Outsourcing versus insourcing: cutting to the core of the fulfilment debate
Martin Bysh, CEO of fulfilment technology provider Huboo shares his views on the optimum fulfilment strategy you should consider for your business.
Determining your fulfilment strategy is one of the critical decisions every business leader has to make when running and growing an online retail business.
In the past, new retailers typically began life fulfilling orders themselves until they reached sufficient size and scale for the third-party logistics giants to take them seriously. But today there are more fulfilment options out there – some of them tailored specifically for smaller or fast-growing companies.
With eCommerce going from strength to strength and creating more opportunities for savvy retailers, it’s worth taking another look at the question of whether an insourced or outsourced fulfilment approach makes sense for your business. In fact, it’s an issue that, thanks to the continued evolution of the fulfilment industry, now hinges upon just a couple of key considerations.
The biggest single reason to outsource
It all boils down to complexity. Handling fulfilment is a business in itself, and the chances are you’re a retail expert, not a fulfilment specialist.
As your business starts to grow, the complexity of managing your fulfilment operation can quickly become all-consuming. There are insurmountable limits to how many orders your delivery people and pickers and packers can get through. This means you’ll soon find yourself doubling your team, creating shift patterns that then need managing along with the various financial and HR challenges that come with a bigger workforce.
Not only that, but you’re going to need to sift through hundreds of couriers in each country you sell to, all of which have multiple service options at varying price points. Even if you back yourself to make the right calls, it’s an arduous and time-consuming process.
Finally, remember that fulfilment happens seven days a week, so unless you’re willing to give up your weekends, you should be prepared to lose every single Monday morning to fulfilment management.
The biggest misconception about outsourcing
A lot of smaller retailers still work to the assumption that fulfilment services aren’t designed with them in mind. In fairness, up until recently, they’d have had a point. Too many fulfilment providers continue to insist on high order volumes, high basket prices and other caveats that make their services inaccessible to retailers operating on a smaller scale.
Thankfully, however, these providers have been joined in the market by a new breed of more agile, technology-driven fulfilment companies capable of helping online retailers right from the get-go. So rather than automatically ruling out outsourcing, it’s worth doing a bit of homework to understand all of your fulfilment options.
The biggest single reason to insource
There are a few good arguments why it might make sense to insource your fulfilment, although none of them are exactly clear cut. Yes, it might be easier to manage if you’re just starting out, and yes, you might be able to make a better margin if you can secure the same discounts from couriers as the third-party logistics providers. But these arguments carry their own caveats, and as third-party providers continue to make their services easier and cheaper to access, they look to be on increasingly shaky ground.
However, there’s one thing that outsourced fulfilment is not very good at, and that’s customised packaging – for example, retailers that want to include handwritten notes within every order shipped. Third-party providers have to run their operations as efficiently as possible. While they’ll always try and cater to specific client needs, they’ll be unable to support requests that force them to break with their core processes.
So if it’s extreme customisation you’re after – and it’s certainly an effective way of differentiating your retail offering – then insourcing will be a better option than outsourcing.
The biggest misconception about insourcing
While it is possible to do insourcing as well as – or even better than – some third-party fulfilment providers, it’s a mistake to think that it will add value to your business. For most retailers, insourcing doesn’t make financial sense because they don’t have sufficient scale or clout to achieve the same margins as the outsourced providers. But even if your desired margins do look achievable, is insourcing at this scale worth the amount of management time and effort involved?
It’s a question of opportunity/cost. As a retailer, you need to think about the new products you’re not sourcing, the new channels you’re not selling through, or the marketing campaigns you’re not dreaming up because you’re so focused on the operational side of your business. Insourcing might give you some extra margin, but it’s unlikely to add any strategic value.
To outsource or not to outsource
Every retailer needs to be clear on the facts about outsourcing fulfilment and understand the different options out there before deciding to proceed. It can be an effective way to support further business growth, but it won’t be right for all retailers, particularly if they’re a new startup with a boutique offering.
One final thought to consider though. You can run a successful eCommerce website from a beach in Barbados if you outsource your fulfilment. That’s one luxury you won’t get through insourcing.