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Oct 23, 2017 8:43:52 PM

Pros & cons of outsourcing ecommerce logistics

Lauri Eurén

General Manager, Sweden

Someone else processing your orders sounds scary. How on earth could an outsider be able to handle all the complexity that is involved in picking your order from the warehouse shelves, packing it neatly with that branded sticker just in the right place, not to mention shipping the order to the right address within 24 hours from receiving it? Well, actually, quite easily. I would dare to say they might even do it better than you.

What are the upsides?

  • Outsourcing frees up resources. The extra time your company has used on manual labour can now be used to focus on your core competences.
  • Scaling your business becomes a lot easier, since you don’t have to worry about investing in more labour or warehouse square meters.
  • You get access to better shipping rates, since 3PL (3rd party logistics) providers use their large shipment volumes to negotiate better deals with delivery companies.
  • Most of 3PL providers have an extensive partnership network providing their customers with all the resources they need for shipping orders. Be careful not to end up in a vendor lock-in though.
  • A good 3PL provider is an industry professional. They’re constantly optimizing their processes on your behalf and they’re fully aware of the industry’s best practices.

Seems like a lot of upsides. This must come with some trade-offs, right?

That is correct. But remember that tailoring your services to meet the needs of your customer is what differentiates you from your rival. Being truly unique comes with trade-offs, but don’t let them scare you.

Giving the logistics operations to another party necessarily means some extra complexity. The added value of the outsourcing must be bigger than the added level of complexity and the challenges it brings. This is sometimes hard to calculate and therefore experience is the best teacher.

On a concrete level, the added complexity means visits to the warehouse, a lot of exchanged emails, a technical integration with the warehouse system and one extra group of stakeholders with different needs and wants to deal with it. It’s nothing you can’t handle, but there are certain things to keep in mind to avoid potential pitfalls.

How to dodge the pitfalls?

There are several things that can go right or wrong in the process of outsourcing and here’s a couple of ways to avoid the biggest pitfalls.

  1. Find the right partner – First, not all warehouses are suitable for ecommerce logistics. There are all kinds of different warehousing solutions, and then there are fulfillment centres.

    Fulfillment centres are designed for ecommerce order handling. Some fulfillment centres are more standardised and serve bigger clients with massive inventories, while some may focus on personalisation and smaller clients. The key is to find the right provider for you. First-hand experience from a similar business is usually a good way to validate a 3PL provider’s compatibility to yours.
  2. Communication is the key – Although your new partner is a true professional in the field of ecommerce logistics, the needs of a certain business are always unique. It’s the customer’s responsibility to communicate those needs to the 3PL provider clearly and the importance of frequent communication between the two parties should not be understated. Poor communication in the start of the partnership might lead to mistakes and turn out costly.

    Problems with logistics usually eat a significant amount of resources and may hurt brand reputation, while many times the solution is out of the hands of both the customer and the provider.
  3. Sign a good SLA (service level agreement) – SLA protects both the customer and the logistics provider. It is a contract between the service provider and the end-user that defines the level of service expected from the service provider. Usually in logistics, service providers also expect some level of continuity from the end user’s volumes. Signing a good SLA is essential.

    Your customers are used to prompt delivery times and you should expect the warehouse to ship your stock products usually within 24 hours from receiving the order at the latest.

Should I outsource?

It’s easy to say that outsourcing logistics is a viable option to consider. Nevertheless, it’s the job of every ecommerce business to evaluate, whether pursuing it is the right solution for them exactly. Expertise in the fulfillment business has skyrocketed in the past ten years and in the future, even a bigger share of ecommerce businesses will most likely share the operations with someone else.

If you’re in a rather standardised business, I wouldn’t think twice of at least considering the option of outsourcing logistics. Scouting possibilities is the first step to getting your logistics operations to the level your customers expect them to be at.

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