Bringing Fulfillment Back in HouseSeptember 21, 2018
In the natural progression of any ecommerce company, you may at some point consider moving away from a 3PL model and bringing fulfillment back in house. This is an important decision and even more important is considering all of the options while you weigh the pros and cons. Because Shipedge works with a wide range of fulfillment companies, from etailers to 4PLs, we have a lot of industry knowledge when it comes to analyzing this option. Here are some great questions for you to ask:
What is the benefit of Bringing Fulfillment Back in House?
When you originally decided to outsource fulfillment to a 3rd Party Logistics company, you likely did so because you wanted to reduce costs and/or headaches. There are a couple of reasons to bring operations back in house. First, when you expand your fulfillment network there are A LOT of moving parts. If you are working with a wide array of 3PLs then you can sometimes be stuck with a lot of the customer service aspects without having direct control and visibility over the fulfillment process. Second, at some point it may actually cost you more to fulfill through a 3PL when you have the capital and capacity to build a fulfillment space yourself. Third, originally it is easier to outsource the process, but sometimes you run into hiccups. For example, if you contract with a large 3PL, it may take a long time to process your returns. Now you have customers asking where your product is, you don’t know what inventory you have on hand, and you have no visibility for replenishment. Ultimately, frustration may replace the simplicity that attracted you to a 3PL in the first place.
What is the Cost of Bringing Fulfillment Back in House?
You need to consider what additional expenses to budget for when you consider making the switch. There are obvious new overhead costs like warehouse space, utilities, shelving, computers, insurance, and security. You will also need to start vetting Warehouse and Order Management Systems. There are also variable costs such as packaging materials, labor costs, printing materials, and various services. You need to set up relationships with shipping carriers and ensure that you can get inventory both out and in the door without any confusion.
These are just the basic costs, but there will always be more than you originally suppose.
Weighing the Pros and Cons of Bringing Fulfillment Back in House
Be strategic when you weigh your pros and cons. The two main reasons a company wants to bring fulfillment back in house are money and stress. But the two should work congruently with one another. How much money do you need to save for it to be worth adding stress? Or how much stress do you need to relieve to make up for the extra money you lose?
If you have to sacrifice one for the other, it may be worth considering other 3PLS as you vet your options. You should also think about bringing only certain parts of your fulfillment network in house. Perhaps you receive the returns, but your 3PL still makes the shipments. Or maybe you fulfill smaller items in house, but the large orders go out from a warehouse. Of course in an ideal world you relieve stress and make more money by bringing fulfillment in-house, but remember that you have options.
If you want to learn more about bringing fulfillment back in house, you can contact Shipedge here.