which has technology that integrates over 250 platforms.
- No brand value or product customization knowledge. You’ll want to select a partner that takes the time to understand and adhere to your unique and specific product needs and pack-out standard operating procedures (SOPs).
- Communication and visibility issues. Before outsourcing, make sure any partner you consider offers software that is compatible with your current tech stack and enables you to still maintain complete visibility of your logistics.
How Can I Measure the Success of My Outsourced Logistics Operations?
You can tell that your outsourced logistics operations are successful if:
- Your end-to-end supply chain runs seamlessly every time, with minimal effort from you.
- Customer satisfaction is on the rise.
- You can cut supply chain personnel and infrastructure costs without negatively impacting your business.
Choosing the Right Partner to Outsource Logistics for Your Business
Outsourcing fulfillment to a reputable company streamlines operations, reduces costs, improves scalability, and enhances customer satisfaction while freeing up time for you to focus on core activities for growth and innovation.
If you need an outsourced logistics partner to reduce supply chain costs, scale with you, and provide premium delivery experiences, consider Ware2Go.
Take control of your fulfillment process today. Our service guarantees two-day delivery, bringing you closer to your customers.
Book a call now to learn how we will help your brand achieve this.
