When is the right time to outsource your fulfilment?

Nelson CabreraEcommerce, General, General, Imports, Shipping From China1 Comment

A logistical analysis and important tips for businesses

There are times when it becomes clear that you must start considering the option of outsourcing. Early planning and paying attention to the warning signs will be the key to fulfilling your orders and keeping your customers happy. Utilizing outsourcing to fill the gaps that exist within your own supply capacity may be the key. This article considers some of the indicators to consider if outsourcing might be the solution for your needs.

Key indicators that you need to start outsourcing

If any of the following circumstances apply to you currently or are likely to apply to you soon, it is time to plan for possible outsourcing:

  • Are you dealing with more than 100 orders in any 30-day period?
  • Are you dealing with storage problems or running out of space?
  • Have you recently been managing incorrect delivery or late delivery inquiries?
  • Are you spending an inordinate amount of operational time on order fulfillment?
  • Are you struggling to maintain and organize your stock?
  • Have you recently considered renting warehouse space to complement your own?
  • Could you use help from someone else to deal with order fulfillment?
  • Is order fulfillment taking away resources from growth opportunities?
  • Is your business model struggling with stock space and capacity?
  • Are your warehouse leases about to end?
  • Do you expect your order levels to keep increasing?

If the answers to all, several, or any of these questions is “yes” then you probably need to start thinking about outsourcing your order fulfillment. 

Last resort for businesses that are desperate

It is important to note that outsourcing is not the first option for all businesses. Many businesses only resort to outsourcing order fulfillment when they have been let down by all the traditional methods. Often, businesses begin with doing this work in-house and then expand to outsourcing if the in-house process is no longer able to cope with customer and market demands. 

Of course, there are those who have an aggressive business strategy right from the outset. These are the entrepreneurs that are not afraid to outsource because they fully anticipate that the demand for their product is going to exceed their supply capabilities. If you take such a strategy, you must have a top-grade marketing strategy to open opportunities for your expansion. 

Then there are those brands that are already well-established and do not anticipate difficulties marketing their wares. For these big brands, the real question is whether they can meet the demands of their customers. Hence, outsourcing may offer the opportunity to build capacity in a sustainable way. The key determinant of when and how you start outsourcing is a detailed cost-benefit analysis. 

Importance of stabilizing sales as a prerequisite to outsourcing 

There are two sides to the cost-benefit analysis. To begin with, you can break even by reducing your costs. However, the problem with aggressively reducing costs is the risk that you may reduce quality in the process. Customers will not put up with inferior quality simply to meet your demands as a supplier. 

The other side is to increase the benefits in terms of pricing by deploying a price maximization strategy. However, the price maximization strategy could also backfire if customers can easily access cheaper alternatives. Hence, the price maximization strategy is typically associated with companies that are in a monopoly or quasi-monopoly market. 

For most businesses, the key is establishing a proficient level of sales that remains steady before even thinking about outsourcing functions like order fulfillment. You can see your progress towards this certainty by recording the sales you have each day and each month. If they are consistent over some time, you can then conclude that you have sufficient demand to warrant outsourcing. 

When you outsource, you can reclaim the time spent on order fulfillment. This time will then be spent on other operational priorities such as packing, picking, organizing, management, processing, and delivery. Assuming other things remain constant, such attention will increase your operational efficiency which will, in turn, attract more customers. 

Reputational costs of not acting in time

Failure to understand the risks and mitigate them can be costly to your reputation. Delayed or inaccurate orders cause havoc in your segment and could destroy your reputation. Poor customer service news travels faster than any positive ratings. If your customers are not getting their deliveries on time and in decent shape, they are likely to give you negative reviews that will be shared widely. 

From that perspective, it makes sense to outsource your order fulfillment as soon as it becomes clear that there is a problem. The checklist at the beginning of this article will give you some insights that you may use in your decision-making process. If you are able to offset the pressure of delivering orders through outsourcing, you can then spend more time attending to the needs of your customers in the ways that they want and expect. 

There will never be an ideal time to make adjustments

Adjustments must be made as soon as practical and as soon as they are needed. Do not put off decisions because of caution about changing your business model. Customers expect a high level service provision and it is your responsibility to deliver that to them. There may always be risk in changing your delivery model or outsourcing it because you never know what the other party will be like in terms of operational efficiency. However, outsourcing may end up being the best solution for your customers overall. 

When outsourcing, one of the things that you will have to take care of is the transition process. You need to ensure that your business is not severely damaged by the change towards an outsourcing model. A lot of planning and synergy goes into making this happen. Select order-fulfillment partners that share values with you and will treat your customers with respect. When possible, do a trial run to see how well they perform before committing to a contract. 

Wrapping up

Order fulfillment is an important aspect of business functionality. However, it can become overwhelming as you deal with increasing customer demands. If that is the case, then it is time for you to consider outsourcing this function. If you do so, it will relieve you from the pressures of doing this work. You can then focus on other operational priorities within your business model. This article has set out some of the warning signs that you may need to consider when outsourcing the order fulfillment function in your business.

Nelson Cabrera
Nelson leads global business development efforts within ShipLilly and has been featured as a logistics expert in numerous publications, including SupplyChainBrain, The Bulletin Panama, Logistics Management, and the Miami Herald.

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