To many people, the word ‘outsourcing’ still means sending tasks overseas to be done for pennies compared to what it costs in the US – but that’s not at all the case anymore!
Nowadays, outsourcing your operation doesn’t necessarily mean that you’ll save millions of dollars per year. But it definitely can! Sometimes new clients find cost savings through outsourcing their order fulfillment; sometimes they see an increase in costs. It all depends on your product mix, your business model, and how your chosen provider runs its operations.
Here are a few examples of areas where you may see some savings:
Fixed costs: Expenses such as warehouse lease or mortgage payments, salaries for warehouse managers and directors, or payments for machinery and equipment used in your operations aren’t going to go away. Fixed costs generally do not change whether you sell 1 order or 1,000 per month, you’re going to be paying the same amount. This money may be better spent elsewhere.
Freight rates: One of the key areas where many retailers see significant savings is on both inbound and outbound freight management. By partnering with a fulfillment provider, retailers get access to rates only achievable with large shipping volumes, rates that most can’t get on their own. Besides better pricing, using a partner can get retailers closer to main freight lanes and more strategic locations, which can also lead to savings.
Materials and supplies: Fulfillment providers buy boxes, packing materials, and shipping products all the time. If you’re looking to gain purchasing power in this department, it’s likely that ordering through your provider will be significantly more cost-effective than purchasing it on your own. In fact, third-party fulfillment companies have exposure to a wide variety of ecommerce vendors – so you may find cost savings through their partnerships for products and services you’re already paying for.
Time (which is money, really): What’s more valuable in business than time? Outsourcing your back-end operations alleviates the day-to-day headaches associated with receiving inventory, processing returns, picking and packing orders, hiring and training warehouse and contact center staff… you get the idea. With outsourcing, you’re free to focus on marketing, merchandising, and pursuing new growth opportunities (partnerships, channels, etc.). While in some cases you might not actually save money by using an outsourced provider, you will definitely gain more independence to build your brand.
It’s important when weighing the in-house vs. outsourcing decision to compare apples to apples – that is, to understand what your cost is to get an order out the door before you look at what a fulfillment company will charge. Make sure to include your current labor rate, materials, and costs such as utilities and payments on space and equipment in your calculation!