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Should Ecommerce Merchants Outsource Fulfillment?

July 12, 2017 0 Comments RSS Feed

Ecommerce MerchantsIt’s never been easier to launch an online store with applications like Magento and Craft Commerce. But, unless the store sells digital products, the retailer has to deal with the storage and transport of physical goods, and that means fulfillment. Fulfillment is one of the most complex and expensive aspects of eCommerce, especially for smaller eCommerce businesses.

Warehousing and logistics have been the downfall of many an eCommerce business, which is why smaller eCommerce stores often choose to outsource fulfillment to a third-party like Fulfillment by Amazon. However, many eCommerce merchants are hesitant to relinquish control of the fulfilment process because it’s so important to the experience of their customers. I’d like to take a look at both the positives and negatives of outsourcing.

Benefits of Outsourcing

First, let’s be clear what I mean by fulfillment outsourcing. I’m talking about the payment of a third-party to handle all aspects of product warehousing, including taking delivery of products from the supplier, storing them, picking and packing products in response to orders, and dispatching them using a delivery service.

Focus On Your Core Competence

The major benefit of outsourcing is that eCommerce merchants don’t have to be warehouse operators. Online retailers don’t usually get into the business because they want to run a warehouse. By outsourcing fulfilment, retailers are able to focus on their core competence: marketing and selling products to customers.

Reduced Complexity

Running a warehouse means renting real estate and hiring and managing maintenance and order picking staff. For larger stores, there are economies of scale that may well make this a reasonable course of action. But for smaller stores, there’s a lot of overhead — both of time and money — that goes into building a fulfilment operation.

Business Value

This is an area new eCommerce merchants don’t often consider, but if you ever intend to sell your eCommerce business, it will almost certainly be worth more if fulfilment is outsourced, for many of the same reasons I’ve already mentioned.

Entrepreneurs in the market for an eCommerce business want to buy an organization that doesn’t impose a time or resource burden on them. They don’t want to run a warehouse operation. It’s not that businesses with in-house fulfilment can’t be sold, but they’re likely to attract lower offers.

It should be kept in mind that this calculation really only applies to smaller eCommerce businesses. For large-scale eCommerce business, the market is somewhat different.

Shortcomings Of Outsourcing

Loss Of Control

The overriding negative of outsourcing fulfilment is that an eCommerce merchant loses direct control of a key part of the eCommerce experience. They don’t control delivery schedules or the efficiency with which products are picked, packaged, and dispatched.
The eCommerce merchant stands at one remove from their customer and any issues that may arise.

The company that accepts a fulfilment contract almost certainly has different priorities to the individual eCommerce companies they serve, and the result may not be to the liking of customers.

Whether these issues impact outsourcing decisions depend on the specifics details of particular eCommerce stores — but before a decision to outsource is made, the positives and negatives should be carefully considered.

Posted in: eCommerce