What to Expect When Outsourcing Fulfillment to a Third Party

If you’re thinking about outsourcing, there are a few things you’ll want to consider. Here’s a list of the 6 most common areas + a downloadable PDF with questions to ask directly.

Fulfillment Outsourcing

At some point, every online retailer should to consider the idea of outsourcing order fulfillment. (If you’re wondering why, check out these 7 reasons why outsourcing is a great idea.)

The big reason is simple: Keeping up with the daily grind of packing and shipping boxes as sales increase is a challenge. As your subscriber base grows, so does the demand for efficient and organize packing, shipping, and storing of products and completed boxes.

While scaling up fulfillment operations in-house may be an options for some, most companies find it better to partner with a 3rd party logistics partner (3PL) that has specific expertise and technology to manage this process. These partners can help optimize your process, provide better solutions (shipping & box prices) for your company, and reduce the risk of slippage and breakage – and this all often comes with  a bigger bottom line.

Looking for a set of questions to ask? Download our free PDF on Questions to Consider When Outsourcing Fulfillment

But there are some things you’ll want to consider when approaching a fulfillment partner. Here are 6 big areas to keep in mind:

Number 1. SKU’s and Storage

It’s no surprise that storing products is a big part of what 3PLs do. If you have sensitive product types, it’s something you’ll want to go over with your fulfillment partner.

What’s more, the amount of product you keep in inventory, or bring in to support your next box will affect your storage costs. Costs are typically billed at a monthly per pallet, or per sq. foot rate for on-shelf storage.

Questions to consider:

  • What is the per pallet or per sq. foot storage fee?
  • What certifications does the warehouse have?
  • What types of products are not suitable for the warehouse?

Number 2. Pick and Pack

Typically, a subscription box is assembled in a production line manner and the cost will be measured in what’s referred to as “touches.” These are defined by how many times a team must touch your box. For example, folding your box is one touch, placing an item inside is another touch, and sealing the box is another touch.

First, there will be a flat per order fee meant to cover the basic costs of processing the order and picking the first item. The variable part of the equation comes in for orders containing 2 or more pieces which incur an additional per piece charge for each item on the order after the first one.

This is important to understand for a few reasons:

  • Adding additional items to the primary box offer due to an upsell or email blast will add additional touches, and needs to be identified at the onset to allow for proper assembly line creation.
  • If there are any web order elements for individual items a customer may want more of, there will be a different set of costs to be discussed.
  • There are costs associated with additional services, which can include labeling, wrapping, and other types of personalization – these costs are quoted based on the specific requirements of the task.

Number 3. Materials

Warehouses will charge for boxes and packing materials, and the cost will depend on the size and type of box, the type of materials, and how many are used.

Some facilities will require you to use their boxes, while others will allow you to provide your own. In general, the fewer box sizes you need to use helps save money by enabling you to buy in greater volume and pay a lower per box rate.

Keep in mind: 3PL’s have access to greater rates for most packing materials. When grabbing a quote, make sure you get competitive pricing wherever possible.

Number 4. Shipping

A potentially big advantage to working with a 3PL is saving money using their shipping contracts – many 3PLs will pass on some or all of their negotiated volume discounts.

What’s more, outsourcing to a central part of the country can greatly reduce shipping costs for zone based shipping (like the USPS). By being centrally located, you’re closer to most address, vs. shipping from a coastal location.

Reputable warehouses will also help you optimize how you are shipping customer orders in a way that reduces your overall costs. In the end, however, it the size, weight, and destination of your products that has the largest impact on your shipping costs.

Number 5. Receiving

3PLs will charge for the time (usually as a per hour rate) to inspect and receive your products. Some will charge a line set-up fee, which includes setting up your packing list and counting product ahead of time.

In both cases, this operation is important to maintain accurate inventory counts. When you work with a 3PL, its common that you never see the actual product you are selling because it will being coming directly from your suppliers. This means having a trusted partner to inspect product before it is sold is important.

Number 6. Support

Another variable cost, customer support, is usually charged as an hourly rate to cover the cost of customer inquiries and other support issues. Most order fulfillment warehouses can provide some level of support to your customers but it is important to define the exact expectations and provide proper training — it’s fairly unique to have a 3PL that corresponds with your customers over email.

Keeping the Big Picture in Mind when Outsourcing

Outsourcing is a tough decision for any business function and order fulfillment is no different. Having a clear understanding of the types of costs involved with outsourcing is an important first step.

Questions? Post them below!

This guide was collaborated on with the resident experts at Kable Packaging

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About Jesse Richardson

Jesse Richardson is an author, educator and co-founder of several successful subscription businesses. He focuses on building engaging communities and has been described as "insanely customer centric." Find him in the Subscription School group or at his blog.

9 Responses

  1. Kevin Juaire

    Do you recommend Medallion Fulfillment? I have been reading that they can not integrate tracking numbers with Cratejoy and provide emailed tracking numbers to customers. Zwagbox from Red Giant Entertainment uses your system and Medallion for fulfillment, but can’t get tracking numbers to recipients. Is there a third party vendor that can send tracking through cratejoy?

      1. Natalie Chase

        Hi Jesse,

        Are there a list of fulfillment companies that Cratejoy recommends? Has there been a survey that has gone out to current Cratejoy members with their experiences with fulfillment companies?

  2. Hi Jesse,

    I work for EasyPost where we provide fulfillment and API for small and medium sized e-commerce businesses. Subscription-based is a sweet spot for us. Sorry for the commercial but I know we typically we save businesses about a quarter of what they spend today in fulfillment and shipping combined, with a very singular pricing model. We have no receiving, storage, pick-pack, or any other random fees, and charge one simple flat price nationwide based on weight and paid only once the items ship. It’s a commercial, but it’s also true. Just trying to help. Thanks.

  3. Chris

    I am looking for something that is easy for a novice and can be set almost completely on autopilot, not looking to get rich just earn extra and residual income

    1. Felicity Fromholz

      I hate to say this Chris – but a subscription business isn’t one you can put on autopilot and expect to make money – even if you’re just looking for residual income.

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