Using Outsourced Fulfillment to Take Your Business to the Next Level

Fulfillment can use up a lot of the time and money that it takes to run a business. If you've found a way to efficiently ship from a small space, great! Or maybe you drop ship — also cool. It's all about choosing the fulfillment solution that's best for your customers and your bottom line, and outsourcing your fulfillment could be it. 

ShipBob is an on-demand service that's looking to make outsourced fulfillment more transparent and tangible for businesses of all sizes. We asked Anthony Watson, Head of Business Development at ShipBob, to tell us when and how to go about outsourcing your fulfillment.

You're not too small to outsource.

There are large brands that require fairly complex distribution and fulfillment channels, but in most cases there is an outsourcing solution out there for large businesses. For smaller businesses there definitely used to be substantial barriers to entry when considering outsourcing their fulfillment. This acute problem is essentially why we built ShipBob a little over two years ago.

After our founders faced outsourcing woes with their own e-commerce businesses they knew there was a massive opportunity to build a company that allows small and medium sized businesses to outsource their fulfillment that the incumbent 3rd party logistic companies couldn’t (or in some cases wouldn’t) provide. We felt that with the abundance of turnkey software solutions out there to actually build a website and sell products there should also be a scalable and turnkey solution to outsource fulfillment as well.

Thanks to improvements in technology and the growth of e-commerce fueling innovation in the logistics space, there is essentially an outsourced solution for just about every sized business as long as they are planning on using fulfillment as a lever for growth. Lifestyle businesses that ship a handful of items a month and don’t plan on growing that volume might be better suited by keeping order fulfillment in-house, but rarely do the small businesses we work with intend on flatlining after just a few shipments.

Use outsourced fulfillment as a tool to scale. 

Brands decide to outsource their fulfillment so they can scale up sales and the business as a whole. Essentially the fulfillment process is where a company’s most crucial deliverable exists, getting their product to their customers, yet the process itself adds little value towards the growth of the business as a whole.

Building out an in-house team instead of outsourcing the process essentially forces the business to incur the opportunity cost of scaling out the more growth-driving portion of their business like sales and marketing or product development. The resources needed to actually build out an in-house team could set a business back anywhere from three to twelve months before having a process in place that handle any sort of growth in sales.

Even though most small businesses look at the marginal price savings they can achieve by having founders or key team members doing picking up the slack when it comes to their shipping process, the real cost here is time.

Spending the time to build out a team that efficiently scales with the rest of the business requires more resources than most small businesses budget for when they’re drilling down costs and then results in delaying growth. In short, time is a small business owner’s most valuable resource and outsourcing fulfillment is a great way to gain some much needed bandwidth to generate more revenue, develop new products, and to make sure your business is running lean.

Before you're ready to ship, be sure you're ready to launch. 

If brands are truly considering outsourcing fulfillment so they can scale up their sales and volume of outbound shipments, there should be a plan for doing so once their fulfillment is taken care of! You would be surprised at how many brands send in thousands of products to our warehouse before building their website, launching any sort of marketing plan, or assessing the validity of their market. 

Although we are a solution for growing businesses it doesn’t mean that there isn’t a certain business model that would be better suited to fulfill in-house. Most of these businesses are either shipping under one order a day or have an extremely high-touch fulfillment like writing handwritten notes with each order.

Ask if you can use your own packaging.

I have found that in most cases 3PLs don't let you use your own packaging. This is the main reason small businesses hesitate to work with Amazon. Essentially these businesses have to give up control over their brand in order to create an enterprise scale fulfillment process with Amazon. We felt that offering an enterprise quality fulfillment service to these businesses while also creating a really high touch brand and unboxing experience would be a core part of our mission here at ShipBob.

With ShipBob, just give us a heads up and you can have your custom packaging shipped to us directly, then we'll use it to fulfill your orders. It's as simple as entering our address at checkout when you buy from Lumi or any other packaging supplier.

Communicate with your fulfillment center to keep tabs you your inventory.

In most cases the fulfillment center will be able to provide inventory reports per the client’s request. This can take a few days and usually doesn’t include any sort of low inventory reporting, so I would suggest having inventory tied internally to your e-commerce platform and/or your order management system.

You can usually organize quailty control checks with your manufacturer or supplier, but some fulfillment centers will allow you to inspect inventory on site.

Know how much to budget.

There are several features that you can expect fulfillment services to offer. Looking at what's possible, you can better know what questions to ask, and what to budget for.

Setup: Setup refers to the onboarding required to get your business, your suppliers and the inventory they will be managing into your fulfillment provider’s system. Setup is free with ShipBob but with most 3PLs (third party logistics) will cost a flat setup or onboarding fee.

Shipping Inbound Inventory: Inbound shipping charges will vary. ShipBob offers the option to choose the best rate available from their list of top carriers, your supplier’s rates, or your own rates to get product from your supplier/manufacturer to the fulfillment center.

Receiving Fees: Essentially every touch point of your product will have a charge associated with it. ShipBob charges $25 to receive each order so long as the order is palletized. If the order is delivered via container, you will be charged $25 per man hour (resulting in around $350 – $450 per container). The container fee is fairly standard but most 3PLs will charge a per unit, per case, and per pallet receiving fee.

Warehousing: Your main units of measure here will be SKUs and pallets of inventory. Your SKU is essentially how many unique products you plan on storing at your fulfillment center. For example, if you have ten different products in five different colors for each, you have fifty total SKUs.

Storing your inventory at a ShipBob facility will cost $40 per month per pallet or $5 per month per bin. Pallets are typically 64 ft³. Bins are typically 2 ft³. Pallets are typically limited to one SKU per pallet, except in certain situations where the inventory is very easily differentiated and picked.

Pick and Pack Fees: Just like in receiving and warehousing, most fulfillment centers will charge you for every touch of your product in the fulfillment process. For example, there could be a $0.25 charge for every item that needs to go in an outbound package. If there are ten items in that package, you would be charge $2.50 on top of your postage fees plus any other marginal costs the 3PL might charge.

ShipBob’s biggest pricing advantage is that we do not charge a fee to pick and pack. That means the process of preparing a customer order can cost you nothing. If you can keep your receiving, storage, and postage fees to a minimum, this will result in very cost effective order fulfillment.

Outbound Postage: Some fulfillment centers will offer their own negotiated rates and then charge a myriad of fees to make up for labor, picking fees, packaging, returns, etc., or they will charge a padded shipping fee that includes some of those costs. In order to truly dial down bottom line costs for postage and other fees, small businesses should definitely do a bottom line analysis to make sure they are accounting for all fees included before deciding a fulfillment partner.

Special Projects and Batch Fulfillment: If you’re fulfilling a large quantity of orders in one shot, for example at the end of a successful Kickstarter campaign, batch fulfillment can be a great solution. Instead of paying storage fees, at ShipBob you simply pay receiving fees of $1.00 per customer order. Most companies will not offer competitive rates for these one-off projects simply because they are one off projects and do not result in recurring revenues for the fulfillment center. This is a major avenue where our tech, including an integration with BackerKit, is truly innovative for small businesses and crowdfunding campaigns in particular. Some of the other fees that fulfillment centers usually charge include the following:

• Integration with POS/eStore/customer orders
• Custom Labeling – your logo or other images that evoke your brand
• Custom Inserts – special offers, personal notes, etc.
• Kitting – shipping multiple products as a set rather than individually
• Light Labor – some assembly, minor product customization, etc.
• Sourcing Packaging – ordering cheaper, better packaging
• Customer Service – phone and email support for your orders

For small businesses, the biggest obstacle to outsourcing their fulfillments is giving up control of part of their business. Most of the businesses we work with have built their business from the ground up with their bare hands and as a result want to ensure everything goes as smoothly as possible. This is why creating such a smooth onboarding process and amazing customer success team have been huge priorities over here at ShipBob. Although outsourcing fulfillment is a no-brainer for many small businesses, the perceived lack of control over the final step of the process becomes a hurdle for some business owners and holds their businesses hostage from being able to properly scale up.

Find a great partner that you can trust and the rest will fall in place.

Feature photo by Dương Trần Quốc.