In-House Expansion vs. 3PL Services

As your ecommerce business grows, the pressure increases to obtain more SKUs, staff, and facility upgrades. There are two paths you can take to invest in your growth: in-house managed expansion, or outsourced expansion through a third-party logistics provider (3PL).

Generally, your available resources, immediate needs, and planned rate of growth all factor in to deciding which path offers the better ROI. Since each strategy has its pros and cons, choosing between the two can be harder than it sounds. To help you decide which expansion path is best for your business and long-term strategy, you should consider the following areas.

Packaging & kitting considerations

Do your orders require simple packaging that can be prepared inexpensively in bulk quantities, or do they demand a more complex packaging procedure? If an intricate package is part of your product’s appeal or branding strategy, it may be worth keeping production in-house to maintain close control over the process and/or avoid transitional hiccups. But, if you have no such customization concerns, a 3PL may be a more cost-effective option. Although, depending on your customization needs and the 3PL’s capabilities, outsourcing may still be a good choice. For example, at Fulfillment Works, we have lots of resources to design and produce custom packaging for our clients at minimal cost.

Human capital considerations

3PL providers usually have all the resources needed to help clients start expanding right away. If you have a small staff or your executive team lacks the experience or availability to execute on growth initiatives in a timely manner, outsourcing is typically the better path for expansion.

Technology & equipment considerations

Upgrading to a new WMS or adding new equipment to distribution facility requires a sufficient budget and an integration strategy that minimizes operational disruption. The more complicated your expansion needs are, the more difficult they will be to accomplish entirely in-house. Since 3PL providers already have the technology and equipment in place, they may be the better choice for businesses that need rapid expansion of facilities or operational capabilities.  

How to use Automation & Warehouse Management Software for Operational Efficiency

Ecommerce companies with high volumes of small orders need to be extremely efficient so that profits are not eroded by operational costs. If you can get through the initial pains of the implementation process, warehouse automation is a great operational advantage in this regard. But, you may find the ROI of automation to be underwhelming if it’s not completely integrated with your WMS. After all, since your WMS tracks and manages everything going on in the warehouse, it should also be facilitating the overall direction of your automated processes. When your WMS is synergized with strong automation strategies, you can significantly improve operational efficiency in the following areas:

Labor costs

Efficient automation will cut back on manual steps in the fulfillment process, allowing you to process more orders with less staff. However, a WMS with built-in labor management features will be required to orchestrate, schedule, measure productivity, and track labor costs across all operations.

Fulfillment throughput

As mentioned above, automation will speed up order fulfillment in general. A WMS will give you visibility into the production line and processes behind incoming product, put-away, picking, shipping, and returns. Together, you get the data needed to plan for the best use of your automated systems – pushing efficiency even further.

Order accuracy

Warehouses that rely more on manual processes than software or automation may have an order accuracy rate of 98% or lower. The day-to-day revenue loss may seems small, but it builds over time. With a WMS providing direction and automation taking action, you can expect to maintain 99.99% order accuracy.

Inventory transparency

Automation uses and provides inventory data while WMS provides data tracking, reporting, and planning features. Combined, they give you the necessary tools to enable real-time processing, eliminate errors with inventory locations, and make that information available to personnel in and outside of the warehouse.

3 Signs it's time for a 3PL Partnership

At some point, every ecommerce business asks itself, "is it time to partner with a 3PL provider?" The answer depends on several variables such as your long-term business goals, availability of internal resources, and your level of operational efficiency. Every business has different needs and priorities, so 3PL partnerships aren't the best answer for everyone. However, if you find yourself dealing with any of the following challenges on a regular basis, it may be time to bring in a 3PL provider.

Growth

Third-party logistics and fulfillment providers are among the best strategic options for helping ecommerce retailers (especially new ones) efficiently set the stage for rapid growth and/or improvement of services. Since 3PL providers already have robust distribution networks established, they can often help clients ship products to more customers, faster and at reduced cost.

Capital Investment

In some cases, partnering with a 3PL provider is a better alternative than investing in new facilities or technology. For example, upgrading to a new order processing system or adding new equipment to an already-full warehouse may require enormous amounts of time and capital to implement properly. However, 3PLs have already gone through those processes – and fine-tuned the results to accommodate the needs and demands of their clients.   

Operational Capacity

Order fulfillment is a complex and demanding aspect of ecommerce. If you find yourself already stretched thin with marketing, merchandizing, customer service, and other initiatives that are critical to the success of your business, outsourcing to a 3PL provider can help you keep your focus on those areas rather than managing fulfillment.

Should you Invest in WMS?

A warehouse management system (WMS) is software that is designed to support and optimize multiple elements of warehouse operations and distribution center management. As a major component of enterprise resource management, most types of WMS are comprehensive solutions that streamline warehouses' abilities to manage, record, measure, and concatenate:

  • Inventory
  • Order volume
  • Backorders
  • Receiving
  • Inventory reorder levels
  • Shipment schedules
  • Delivery status
  • Shipping history
  • Sales data
  • Marketing reports
  • and more – all in real-time

Now typically, WMS implementation is customized to the unique requirements of an ecommerce business or fulfillment center's supply chains and/or distribution channels (especially when the related workloads are too large to reliably deal with via spreadsheets or other forms of manual input). In other words, they've traditionally been utilized by very large and complex operations. According to a study from the Warehousing Education and Research Council (WERC), 35% of the fulfillment centers surveyed said they currently do not use a WMS. But like all technology, WMS’s are becoming more affordable even for small-to-medium-sized ecommerce businesses thanks to the increasing variety of, not only providers, but WMS service structures like subscription, cloud-based, and Software as a Service (SaaS) models.

So, WMS are relevant to more businesses than ever before. How can you tell if it’s worthwhile for your business to adopt a WMS? It depends on your long-term performance goals, current operational pain points, and what WMS features you'd use to address them. If your facilities are challenged by any of the following, it may be time to seek help from a WMS vendor:

Less than 99% inventory/order accuracy: More errors in your fulfillment operations equals more returns, chargebacks, and lost revenue. The accuracy and insight provided by a WMS could remedy these issues.

Inefficiencies with warehouse space utilization or picking systems: Many WMS solutions include slotting optimization features that are especially helpful for growing/evolving inventories.

Rising operational costs: WMS's streamline multiple fulfillment processes – contributing to time and cost savings.

Check out these Statistics on Warehouse Technology

Emerging technologies are a hot topic in the world of distribution and fulfillment operations. From advancements in mechatronic picking to new types of cloud-based WMS software, it's easy to come away from an industry conference feeling awestruck at what the future might hold. However, the recent DC Measures Study from the Warehousing Education and Research Council (WERC) indicates that the actual adoption and integration of these technologies is slow, with little signs of popularizing any time soon.
    
According to WERC's survey of 549 industry professionals, more than two-thirds of warehouse managers said people (not technologies) are the most important assets in their operations. Reflective of that, 35% of the fulfillment centers surveyed said they currently do not use a warehouse management system (WMS) – instead relying on "manual means such as Excel and disparate modules" to handle typical WMS functions. When asked about technologies they expected to implement over the next 10 years, more than 25% of those surveyed said they were “not likely to incorporate” sensors (e.g. RFID) or robotics/automation equipment. More than 50% said they were not likely to incorporate 3D printing, blockchain, drones, or driverless vehicles.

So, what types of technology are warehouses using? According to WERC’s survey,

  • 25.8% have installed voice-directed picking (up from 5.7% in 2008)
  • 18.3% use radio frequency identification (RFID)
  • 12% use pick-to-light
  • 11.1% have installed automated storage and retrieval systems (AS/RS)
  • 75% use some type of barcode and RF scanning system
  • 42.7% plan to implement “some form of real-time data and analytics” in the next 1-2 years (it’s worth noting that certain types of WMS, like the one we offer, have these features built-in)
  • 33% plan to implement mobile technology within 1-2 years
  • 26.6% plan to implement Internet-of-Things (IoT) technology within 1-2 years

While warehouses’ adoption rate of technology has certainly not been fast, it may not be as slow as this report indicates. After all, technology that is growing, like WMS solutions and IoT technology, are prerequisites to successfully deploying more advanced systems like robotics and automation equipment. Perhaps this is a case of “learning to walk before you run.”