Is a fulfillment center important for your e-Commerce business?
Published: 25/01/2022Author: Sheryl Katz
Fulfillment services are gaining popularity these days, as more and more companies move towards e-commerce platforms because of the physical restrictions brought by the pandemic. As an e-commerce business tries to scale its operations and attempts to serve more customers, operational issues such as preparing and shipping volumes of orders are becoming more daunting to manage. Hence, it makes a lot of sense to outsource these tasks to third party providers, in order to help the business owners to focus on tasks that really matter: finding market opportunities that will further grow the company and beat the competition. This is what, on a high level, fulfillment services can do for these businesses.
Borrowing from the concept of Amazon’s FBA (Fulfillment by Amazon) program, order fulfillment services are designed to do what its name suggests: to process and fulfill online orders of goods stored in what is called a fulfillment center. The team in these fulfillment centers work behind the scenes for the e-commerce businesses: picking the items ordered from shelves, packing, and having them delivered to the customers.
While these tasks are something that businesses can manage to do in-house, there are compelling reasons that make it sensible to farm out these tasks to a third-party provider. But when will outsourcing order fulfillment work best for your business? Here are some things to consider if having a fulfillment center is the next important step that you need to take to bring your business to the next level.
Consideration #1: Scale of Operations
At the early stages of your business, it makes sense to manage everything “within your compound”. Once your order levels have reached a certain point that they can be overwhelming to handle, it may be the right time to consider the fulfillment center option. Fulfillment centers can greatly help you streamline the processing of huge volumes of orders, given their expertise (and technological sophistication, in the case of more complex fulfillment centers). They can help you reduce your operating costs, while allowing you to focus on tasks that are more strategic in nature.
Consideration #2: Level of and Space for Inventory
Based on the projected needs for your inventory and whether the level of your sales is optimizing the space of your current warehouse, you may also want to consider fulfillment centers as a storage option. Unlike many warehouses that tie you down to long contracts of lease, fulfillment centers usually share spaces with many e-commerce businesses, giving each one the option to rent just the right amount of space and time for faster moving inventories. This gives you the opportunity to be more flexible if adjustments are needed to scale up (or down) your level of operations without incurring too much costs from doing so. Additionally, fulfillment centers have efficiently organized the management of the seller’s inventories. The teams working in these centers are experienced, and they know how much space certain goods need to occupy, as well as how to properly sort and stash the items in shelves and pallets. Having someone monitor your inventory in this manner relieves you of another task that maybe routine but certainly indispensable for running your business.
Consideration #3: Shipping Costs
Experience and network in logistics is one of the strong features that many fulfillment centers have. If you are having troubles managing how to effectively schedule and coordinate the shipping of your orders to customers, it will save you a lot of costs in terms of money and labor to simply have a fulfillment center do these things for you. It will also free you from a lot of worries of constantly attending to customer complaints every time you are not able to deliver orders timely. Some fulfillment centers also handle the logistics of returning defective or unwanted items, as well as evaluating whether they can still be sold.
Those who are skeptical about the use of fulfillment centers usually cite lack of control and customization as potential challenges. Giving up your operational control to these fulfillment centers means not seeing what happens in the orders as they are prepared for shipping. Ad hoc modifications from customers may not be quickly and easily accommodated, especially once they have already been prepared for dispatch. Thus, part of the decisions to choose the appropriate third-party provider is that their systems should both be structured but flexible to changes in the business.
Others have argued that having a more streamlined in-house processing of orders can save more on costs than having to pay for various service fees charged by fulfillment centers. Whichever you decide to do, it is always important to understand that, like any tool for business, fulfillment centers have their potential advantages and disadvantages. Before committing to any of them, take a careful consideration the needs of the business at present and the management’s projected growth for the enterprise in the future.