In-house fulfillment: scale it or outsource it?

Blog Post
Ecommerce fulfillment is all about delivering on your promises to customers, from click to delivery and beyond. It’s where you literally fulfill their expectations and, ideally, create a great experience that leaves them intending to order again. To do this, you need an accurate, smooth, fast, eco-friendly process with transparent communication and hassle-free customer care and returns.
female working on computer in fulfillment center

Ecommerce fulfillment is all about delivering on your promises to customers, from click to delivery and beyond. It’s where you literally fulfill their expectations and, ideally, create a great experience that leaves them intending to order again. To do this, you need an accurate, smooth, fast, eco-friendly process with transparent communication and hassle-free customer care and returns. Doing this well takes a highly orchestrated order fulfillment infrastructure. You can do it, until you get to a certain point where growth demands that you scale your in-house order fulfillment or outsource it.

How do you know when you need to make this decision?

Well, it turns out there are some common in-house fulfillment challenges that you’ll likely recognize if you’re at the point where you need to scale or outsource fulfillment. Here’s what we commonly see among the mid-market eCommerce businesses that we advise.

Top 7 Challenges of in-house order fulfillment

1. Peak fulfillment feels like a disaster waiting to happen.

Peak season is never easy – no matter how automated and skilled you are; but it is next to impossible if your fulfillment operations is still primarily manually-driven and if you do not have the infrastructure or labor capacity to put everything you’ve got into it. Scaling for peak can feel like a nightmare. Particularly so in a tough labor market and when your business is up against competitors that rely on automation plus highly skilled workforces that can scale at will. Signs that your fulfillment is failing to keep pace include orders taking too long, missing delivery timeframes, increasing order errors, and spiking return rates for damaged or wrong items.

Your options:

In-house: Invest in capital expenditures to scale your order fulfillment operations with added real estate, labor, and automation.

Upside: You own and manage your order fulfillment operations.

Downside: Time required to build/scale/hire. Rising costs of real estate/construction/hiring/operations.

Outsource: Hire an experienced industry 3PL partner that can scale your order fulfillment, with the real estate, labor, and automation in place.

2. Your fulfillment experts aren’t up to speed on automation.

ecommerce is shifting rapidly as AI and automation rapidly change the way eCommerce works. Many eCommerce retailers have fulfillment experts that provide great insight and leadership but aren’t as familiar with automation. Your leaders either need to upskill or you will need to bring in some voices that offer automation expertise. Hiring this leadership internally can be challenging.

Your options:

In-house: Hire additional leaders that bring automation best practices to your operations. Or hire a coach to upskill current leadership.

Upside: You choose leaders that you want and can blend leadership tenure and experience for a holistic team.

Downside: Recruiting and hiring is costly and time consuming. Finding the right fit can be difficult. Hiring a coach can be expensive. The process to get new leaders up to speed or existing leaders upskilled can take a long time.

Outsource: An experienced, innovative 3PL should offer automation expertise that keeps your fulfillment operations modern and in a continual innovation mode.

3. IT can’t explain why it will take months to implement new technology.

That is, if you get stakeholder buy-in to purchase it in the first place. Selecting, implementing, and adopting new technologies is often complicated by on-premises, home-grown systems. Simple changes are often actually complex or require continual maintenance and upgrades. Cloud-based systems can integrate new software into them far more easily, but depending on how IT operates, may still require manual work. Selecting the right technology feels like a gamble, and in many companies’ digital transformation takes several years to achieve. Further, data is the foundation for automation and technology improvements. If you struggle with data management, this becomes very difficult.

Your options:

In-house: Work with your CTO and IT to develop a technology strategy that gets you the insights you need to impact daily operations (like real-time inventory visibility and predictive demand forecasting).

Upside: Your company modernizes its tech stack and chooses the software it uses.

Downside: Time-intensive, requires developers, simple changes may require complex projects, you’ll need to continually monitor for emerging technologies, security and compliance issues need to be addressed.

Outsource: The right 3PL partner will have solid investments in modern, leading technologies that are proven to deliver insights for efficient fulfillment operations.

4. Finance is complaining that you’re over-invested in warehouse real estate.

The pandemic ecommerce boom led many retailers to invest in additional warehouse space. As that boom ended, some retailers are wrestling with the high cost of excess warehouse real estate. Whether owned or leased, it’s difficult to scale warehouse space up and down as markets change. For eCommerce businesses that are not predicting a fast return to the pandemic growth rate, holding onto excess real estate is a cost they cannot afford to incur. The quandary though is that we clearly know that disruption can happen at any time. Elasticity rather than scalability may be a better goal – but it’s very hard to achieve with owned/leased property.

Your options:

In-house: Strategically sell or cancel leases as appropriate. Potentially consider renting out owned spaces to non-competitors. Consider shifting to a more localized distribution model.

Upside: You control the sale or rental of owned assets.

Downside: You may or may not have the warehouse space you need when markets change.

Outsource: Utilize a 3PL partner’s warehouse capacity to the degree you need, as you need it.

5. You’re afraid of going viral because you fear fulfillment won’t be able to handle it.

This is a horrible fear for an eCommerce retailer to have(!). Having a product go viral means a sudden surge in order volumes (aka sales and revenue) and often increased brand awareness. If you’re nervous that your fulfillment won’t be able to handle high volume spikes, you need to address it. When an item goes viral, your supply chain and fulfillment operations need to be able to meet that increased demand and still deliver a timely fulfillment delivery process. Brands need to be able to capitalize on viral incidents and should be prepared for them to happen. There is no way to predict when a product may go viral, so knowing you can handle it brings a lot of peace of mind.

Your options:

In-house: Invest in scaling your order fulfillment operations.

Upside: You’ll be able to scale whenever it’s needed.

Downside: Time and cost. A viral event can happen at any moment and could happen before you have completed upgrading your fulfillment operations.

Outsource: Gain peace of mind by hiring a qualified, experienced 3PL that can demonstrate the proven ability to scale as needed during viral demands.

6. You need robotic automation, but you don’t want to cost people their jobs.

Robotic automation is not a one-size-fits-all model. While there are some fulfillment centers that are nearly entirely robotic, most still have a blend of employees that benefit from robots doing grunt work. Introducing automation to your fulfillment operations must be done with a planned strategy for how you want your business to operate. Adding automation and shifting employee work is a process that requires change management. Some employee’s jobs may get replaced; though with a mindful people strategy, you may be able to assign those workers to other roles. Do not fear automation without consulting a robotic automation strategist that can help you work through the impacts.

Your options:

In-house: Introduce robotic automation and other automation processes. Make strategic shifts that respect people’s value.

Upside: Improved efficiency, scalability, speed, and accuracy with robotic automation. Less rote work for employees. Potential labor cost savings.

Downside: Cost and time investment. Major shift in operational strategy. Facility upgrade or remodel may be required.

Outsource: Partner with a 3PL that uses multiple forms of robotic automation and tailors usage to your unique needs.

7. Your CFO says you must contain costs, but the business is growing.

This is a paradox if there ever was one. The business is steadily growing, but because of market conditions your CFO wants to cut costs or at least contain them. How do you grow without spending money? Let alone reduce costs? While the market will eventually shift, most businesses are looking at how to streamline and reduce costs to be more agile and improve margins. But you need to scale operations.

Your options:

In-house: Gain buy-in to scale in-house fulfillment operations in a way that is cost effective for the business. This may include hiring temps, incremental expansion, or improving efficiency to do more with less.

Upside: Your CFO will be happy(ier). The business may be able to get by as long as another boom and no viral events happen.

Downside: Risky as competitors may be investing in scaled fulfillment. Potential to lose business if fulfillment cannot keep pace with demand. May fall behind on automation and technology advancements.

Outsource: Partner with a 3PL that can provide the scalability, automation, technology, expertise, and capacity to meet your needs while providing a predictable cost.

Need help?

At Radial, we advise high-growth middle-market eCommerce businesses on how to determine whether it is best to invest in scaling in-house fulfillment operations or outsource it to a third-party logistics (3PL) partner. We provide a full array of fulfillment, technology, expertise, transportation management, and payment and fraud solutions. If you’re at a point where you’re feeling pinch points from gaps between sales volume or expected growth and order fulfillment capacity, we would love to talk with you.

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