Top 7 Reasons Why You Shouldn't Outsource Fulfillment
The allure of outsourced fulfillment (such as Amazon’s FBA program) is strong. But, don’t get sucked in by the hype! In any business, you never outsource anything that you can do better or more efficiently yourself.
If you don’t think you can make your fulfillment operation more efficient than a third party, then you’re not trying hard enough. All of Amazon’s super-advanced technology is designed to handle the massive size of their operation. If you’re a small business, you don’t need advanced technology to grab a product off a shelf, put it in a box, pad it, and put a label on it.
Here are my top 7 reasons why you should perform your own fulfillment:
Would you outsource your customer service? Of course not. Fulfillment is probably the most important aspect of an e-commerce business because it’s the LAST thing customer’s remember about their interaction with your store. If a waiter is great for an entire meal, but takes five minutes too long to bring the check, you’re going to have a poor opinion of them. It’s human nature. If everything about your site is great, but the customer has a bad fulfillment experience, they’re going to blame you and not your fulfillment company.
Vendors are going to make mistakes. They’re going to send the wrong item. They’re going to send too few or too many of an item. Items will get broken during delivery to the fulfillment center. How is your fulfillment company going to handle this for you? Will they even know if an item is damaged? Will they know if your vendor made a change to the packaging? Will they know if the vendor changed a spec of the product? If the vendor forgot to inform you, you won’t know until a customer complains! This will cause you constant headaches. As soon as you lose control over such an essential part of your business and you’re at the mercy of another company, you’re destined for major problems.
Returns. When a customer needs to return an item, do they send it back to the fulfillment company? Are you going to trust the fulfillment company to decide if the product is in good enough condition to resell? You may put yourself into a position where you have to eat all returns. Also, if the returns aren’t sent to you, you lose out on a valuable feedback mechanism to determine why a particular product has a high return rate.
You won’t save money. Seriously. The fulfillment company is going to charge you to store product (remember that about 80% of your products aren’t best sellers). They’re going to charge you to pick product, to pack product, and to actually ship it. They may pass along some of their volume postage savings, but they have to make a profit, too. When you add up all of those costs, you might as well hire someone to do it yourself. At least you’ll have control over the entire process. If you don’t do enough business right now to hire someone, then do it yourself and include a hand-written “thank you” note inside each order.
Don’t get duped by the “we’re experts in fulfillment” sales pitch. As a small business owner, you’ve figured out how to performs tons of things you never thought you could do. Determining the best way to send an item without it breaking during shipping is definitely something you can do. I don’t mean to sound crass, but at a 3rd party fulfillment company, they don’t have PhD’s packing your product. You can figure out how to do this efficiently for your business and teach an employee how to do it.
Customization: You have best sellers. You can purchase boxes that fit those items exactly. This saves tremendously on shipping costs because you don’t have to use void fill material and the chance of breakage drops to nearly nil. Third-party fulfillment can’t (and won’t) do this.
Breakage. The fulfillment company doesn’t know anything about your products. They don’t know what’s highly susceptible to breakage. They’re going to pack everything in exactly the same manner. When breaks occur, you’re the one who will have to deal with the customer service and pay for the reshipment. Yes, the fulfillment company might reship for free, but you’re out the cost of the product. You also have an angry customer. If you handle fulfillment, you can make adjustments so that the same problem doesn’t repeat itself. A large 3rd party fulfillment company can’t handle this level of customization.
Third-party fulfillment companies setup their operations to be as generic as possible. This, by definition, is going to be less efficient than what you can create yourself.
The only cases in which I think outsourced fulfillment makes sense is if you do not have the physical space to do it yourself. Otherwise, roll up your sleeves, and learn something about shipping! You’ll be glad you did.
In the last week here in the UK I sold nearly 100 CDs through Amazon FBA. As a one-man (virtually) business there is no way I could have handled that volume of picking and packing with the addition of sales on eBay and other venues With Amazon Fulfilment customers TRUST the site to deliver quickly, to deal with queries and be 100% customer focussed. I would agree with your comments regarding using an unknown fulfilment house but, in my own experience, Amazon has been a boost to my business and, apart from the costs, I have no complaints (and judging from my feedback neither do my customers!)
Good points! I agree that cost is definitely not a reason to outsource fulfillment, especially not FBA. However, one other situation (ie. my situation) where it's essential is where you're fulfilling internationally. I live and work in China selling Chinese tea to Europe. Sending the products direct from China would mean a 3-4 week delivery time. An outsourced fulfillment system like Amazon or Shipwire means I can guarantee 1-2 days delivery to UK customers.
On the other hand, if I could do the shipping myself, I absolutely would, for the ability to personalise and 'delight' the customer much more than I can with Amazon.
Elizabeth Ball says:
If you sell generic, "pick'n'pack" items in huge volume, I would definitely suggest you use a fulfilment company to save time, money and storage space. But if you sell anything that's personalised in any way, or that is meant to be a gift, a fulfilment company simply will not provide the "delight" your customers expect. I have a suspicion that many of the older Baby Boomers who don't wish to retire will be snapped up for customer service and complex fulfilment roles by specialist online retailers.
Jamie Salvatori says:
@crucialmusic - If FBA works for you, that's great, but you're missing out on opportunities to brand yourself. Everything from Amazon says "Amazon.com" on it. They may think they purchased from Amazon -- not from your company. In small business, repeat customers are essential.
At the very least try to pick a fulfillment company like Shipwire that doesn't compete with you. Why educating your competitor with your sales data and help them to build their brand?
I do not agree with any of the above points mentioned. I own a fulfillment business in The Netherlands. We pick and pack the orders specifically to clients requirements. There is no reason why we would have any more breakage. Due to the large volume of packages we ship out, our clients benefit from our discounted shipping rates as we send out more than 250,000 cartons a year.
John Lindberg says:
The #1 reason that ecommerce merchants outsource fulfillment is aggregate cost reduction per order shipped and this is especially true at shipping volumes less than 2,000 orders per month.
The overhead cost of UPS or FedEx daily pick up service, endicia.com or stamps.com fees, and package processing software like ShipWorks can add up to over $3,000 per year and these basic costs are all avoided by outsourcing.
When the cost of printers, scales, shelving, facilities, labor and supplies is factored in, it is not uncommon for the total outsourced fulfillment cost per order to come in at less than half of the DIY cost per order.
This doesn't include the value of the working capital and management focus freed up by moving the repetitive process of warehousing, picking, packing and shipping to others which can mean the difference between sales growth vs. stagnation over time.
It is true that fulfillment outsourcing is not for everyone, but it would be a good idea for most online merchants to research the facts and figures carefully before making their own DIY vs. outsourcing decision.
John Lindberg - President
EFULFILLMENT SERVICE INC
Tandy Byrd says:
One more point I did not see addressed for the small home business: scalability. My book business has outgrown my storage space. Fulfillment by Amazon allows me to increase stock without renting a storage unit or the like. Much cheaper to "rent" space at an Amazon warehouse than do it on my own. I send only items that amazon can't damage (too often) in their picking and packing.