There are a number of advantages to outsourcing all or part of the order fulfillment process. This outsourcing option is particularly attractive for merchants with only an online store that lacks warehouse and distribution facilities. Even established "brick-and-mortar" companies will contract with order fulfillment services to reduce infrastructure costs and improve operational efficiency. The benefits include:
- Seasonal and Sales Fluctuation Flexibility. While no one should complain about selling more than anticipated, there are headaches associated with unforeseen surges in sales and seasonal rushes. To adequately respond to higher than normal ordering, additional workers are hired, more capital equipment is purchased, possibly even extra warehouse space is leased to ensure timely and proper fulfillment. The problem is, what happens when sales inevitably trend down to "normal" levels, and you have these extra workers, equipment, and square footage you no longer need?
A fulfillment services company eliminates the need to hire, train and manage workers, and purchase equipment and space. When sales are up, the fulfillment services company manages the surge. When sales decline, there's no idle equipment, no temps or excess employees to let go, and no costs for empty shelves. All you need to worry about is providing the fulfillment services company with your product at the levels that are necessary to meet current demand. The order fulfillment services company worries about the rest.
- Lower Shipping Costs. No one likes to pay for shipping, so it's a great marketing tool to offer free shipping. However, no shipper is going to send your goods to customers for free. So how do companies afford to offer free shipping? Warehouses and distribution facilities located strategically around the country significantly lower shipping costs to the point where it becomes economically feasible to offer customers free shipping. But if you're not big enough to maintain facilities throughout the country, what do you do? Contract with an order fulfillment company that does have a regional/national/international infrastructure in place and take advantage of bulk delivery discounts that most order fulfillment companies can offer because of that scope.
- Grow New Markets. Looking to expand, but holding back because you lack the infrastructure to ship overseas or even west of the Mississippi? An order fulfillment services company can extend your reach without undue capital investment. And should dipping your toes in some new market waters prove not worth getting completely soaked, you haven't spent the same amount of money and resources you would have if you went about it alone. Your order fulfillment services partner supplies the infrastructure and scales it over time to grow as your business grows, without your commitment to high and potentially risky new overhead.
- Eliminate Fixed Costs. The cost of carrying inventory rises when sales are flat or in decline, but you still pay the same rent and utilities for warehouse space. By contracting with an order fulfillment services company, your fixed cost is now a variable cost. When business is slow, your order fulfillment costs go down. Of course, they also go up when business improves, but that's a price well worth paying and not one you need to maintain when it's not necessary.
- Focus on Your Core Competencies. The logistics of order fulfillment can be complex. If it's not your area of expertise, or if you find you are unable to hire the right people for the job, an order fulfillment services company may be just the thing. You worry about making your product and making it better, and hire someone else to do all the stacking and packing that they can do better than you.
- Differentiate Your Brand. What seems a rather mundane and routine process is actually an exciting opportunity to stand out from your competition. As Jeff Dahltorp, vice president of Fifth Gear, explained to Retail Solutions Online:
"Rather than looking at order fulfillment as a commodity back end process, retailers should tailor their fulfillment strategy to capitalize brand awareness. Take a look at the target audience and find ways to deliver goods in a way that stands out from the crowd... Retailers can tap into resources of the [order fulfillment] vendor to achieve economies of scale, thus increasing the cost advantages of offering customized fulfillment [such as] personalized embroidery, specialty merchandise handling, promotional inserts, gift wrapping, and product photography."