If you're like most business owners, you're always looking for ways to save time and money. And when it comes to your warehouse, you may be wondering if it's worth it to handle operations in-house or outsource to a third party provider (3PL). In this blog post, we'll compare the pros and cons of each option so you can make the best decision for your business. So read on - decisions like this can impact your bottom line!
Definition of Internal and 3PL Fulfillment
Internal fulfillment means the entire process of storing, packing, and shipping the goods is completed by the business enterprise itself. Inner satisfaction requires the company to have its warehouse to keep its inventory and logistics staff to manage the inventory and prepare the goods for shipment to stores/distributors or directly to customers as the case may be. The goods can be transported by the company's carrier or a carrier working on a contract with the business.
3pl fulfillment services, on the other hand, manage the order fulfillment process on behalf of the sellers/manufacturers. These are professional companies owning warehouses and logistics staff. 3pl service providers bear the responsibility of storing their clients' goods in their warehouses, managing the inventories, preparing the goods for shipment, and delivering them to the stores or customers through their partner carriers.
In a nutshell, internal fulfillment means managing your warehouse and order fulfillment, while 3pl means outsourcing your warehousing and order fulfillment requirements to a third-party service provider.
Points Of Comparison Between Internal And 3pl
The following are the most important benefits and drawbacks of Internal Fulfilment and 3PL Warehouse Service Providers:
Benefits of Internal Fulfilment
Internal warehouse fulfillment gives the business total control over its warehouse operations. Since the business owns the warehouse, it can customize the space in the warehouse and inventory management processes as per its own needs and preferences. There is also complete control over the packing equipment and the type of packaging materials to be used.
Product customization is easy with in-house fulfillment. The businesses can offer on-demand customization such as gift wrapping, special packaging for fragile items, and personalization by charging extra fees.
Pros of Internal Fulfillment include
-Space requirements can be met with your current storage (you don't have to rent an extra space)
-You can choose where you store inventory, for example; in a warehouse near the product manufacturers. This can be helpful if you are working with multiple vendors.
-Your staff will have more control over product storage, ensuring that items are not getting damaged or misplaced.
-You will have full control over the management of your inventory levels and flow, this means you won't risk running out of stock on an item.
Related: What Is Direct Fulfillment?
Drawbacks of Internal Fulfilment
-You need to have a physical space where you can store inventory, which isn't always possible if you are operating out of a home office.
-It requires a lot more time and effort to coordinate your stock between multiple locations.
-You will need to hire extra staff or dedicate existing staff to manage the process as your business grows (there will be more orders to track and place, as well as multiple locations).
-You risk having too much stock on hand, which can become costly if you need to send back items to vendors. This also means that order turnaround time can be longer if inventory is not readily available.
-It is very expensive to ship products from different warehouses to the same customer.
Pros of Warehouse Service Providers
3pl service providers are experts in all the aspects of order fulfillment, such as picking, storing, packing, labeling and shipping. Returns and replacements are also handled expertly by 3pl companies. Thus, businesses can outsource their order fulfillment processes to trade experts. This ensures that even increased volumes of the orders with business growth do not prove detrimental to the order fulfillment process.
Hiring a 3pl service eliminates the need for the business to establish its warehouse and recruit and train staff to manage the warehouse. Many overhead costs such as renting or purchasing the warehouse and costs of warehouse equipment, shelves/racks/pallets, warehouse management system, and packaging materials are saved on enlisting the services of a 3pl company. Other costs such as property tax and administrative expenses are also kept when working with a 3pl company.
3pl services have warehouses covering large geographical regions. By outsourcing the order fulfillment process to 3pl services, businesses get more freedom to place their products as close to their target customers as possible. This not only reduces delivery costs but also enables companies to offer 2-day and even same-day deliveries, which enhances the business's brand reputation.
Additional Benefits Include
-Warehouses are equipped with advanced technology so you can track orders and inventory without having to hire extra staff.
-They provide online tools for you to use, which can save time if your business is growing quickly.
-3PLs are equipped to handle more complicated shipments, like items that need to be sent out of the country or shipped internationally.
-They manage returns so you do not have to worry about refunds and exchanges.
Cons of Warehouse Service Providers
In-house fulfillment involves spending money on setting up the warehouse and other necessary infrastructure. However, the business saves money that would have been paid to a third-party service provider. There are multiple charges such as inventory receiving, storage, and management that need to be paid to 3pl services. All these costs are saved because the in-house staff of the business does all these tasks.
Other Drawbacks Are
-There will be an additional 5% -20% on top of your usual selling price.
-They take a commission for each sale, which means you will have less profit in the long run.
-You won't be able to monitor product movements as closely so it may be harder to identify any problems with stock levels or order fulfilment processes.
-Many 3PLs do not work with manufacturers, this means that you will have to do all of the communication with them yourself.
-Some warehouses are only equipped to handle eCommerce orders (1 or 2 items per order) and may require extra storage fees if they need to pick up larger quantities from your business.
9 Factors for Deciding Between Internal and 3PL Fulfillment
Have merits and demerits. Some factors which must be taken into account to make a decision are as follows.
3pl companies can include other charges such as equipment and extraordinary packaging costs in the total fulfillment cost. Internal fulfillment cost is the sum of handling and delivery costs per order. Compare the 3pl fulfillment cost with your interior fulfillment cost to decide.
The order volume is another important factor. More is the order volume, more remarkable is the warehousing fee charged by a 3pl service provider. In-house fulfillment enables you to customize your warehouse to fit in more goods. However, as the volumes of goods grow, the warehouse might run out of space, and you need to spend extra on renting spaces in other warehouses.
There is more likelihood of a third-party warehouse being located close to your target market, which reduces shipping costs. In-house fulfillment can result in more delivery costs if your warehouse is far away from your target market.
Need for Customization
If you are supplying personalized products, then the third-party service provider may have issues in fulfilling your customized orders. However, if you are using an in-house fulfillment center, it may not be well equipped to handle customization.
Some items require special treatment during warehousing and handling. For example, e-juice or paint may spill during warehousing and handling. If the 3pl service provide does not handle these items, then you need to do it in-house.
Warehouses are often called 'boxes' because of their capacity; they can get overloaded very easily. You must ensure that your goods are stored under suitable conditions. If your goods are not properly stored, they may get damaged or lost during transit.
Is the order always delivered on time according to the customer's need? It is important for fulfilling orders to be done quickly so that customers do not have to wait long before their products are delivered. If your product is time-sensitive, then you need to opt for an in-house warehousing and fulfillment center.
Transparency is another important factor to take into account while choosing between internal and third party warehousing. Customers want to know the status of their orders at all times. If your package gets lost or has other issues, customers should be notified about the same. If you are using an outside fulfillment center, it may not provide this transparency.
A third-party warehousing and fulfillment service often provides multiple warehousing options that enable customers to choose the best available option for them. On the other hand, if you are using your in-house warehouse, you will need to provide customer service for all types of warehousing and fulfillment requirements.
When you choose between internal and 3PL eCommerce business owners, the above factors must be considered after weighing the merits and demerits of both options.
When it comes to the warehouse, there are two options that you can choose from; using an internal staff or working with a third-party provider. The decision is ultimately yours and we’ve laid out the pros and cons of each option for your convenience. You may find one more suitable than the other depending on your business requirements and preferences, but regardless of which path you take, Simpl will be here to help! Are you ready to simplify fulfillment? Let's chat about what all this means for your eCommerce store