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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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:
- Order volume
- 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.
In our previous blog post, we pointed out how strategically optimized slotting in fulfillment centers contributes to multiple gains in operational efficiency. To realize these gains for yourself, you'll start by collecting and analyzing various data points about your inventory such as sales velocity, order frequency, size, weight, etc.
This inventory data will inform your slotting strategy moving forward – enabling you to slot all your SKUs in a layout that 1) shortens picking times and reduces the frequency of replenishment trips by providing sufficient space for extra stock (informed by sales and order frequency data), and 2) allows pickers to quickly and easily access them with limited bending, reaching, or equipment required (informed by product volume and weight).
In addition to those primary goals, there are additional "best practice" considerations that should be guiding your re-slotting decisions. Address the following aspects as early as possible to maximize the effectiveness of your slotting strategy:
Storage areas and product types
Do certain types of storage areas in your warehouse work better for certain product characteristics? Are changes to the warehouse's layout needed to truly benefit from re-slotting? For example, you may want to store paper products away from high-humidity areas, or reorganize the layout to promote better airflow.
Product cubic velocity and slot sizing
The product cubic velocity refers to the amount of units picked from a location, multiplied by the product's cubic dimensions. Accounting for the cubic velocity will ensure that the SKU's slot size and number of picking locations are optimized to reduce replenishment trips and overall congestion.
Consider how slotting changes may impact workplace safety. For example, are there SKUs that should be at lower levels or in forward pick areas instead of requiring ladders or forklifts?
A lackadaisical approach to slotting is detrimental to overall throughput and efficient space utilization in your fulfillment center. To gain the benefits from slotting, the process needs to be addressed continually as product assortment or sales by product change. Prioritize slotting assessments in your warehouse operations to ensure that your facility is always running at peak efficiency.