In-House Fulfillment Guide

In-House Fulfillment vs. 3PL: Which Is Best for Your eCommerce Business?

You’ve decided to start your own eCommerce business and need to determine how to fulfill your orders. For most new eCommerce entrepreneurs, the amount of available capital is limited and their first inclination is that they will do their own order fulfillment. This makes sense, you don’t know if you’re going to do ten orders a day, a hundred or a thousand, but initially the ramp up in volume takes time – so the decision seems logical. And it is.

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As your business grows and you start to get pulled in multiple directions you have to decide how to prioritize the requirements of your business. You soon start to learn that not only is your available capital tight, but to grow your business, time becomes your greatest constraint. What’s my priority today, marketing, vendor management, fulfillment, website management, customer management, banking or bookkeeping?

Deciding between in-house fulfillment and using a third-party logistics (3PL) provider for your eCommerce business depends on several factors. Both options have their own advantages and disadvantages, and the choice that’s best for your business will depend on your specific circumstances and priorities. In this guide we’ll provide you with the information necessary to determine when you should do in-house fulfillment and when it should be outsourced?

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What Is In-House Fulfillment?

In-house fulfillment (self-fulfillment) refers to the practice of managing all aspects of the order fulfillment process within your own company’s facilities. For many startups this might be a room in your house, garage, or even a storage unit. This includes receiving, storing, picking, packing, and shipping customer orders directly from your own warehouse or distribution center. In-house fulfillment involves owning and operating your own physical space, hiring, and training your own staff, and managing all logistical processes associated with getting your products to your customers.

Here are some key components of in-house fulfillment:

You maintain your own storage space to hold your products until they are ordered by customers. When orders are placed, your staff picks the items from your inventory, prepares them for shipment, and ensures accurate packaging. Products are carefully packaged and labeled according to your branding standards and the shipping requirements. Your team handles the shipping process, working with shipping carriers to ensure timely and accurate deliveries. You manage the process of handling returned items, including inspections, restocking, and customer refunds or replacements. You implement and manage the necessary software, hardware, and systems to track inventory, orders, and shipments efficiently. The advantages of in-house fulfillment include greater control over the entire process, customization to match your brand’s requirements, and the potential for cost savings as your business scales. However, in-house fulfillment can require significant upfront investments in facilities, equipment, and personnel, as well as ongoing management and operational efforts to ensure smooth and efficient processes.

Businesses that choose in-house fulfillment often do so to maintain a high level of control over their customer experience, to ensure consistency in branding and packaging, and to have the flexibility to adapt their fulfillment processes as needed. It’s important to carefully evaluate your business’s size, growth plans, budget, and operational capabilities before deciding whether in-house fulfillment is the right choice for you.

Pros of In-House Fulfillment

In-house fulfillment offers several advantages for businesses that choose to manage their own order fulfillment process within their own facilities. Here are some of the key pros of in-house fulfillment:

With in-house fulfillment, you have complete control over the entire fulfillment process, ensuring that your products are handled, packaged, and shipped according to your quality standards and branding guidelines. This control can lead to a consistent and positive customer experience. In-house fulfillment allows you to tailor the fulfillment process to match your specific business needs and customer expectations. You can implement unique packaging, include personalized notes, and make other customizations that enhance your brand’s identity.

While there are upfront investments required for setting up in-house fulfillment, over time, you have more control over ongoing costs. You don’t have to pay third-party provider fees, and you can optimize your processes to potentially achieve cost savings. In-house fulfillment gives you the flexibility to adapt quickly to changes in your business, product offerings, and customer demands. You can make adjustments to processes, workflows, and systems as needed. Managing fulfillment in-house provides you with direct access to data and analytics related to order processing, inventory levels, shipping times, and customer behavior. This data can be valuable for making informed business decisions.

Your in-house team becomes intimately familiar with your products and inventory. This knowledge can lead to better customer interactions, accurate order processing, and improved inventory management. In-house fulfillment can be seen as a long-term investment that offers control and stability. As your business grows, the infrastructure and expertise you develop can contribute to your overall business value.

It’s important to note that while in-house fulfillment offers these advantages, it also requires significant upfront investments, operational expertise, and ongoing management efforts. Careful planning and consideration of your business’s size, growth trajectory, budget, and logistical capabilities are essential when deciding whether in-house fulfillment is the right choice for your eCommerce business.

Cons of In-House Fulfillment

While in-house fulfillment offers several advantages, it also comes with its share of challenges and potential drawbacks. Here are some of the cons to consider when deciding whether to opt for in-house fulfillment for your eCommerce business:

Setting up in-house fulfillment requires a substantial upfront investment in facilities, equipment, technology, and personnel. This can be a significant financial burden, especially for small or new businesses with limited capital. Managing your own fulfillment operation involves overseeing various complex processes such as inventory management, order processing, packaging, shipping, and returns. This complexity can lead to operational challenges and the need for specialized expertise. In-house fulfillment demands a substantial allocation of resources, including time, money, and human capital. You’ll need to hire and train staff, manage warehouse space, and invest in technology systems.

While in-house fulfillment might offer potential cost savings over time, there are ongoing fixed costs associated with maintaining facilities, equipment, and staff. These costs can impact your profitability. Fulfillment requires specialized knowledge and expertise in logistics, warehousing, inventory management, and shipping. If your team lacks this expertise, you might encounter inefficiencies and operational challenges. While in-house fulfillment offers scalability, managing rapid growth can be challenging. Expanding warehouse space, hiring, and training additional staff, and optimizing processes might become complex as order volumes increase. With in-house fulfillment, the risk of errors in order processing, picking, packing, and shipping falls on your team. Mistakes can lead to customer dissatisfaction, returns, and increased customer service workloads. If market conditions change or your business needs evolve, you might find it challenging to adapt your infrastructure quickly. You’re committed to the space and equipment you’ve invested in.

Running an in-house fulfillment operation requires significant time and management attention. This might divert focus from other critical aspects of your business such as product development, marketing, and customer engagement. If your business experiences seasonal fluctuations in demand, managing a consistent workforce throughout the year can be challenging and might result in overstaffing during slow periods. Third-party logistics providers (3PLs) often have specialized knowledge and resources in the fulfillment industry. In-house operations might lack access to the latest industry best practices and technologies. Any disruptions or issues within your in-house fulfillment operation, such as equipment failures or labor shortages, can directly impact your ability to fulfill customer orders.

Considering these cons, it’s important to conduct a thorough analysis of your business’s capabilities, resources, growth plans, and budget to determine whether in-house fulfillment aligns with your overall business strategy. For some businesses, a hybrid approach or outsourcing fulfillment to a third-party logistics provider might provide a more suitable solution. Ultimately, once you approach 10-20 orders per day, considering outsourcing should be a viable solution to consider.

What We Do

Receiving

The inbound shipping team with Speed Commerce is ready to receive, inspect, enter into inventory, and place your products on the shelves, ready for the warehouse team to pick products for your orders.

Picking & Packing

Accurate assembly of ecommerce orders can make or break your business. Our team goes the extra mile to ensure orders are assembled correctly, packed with care, accurately labeled, and sent to shipping on time.

Shipping

Because of our shipping volume to and from our facilities, we have established relationships with major carriers and negotiated favorable rates. Ensuring your orders are received by the carrier as expected is our top priority.

Inventory Management

Making sure you have enough stock on hand (but not too much) takes expertise in ecommerce retail trends. We work closely with our clients and their Speed Commerce client success manager to anticipate spikes or dips in demand. Our team also manages monthly inventory reporting and takes measures to avoid shrinkage.

Cross-Docking

Need to expedite order fulfillment to meet unexpected high-demand? We're experts in cross-docking. Our team is agile and can quickly receive (and complete their inbound checklist) on the dock, then our pick-pack team will quickly assemble orders and prepare for shipment. We don't waste time putting items on the shelves; instead we get them out the door!

Returns Management

Get your reverse logistics under control. We manage the full end-to-end process of returned product, including refreshing and reviving! Reducing shrinkage and get your product back out the door generating profit with our returns management service.

Long-Term Storage

Store your inventory in our safe and secure warehouse and gain flexibility you need in your operations. We have space for your long-term storage needs. Centrally located, our warehouses are ideally situated to give you access to your inventory in a secured location. We offer transparent pricing, quick start, and flexible terms.

Managed Services

We remove the headaches in managing your ecommerce fulfillment and warehousing operation. We work with you to learn what's important to you and craft our agreements to match your expectations. You'll meet with your client account manager regularly to review our performance and make adjustments.

Speed

Your customers want their orders delivered quickly. In ecommerce, fast order fulfillment is a must! We live up to our name and ensure speed in everything we do. Same-day fulfillment gets your orders packed and shipped shortly after your customer makes their purchase.

What Is Outsourced Fulfillment?

Outsourced fulfillment, also known as third-party logistics (3PL) fulfillment, involves partnering with an external service provider to handle various aspects of your order fulfillment process. Instead of managing everything in-house, you rely on a specialized logistics company to take care of tasks such as inventory storage, order processing, packing, shipping, and even returns management on your behalf.

In an outsourced fulfillment arrangement, your business ships its products to the 3PL provider’s warehouse, and the 3PL takes care of the rest. Here’s how the process generally works:

Start by sending your products to the 3PL’s warehouse, where they are stored until orders are placed. When a customer places an order on your eCommerce platform, the 3PL receives the order information electronically and processes it in their system. Then the focus turns to the warehouse, where the staff picks the ordered items from their inventory, packs them according to your specifications (including branding and packaging requirements) and prepares them for shipping.

The 3PL arranges for the shipment of the packages using various shipping carriers. They handle the logistics and ensure timely delivery. Additionally, if a customer returns a product, the 3PL manages the returns process, inspecting returned items, restocking inventory, and potentially handling customer refunds or exchanges. A 3PL can offer additional services such as personalization, kitting, multi-carrier options, customer support and vendor management to name a few. Partnering with the right 3PL can provide the expertise and partnership your business needs to scale effectively.

What Services Does a 3PL Provide?

A third-party logistics provider (3PL) offers a range of services designed to help businesses streamline and optimize their supply chain and logistics operations. The specific services provided by a 3PL can vary based on the provider’s capabilities and the needs of the client. Here are some common services that a 3PL might offer:

3PLs have warehouses equipped to store inventory on behalf of their clients. They handle storage, organization, and management of goods in their facilities. Order fulfillment is a basic service. This includes receiving customer orders, picking products from inventory, packing them, and arranging for shipping. 3PLs manage the entire process from order receipt to delivery. 3PLs use technology and systems to track inventory levels, monitor stock movement, and manage reorder points. This helps clients avoid stockouts or overstock situations. 3PLs can provide packaging services to ensure that products are properly packed and labeled according to client requirements and shipping standards.

3PLs manage the transportation of goods from their warehouses to the end customers’ locations using various shipping carriers and modes of transportation. 3PL’s offer cross-docking. This involves receiving incoming goods and immediately transferring them to outbound transportation, reducing the need for storage and optimizing the supply chain. Returns management, the process of receiving, inspecting, restocking, and potentially refurbishing or disposing of returned items is a basic service of a 3PL. They may also manage customer refunds or exchanges. 3PLs often specialize in e-commerce fulfillment, handling direct-to-consumer orders for online retailers and ensuring timely delivery. Some 3PLs offer additional services like kitting (combining multiple products into a single package), assembly, product labeling, and customization (embroidery and engraving). 3PLs provide technology solutions such as warehouse management systems (WMS), order management systems (OMS), and real-time tracking to help clients manage their supply chain efficiently.

3PLs can act as intermediaries between shippers and carriers to help clients find cost-effective transportation solutions. For international shipments, 3PLs can assist with customs documentation, duties, taxes, and compliance with regulations. 3PLs can help clients optimize their distribution network, identifying the most efficient warehouse locations and transportation routes. 3PLs provide clients with data and insights on key supply chain metrics, helping them make informed decisions and improve operations. Some 3PLs can manage relationships with suppliers and vendors, ensuring smooth coordination across the entire supply chain.

Businesses often choose to partner with 3PLs to leverage their expertise, resources, and infrastructure, allowing them to focus on their core business activities. The services offered by a 3PL can be tailored to meet the specific needs and goals of each client, making them a valuable asset in optimizing supply chain and logistics operations.

Benefits of Outsourcing Fulfillment to a 3PL

Outsourcing to a third-party logistics provider (3PL) offers numerous benefits for businesses looking to streamline their supply chain and logistics operations. Here are some of the key advantages of outsourcing to a 3PL:

Expertise and Specialization

3PLs specialize in logistics and supply chain management. They bring a wealth of industry knowledge, best practices, and expertise to help optimize your operations.

Cost Savings

Outsourcing logistics can lead to cost savings. 3PLs often have established networks and resources, allowing them to negotiate better shipping rates and reduce overall transportation and fulfillment costs.

Scalability

3PLs can accommodate fluctuations in demand without requiring significant changes to your infrastructure. This flexibility is especially useful during peak seasons or periods of rapid growth.

Focus on Core Competencies

Maybe the most important benefit is that by outsourcing logistics, you can concentrate on your core business activities such as product development, marketing, and customer engagement.

Global Reach

Many 3PLs have a global presence and established international shipping networks, which can help you expand your reach to new markets without the complexities of cross-border logistics.

Technology and Systems

3PLs often provide advanced technology solutions for inventory management, order tracking, reporting, and analytics. These tools improve visibility and efficiency throughout your supply chain.

Risk Reduction

3PLs have the resources and expertise to handle various risks, such as supply chain disruptions, regulatory compliance, and transportation challenges.

Improved Customer Experience

Outsourcing to a 3PL can lead to faster order processing, accurate shipments, and timely deliveries, resulting in a positive customer experience.

Reduced Capital Investments

Instead of investing in warehouse space, equipment, and technology, you can leverage the 3PL’s existing infrastructure, saving on upfront capital expenditures.

Flexibility

3PLs offer customizable solutions that can be tailored to meet your specific needs. You can choose the services that best align with your business requirements.

Efficiency and Productivity

Outsourcing logistics can lead to streamlined processes, reduced order fulfillment times, and improved overall operational efficiency.

Reduced Operational Burden

Handling logistics in-house involves managing various operational complexities. Outsourcing allows you to offload these responsibilities and focus on strategic decision-making.

Quick Implementation

Partnering with a 3PL can lead to faster implementation of new logistics processes and technologies, allowing you to adapt more quickly to changing market conditions.

Access to Resources

You gain access to the 3PL’s network of transportation carriers, warehouses, and distribution centers, which can be especially beneficial if you’re expanding into new regions.

Continuous Improvement

3PLs often work collaboratively with clients to identify areas for improvement in the supply chain, leading to ongoing optimization and better performance.

There are many significant benefits with outsourcing to a 3PL provider. Before choosing a 3PL partner, it’s important to thoroughly research and evaluate potential providers to ensure they align with your business goals and requirements. Look for a provider with a track record of reliability, excellent customer service, and a strong reputation in the industry.

Let's Get Started!

A fulfillment expert will get back to you within 1-2 business days.

In-House Fulfillment vs. 3PL: Which Is the Best Option?

The decision between in-house fulfillment and using a third-party logistics (3PL) provider depends on various factors specific to your business, goals, resources, and circumstances. There is no one-size-fits-all answer, as both options have their own advantages and disadvantages. To determine the best option for your situation, consider the following factors:

In-House Fulfillment:

When It Might Be Best:

1. If maintaining strict control over the customer experience, packaging, and branding is crucial for your business, in-house fulfillment could be a better fit.

2. If your products require specialized handling, unique packaging, or specific fulfillment processes, in-house fulfillment allows for more customization.

3. If you have the resources for upfront investments and are looking for a long-term solution, in-house fulfillment might provide better control and stability.

4. If you anticipate rapid growth and have the capacity to scale your own warehouse space, staff, and processes, in-house fulfillment can offer greater flexibility.

Third-Party Logistics (3PL):

When It Might Be Best:

1.If you lack the expertise in logistics and fulfillment, outsourcing to a 3PL can provide specialized knowledge and optimized processes.

2. 3PLs often offer cost-effective solutions for smaller businesses or those with fluctuating order volumes due to variable fees based on usage.

3. If you want to focus on core business activities like product development and marketing, outsourcing fulfillment can free up your time.

4. If you expect growth but don’t want to invest in your own infrastructure, 3PLs can provide scalable solutions.

When Should You Switch to Outsourced Fulfillment?

Deciding when to switch to outsourced fulfillment, also known as using a third-party logistics (3PL) provider, depends on various factors that are specific to your business’s situation and goals. Here are the two 12 indicators that might suggest it’s time to consider switching to outsourced fulfillment:

1. If your business is experiencing rapid growth and you’re struggling to keep up with increased order volumes, outsourcing to a 3PL can provide the scalability and resources needed to handle higher demand.

2. If managing in-house fulfillment is stretching your resources, including space, staff, and technology, outsourcing can alleviate the burden and allow you to focus on your core business activities.

3. If you’re encountering inefficiencies in your current fulfillment process, such as frequent errors, delays, or rising costs, a 3PL with specialized expertise can help optimize operations.

4. If your business experiences significant seasonal fluctuations in demand, outsourcing to a 3PL can provide the flexibility to handle peak periods without the need to maintain excess capacity during slower times.

5. If you’re expanding into international markets, a 3PL with established global networks and knowledge of international shipping regulations can streamline the process.

6. If you’re looking to expand your geographic reach but lack physical presence in certain regions, partnering with a 3PL can provide you with distribution centers in strategic locations.

7. If logistics and fulfillment aren’t your core competencies and you’re encountering challenges in managing these areas, a 3PL’s expertise can bridge the gap.

8. If the costs associated with maintaining your own fulfillment operation, including fixed overhead expenses, are becoming a financial strain, outsourcing can offer a cost-effective alternative.

9. If you want to refocus your efforts on core business activities such as product development, marketing, and customer engagement, outsourcing fulfillment can free up your time and resources.

10. If you lack the technology and automation needed to optimize your fulfillment process, a 3PL can offer advanced systems to improve efficiency.

11. If you want to reduce the operational risks associated with fulfillment, such as supply chain disruptions, outsourcing to a reliable 3PL can provide added stability.

12. If you view outsourcing fulfillment as a strategic decision to allow your business to scale and remain competitive over the long term, it might be the right time to consider this option.

It’s important to thoroughly evaluate potential 3PL partners, understand their services, capabilities, pricing structures, and track records before making the switch. Carefully consider how outsourcing aligns with your business goals, customer expectations, and desired level of control. Additionally, plan for a smooth transition process to ensure minimal disruption to your operations and customer experience. If you are looking for a partner with over forty years of experience, consider Speed Commerce.

Wrapping Up

There are many nuances in determining whether you should do in-house fulfillment or outsource the work to a 3PL provider. The average eCommerce merchant has a small budget and therefore puts most of their initial capital to work on product, storefront and marketing. Since they lack a track record, determining the success of the company comes with high hopes but little objective data. Therefore, the conclusion is to start by doing fulfillment in-house. Typically, that is a sound decision, as you have full control of your entire business, and can ensure the quality, accuracy and consistency meet your expectations. Since it is your time and effort that goes into the fulfillment, you initially overlook the “real costs” and plug ahead.

However, at some point you realize the real cost is time – your time. As you sacrifice your time to more and more responsibilities you have to determine how to best allocate the limited resources you have. If you have achieved a consistent volume of 250 to 500 orders a month you will have to determine whether you are going to take on the further operational complexity required to grow your business or should you outsource? If you do it yourself, be prepared for higher fixed costs, additional personnel responsibilities, space requirements, technology investment and the need to continuously scale. If you need assistance determining if the time is right to outsource your fulfillment or customer support, reach out to Speed Commerce.

Why Switch to Outsourced Fulfillment With Speed Commerce?

Speed Commerce, a leader in 3PL and Customer Contact Services for over forty years, can provide you with the partnership, tools, and support to confidently grow your eCommerce business. If you are deciding when to switch to outsourced fulfillment, we have listed various factors that can be specific to your business’s situation and goals. Here are the top 12 indicators that might suggest it’s time to consider switching to outsourced fulfillment: