In-House vs. Outsourced Fulfillment

Order fulfillment is an operational process relied on by companies that sell products directly to customers. It involves everything from receiving products from suppliers to picking, packing and shipping orders to customers. Depending on the company, order fulfillment processes are handled in house or outsourced through a third-party logistics (3PL) warehouse. In this guide, learn about in-house logistics and working with a 3PL warehouse in order to choose the best solution for your business.

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In-House Fulfillment

In-house order fulfillment is exactly as the name implies—all of your customer orders are processed, picked, packed and shipped under your roof.

This means your business is responsible for handling every phase of the order fulfillment process, including receiving and storing inventory.

For a business to handle its own order fulfillment, it needs to have enough physical space to store inventory and packing materials, as well as package orders and get them ready to be shipped.

Outsourced Fulfillment

The other choice is to outsource the order fulfillment process to a 3PL provider.

Choosing this option means relying on a third party to handle every phase of the fulfillment process. Inventory is received by and stored in the 3PL warehouse. Further, orders are picked, packed and shipped from this location.

Factors to Consider When Choosing a Fulfillment Method

Before choosing which fulfillment method will work best for your business, consider several factors. Each method has its own advantages and disadvantages, and cost weighs heavily into the decision. When using in-house logistics, there are the following expenses:

  • Rent
  • Insurance
  • Labor
  • Utilities
  • Software
  • Supplies

By comparison, when using a 3PL warehouse, there are no direct overhead costs. Instead, the cost is typically rolled into what’s called a “per-unit fee,” which can include:

  • A one-time setup fee
  • Order fulfillment fees per item or per order
  • Inventory receiving fees
  • Returns fees
  • Storage fees
  • Customer service or call support costs
  • Shipping material costs

Questions to answer when choosing a fulfillment method include:

  • How much control do you want over the fulfillment process?
  • Do you ship locally, nationally or internationally?
  • How fast is your business growing?
  • Do you have the staff to ensure orders are shipped quickly and securely?
  • Does your inventory require special storage needs?

Costs aside, consider the pros and cons of each method. The obvious advantage of using in-house logistics is that you maintain complete control over the order fulfillment process.

Another benefit is that you are the expert on your product, so if something should go wrong you can solve the problem more quickly than a 3PL warehouse.

On the other hand, with in-house order fulfillment you could end up locked into a lease with a warehouse that can’t grow with your business, which means you would either have to accept a limit to growth or have to deal with concurrent warehouse leases. Handling shipping also takes time that could perhaps be better used growing the brand and focusing on marketing.

The benefit of outsourcing fulfillment is that 3PL providers are experts with the built-in technology, infrastructure and know-how to pick, pack and ship products efficiently. And, because 3PLs ship such a high volume of orders, these businesses get better shipping rates than an individual company, thereby cutting costs.

One downside of using a 3PL is relinquishing control of your order fulfillment process. Further, it could take time for a 3PL warehouse to become familiar with your product. Another disadvantage is that the fulfillment company might work with several other companies at the same time, meaning your business is not its only priority. Nonetheless, it is always in the best interest of a 3PL warehouse to perform well for each and every client.

The key to success is finding the right warehouse for your unique product and fulfillment needs.

Learn about how Prologis can help ease your company’s fulfillment needs with the help of Last Touch facilities.

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