What Are Some of the Upsides and Downsides of Outsourcing Order Fulfillment

Posted on: May 23rd, 2011 by Landis Logistics 2 Comments

Taking the step to outsource order fulfillment clearly comes with some benefits, but also comes with some risks.

What’s the upside?

With proper execution a company can:

Speed time-to-market: Fulfillment centers are built for efficiency and speed. A strategically located fulfillment center can give a business better access to local markets, improving the time from when an order is placed and the order is delivered to the customer. Leveraging the advantages of the right distribution points is a key factor in how many online retailers are able to offer “free shipping”.

Lower operating costs: Outsourcing order fulfillment can reduce a company’s operating costs by taking what is presently a fixed expense (warehouse space and labor) and making it a variable expense that adjusts with the actual order activity levels. If a business is paying year round for a warehouse space that is large enough to accommodate its busiest time of the year, then there is likely a lot of unused space that is being paid for during the non-peak periods. Working with a 3rd party warehouse can also potentially help improve buying power when it comes to carton and shipping costs (the 2nd key point in how online retailers are able to offer free shipping!).

Of course, in the end the goal of any business is to increase customer satisfaction and retention.

What’s the downside?

Whether the order fulfillment process is managed in-house, or is outsourced, failure to execute can have serious negative effects. Clearly a failure to deliver orders accurately and in a timely way can erode customer confidence and in the end lead to customer and market share loss.

In the online retail business it takes a lot of effort and cost to attract and convert paying customers. The order fulfillment and delivery process will likely have the greatest impact on a customer’s perception of their experience with a company.

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2 Responses

  1. [...] Start up online retailers and small to medium size ecommerce retailers are the types of clients we work with most often. Sometimes these are businesses that are not yet shipping orders, or in other cases are doing the order fulfillment themselves. [...]

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