Hey beautiful people!
How have you all been lately?
I apologize for missing out on blogging these days as I've been caught up with the flu...oh my! Please comment on this post with your status and just greet each other.
In this blog post, I want to share my subjective views on the consideration of working with 3PL fulfillment instead of in-house, or what we can call DIY fulfillment.
I know that many small businesses start their ecommerce journey with their DTC brand by fulfilling orders from their home, garage, or whatever space they have available. From my perspective, this is actually good in the early stages when your brand is still developing. However, looking at the long-term perspective, it might not be the best option.
You might be wondering, "When should I switch to outsourcing fulfillment or working with a 3PL?" Let's explore below some signals that you might consider. Again, this is just my viewpoint, and I hope you take it as a reference point for your business.
You are spending too much time on the fulfillment
At the early stage, you're likely wearing multiple hats in your company—you're not just the boss, but also the only employee. You juggle various roles such as CEO, marketing manager, picker and packer, and warehouse manager. Of course, this is manageable when you have a modest number of orders each day. However, when orders start to increase rapidly, it becomes impossible to handle everything on your own.
You're faced with a choice between focusing on strategic work (such as CEO and marketing manager responsibilities) and operational work (like picking and packing orders), because you simply can't do both in a day. If you devote your time to operational tasks like picking and packing orders, it can easily consume your entire day. I experienced this firsthand when I helped my sister pack 100 t-shirts for her 100 customers.
In such cases, you risk losing the opportunity to focus on strategic tasks that are essential for scaling your brand sustainably. By sustainable scaling, I mean achieving healthy margins and consistent sales growth.
You're Struggling with Storage Space
When you only have a few orders, you don't need to hold much inventory, and this means the space required isn't too extensive either. However, as you start selling more actively, you'll need more space to store inventory. At this point, your garage may not be sufficient, potentially leading to a scenario where you need to utilize another room in your house for storage or even rent an empty garage for stock storage. However, this rental option may not be ideal, as it often entails poorly optimized space without any specialized equipment for fulfillment activities.
Your fulfillment cost is rising
When you're only dealing with a few orders per day, it's manageable to handle things like small tape rolls and cardboard boxes. However, as your business grows, so do your fulfillment needs. You'll require more space, shelves, systems to manage inventory and SKUs, materials for picking and packing, and even labor since you can't do everything yourself. Labor costs can be expensive in our country, right?
I recall a DTC brand I encountered during my full-time job, which was handling in-house fulfillment for the US market while based in their home country. They purchased an empty warehouse and invested in capital expenditures (CAPEX) such as forklifts, labor, shelves, pallets, and racking. They also hired workers to handle fulfillment tasks and heavily invested in a Warehouse Management System (WMS) to manage inventory and worker performance. Essentially, it functioned similarly to a fulfillment center, but from a cost perspective, in-house fulfillment proved to be much more expensive than outsourcing to a 3PL.
Two years later, they made the decision to shut down the warehouse and outsource their operations to a 3PL in Texas for fulfillment activities, where they were handling around 200 orders per day.
Working with 3PLs eliminates the need to invest in capital expenditures such as facilities.
Your shipping cost is more than what you should have pay
If you're a small business, dealing directly with shipping companies may put you at a disadvantage in terms of the rates you can secure. This is because shipping couriers/companies like DHL, FedEx, or others often offer better rates for larger volumes. For example, shipping a 3lb parcel to Zone 3 in the US might cost you $10.95 directly, but if you work with a 3PL, it could be around $8-9. The reason behind this difference is that 3PLs can negotiate bulk volume discounts with shipping couriers, and by working with them, you indirectly benefit from these discounts.
As you scale up and achieve decent volume, every penny you save on shipping costs can translate into significant profit gains. Therefore, partnering with a 3PL can be a strategic move to optimize your shipping expenses and increase your profitability.
You are expanding internationally
Many DTC brands, as part of their strategic growth, eventually expand internationally. When expanding to a new country, especially one that is not your home country, investing in warehouses and hiring staff for fulfillment may not be feasible for two main reasons. Firstly, it can be costly, especially when you're unfamiliar with the market. Secondly, some countries have their own regulations that can hinder such investments.
So, what should you do in such situations? I recommend simply working with a 3PL or 4PL. Outsourcing your international fulfillment is an excellent way to enter a new market without the risk of establishing your own warehouse abroad. With the assistance of a 3PL, you can navigate this new chapter efficiently. Not only do 3PLs offer better international shipping rates—especially if they are strategically located in your target country—but they also have expertise in export protocols and customs documentation, which can be challenging for a first-timer to navigate.
Final Thoughts
Alright, these are just some thoughts from my mind, and I hope they provide you with an additional perspective on how to manage the logistics aspect of your business. Outsourcing fulfillment may not always be necessary at the outset, unless your product requires very special handling. However, in the long term, outsourcing to a 3PL for fulfillment remains the best approach for scaling your DTC business. While you might initially think that handling fulfillment in-house will save you a significant amount of costs, in reality, outsourcing fulfillment could be the best practice.
See you in the next blog!