As the backbone of any successful online venture, logistics can significantly impact customer satisfaction, operational costs, and overall business growth. Deciding whether to keep these critical functions in-house or entrust them to third-party logistics providers can be a daunting task.
In fact, research has proven that the efficiency of your logistics directly relates to customer satisfaction. For example, offering flexible options like delivery preferences and easy returns makes customers value your business, as they’ll feel empowered to shape their order experience.
But you can’t deliver value like that without well-managed logistics.
So, we’ll guide you through the process of evaluating your eCommerce store’s unique needs, exploring the benefits and drawbacks of outsourcing, and providing key indicators to make an informed decision.
4 Questions to Know When to Outsource Your Logistics
We’ve created a list of questions for you to easily determine if you should outsource to a 3PL logistic provider. Answer these as honestly as you can so you know the right route for your eCommerce store. After all, business size isn’t everything—you must also consider the current situation and future of your eCommerce company.
Question #1: What’s your growth projection?
Is your monthly order volume consistently escalating or erratic? Will your business outgrow its current capacity soon? Are you at risk of overpaying and underutilizing the warehouse range?
You need the ability to scale or reduce your business efficiently, especially since the average cost to fulfill an order for eCommerce stores is a whopping 70% of the order value.
If you’re sticking to in-house fulfillment, be accurate in forecasting demand to anticipate order volumes. If you can’t do that, 3PL warehouses act like a safety net to manage sudden drops and increases in demand. Basically, they’ll help you fulfill volume influxes, so you don’t have to.
Question #2: Where are your customers located?
People love instant gratification, especially with online shopping. So, you want your warehouse to be as close to them as possible. Not only will doing so be cost-effective on your end, but it’ll increase customer satisfaction by cutting down turnaround time.
For instance, if your business is in Canada and your customers are in Hong Kong, it wouldn’t make sense to have your inventory in Canada. Shipping costs alone will either increase product price or eat into your profits. Instead, opt for a 3PL in Hong Kong. A Hong Kong warehouse gives you countrywide coverage to deliver within two days—given that 22% of shoppers will abandon purchases if delivery is slow.
The distance doesn’t have to be as drastic, either. If an in-house fulfillment center is too far away from your customer base for operations to make financial sense, a 3PL warehouse’s proximity to shipping destinations will increase efficiency—for you and your customers.
Question #3: Is supply chain management taking too much of your resources?
Review your existing resources and how you’re allocating them. The last thing you want to do is to spend resources on supply chain management at the expense of core business functions.
So, evaluate your current situation and ask yourself:
- Are you making the most out of your people, time, energy, and funds?
- Are there any inefficiencies in fulfillment that are hindering your growth?
- Are you meeting demand or only shipping a percentage of what you could potentially sell?
Unless you’re okay with supply chain limitations restricting your sales, outsourcing to a 3PL provider allows your business operations to scale alongside market demand. Think of it this way: your 3PL warehouse literally expands your business with physical space and supply chain expertise.
Question #4: Are you prepared to outsource your logistics?
All advantages aside, is your business prepared to outsource to a 3PL provider and operate with a 3PL warehouse? Before transitioning out of an in-house fulfillment warehouse, consider the following:
- Do you have an existing lease for the private warehouse? When will that commitment end, and how much will it cost to get out of it?
- Do you have enough order volumes for the numbers to make sense? And will that demand grow exponentially or slow when product seasonality shifts?
- Do you know a 3PL provider with a successful track record, that uses the latest technologies, and can handle your order volumes consistently?
One in every five (20%) mid-sized sellers said they’re reliant on 3PL companies and drop shippers for their shipping needs, but don’t jump the gun at the first 3PL opportunity you see. It’s a major business decision to shift out of an in-house fulfillment process. Treat it like so.
Outsourcing Logistics and Fulfillment for Business Optimization
Ultimately, the right choice between in-house fulfillment and a 3PL warehouse depends on the unique circumstances and goals of your business. Assess your current needs, evaluate the scalability and efficiency requirements, and consider the impact on your financials and customer satisfaction.
Looking for a reliable 3PL company to work with?
At San Legend, we help eCommerce businesses scale their brands and break into new markets by providing customized, agile, and forward-thinking third-party logistics solutions. Reach out today to see how we can help.