When you run an ecommerce business, one of the most important details to handle is how you will ship your products to your customers. While shipping out of your garage works well in the startup stage, once you outgrow this phase, that model becomes unsustainable.
There comes a point in every business owner's life when they realize they need to streamline their logistics process, said Krishna Iyer, director of strategic alliances for ShipStation. If you've reached that point, you may be wondering how to affordably outsource your shipping needs to third-party providers with the least disruption to your customers and to your business.
Business News Daily spoke with industry experts to help small online retailers determine whether now is the right time to outsource, and if so, how to do it. [Learn about ecommerce shipping basics in our guide.]
Should you outsource your shipping?
If you've been shipping products out of your home, trusting a third party can be difficult. Iyer said business owners need to take a hard look at their finances to decide if it's time to use shipping software and/or hire another company to handle shipping for you.
"When looking to outsource shipping, business owners should consider where they are shipping products to most often, how intricate their fulfillment procedures are, what the returns experience looks like for their customers and what markets they would like to expand to," Iyer said.
Iyer listed a few pros and cons of outsourcing.
- Outsourcing allows merchants to focus on their core competencies, such as product development, marketing and long-term growth strategy
- Third-party shippers are often better suited to handle shipping, packing and fulfillment
- You can decrease your business's order-fulfillment time and possibly save your customers money
- If you sell large products, it may cost more in the long run because of the extra warehouse space needed to store your products
- Some third parties have complex pricing structures that can be difficult for merchants to understand
- Sometimes the returns process suffers when using a third-party shipping company. (Some customer service functions are out of your hands.)
Options for outsourcing
Online retailers have a few different options to consider when outsourcing, including renting warehouses, drop-shipping and using third-party logistics (3PL) companies.
"It really depends on your business and what you're selling, and the materials you need to do business," said Sam Ely, director of LTL operations at uShip.
This practice is common among growing online retailers. Merchants rent warehouse space near high-population areas so goods can be delivered to consumers faster and cheaper than they otherwise could from business owner's or the manufacturer's location. (Shipping software can help you remotely manage your inventory and orders.)
If you don't want the hassles that come with renting warehouse space, drop shipping bypasses warehousing and allows you to ship orders and track inventory directly from the drop shipper. Instead, when a customer buys a product, you, the merchant, buys the inventory from the drop shipping company that then ships the products to the customer directly.
3PL is a broad term that encompasses many different services, but, essentially, it's hiring another business to optimize your supply chain. This could mean everything from handling the entire shipping process to warehousing, controlling the inventory process, providing in-depth reporting, etc.
Going with a 3PL over the other outsourcing options comes with a hefty price tag, which might be difficult for some small businesses to handle. As a business owner, you need to weigh the pros – not having to deal with the nightmarish web of shipping duties – with the cons, like the large upfront investment these services require.
How to choose a provider
As you weigh your options, Iyer offered some tips for finding an outsourcing partner.
Understand your business's needs. Envision the customer-fulfillment and delivery experience you want your customers to have, then communicate your business's needs to the providers you are considering. It also helps to involve your company's various departments early on, which can mitigate potential issues later.
Shop around. "Understand the line-item costs for each item fulfilled," Iyer said. "Don't be afraid to ask for a sample invoice breakdown and a projection of what a bill will look like."
Iyer noted that most 3PLs (if that is what you choose) are locally owned and operated, so they can be fairly flexible with invoicing structures. Find one that really fits your needs, and ask for references with companies that are in similar industries if possible, he said.
Ask questions. As cliche as "open communication" and "asking lots of questions" may seem, it is crucial to find the right provider, because it can save you a lot of headaches further down the road.
"[Third-party shippers] should … have a lot of transparency in what they are doing, how they are doing it and why they are doing it," Iyer told Business News Daily. "After all, it is your product and why a customer is buying from you."
One important area to consider is how a third-party vendor might handle customer returns.
"How much do they put on the customer versus utilizing tools, i.e., printing a return label on the front end for a product or having the capability to print and email a return label?" Iyer said. "How does the third party process the return when it comes in? Can they utilize low-cost return methods? These are critical questions [to ask] in keeping costs down and ensuring a better customer experience."
The future of logistics
To get a glimpse into the future of ecommerce logistics for retailers, one needs only to look at the industry's biggest player: Amazon.
In 2015, Amazon spent $11.5 billion on shipping, which, at the time, amounted to 10.8 percent of its sales. Last year, the ecommerce giant created an in-house shipping company, quite possibly changing the game for everyone.
"All eyes are on Amazon given its enormous investment in logistics and desire to control the supply chain, from sourcing to transoceanic movement to warehousing to final mile delivery to the home," Ely said. "Technology will play a big part in optimizing that effort for them."
"Products are getting from the manufacturer/vendor to the customer faster than ever," Iyer added. "It will be interesting to see if the creation of more shipping options then creates new products, modes of transport or other levels of innovation that we have not foreseen yet."