The Pros & Cons Of Outsourcing Your eCommerce Logistics

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The Pros & Cons Of Outsourcing Your eCommerce Logistics
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You’ve planned, lost sleep, nurtured, and worried constantly about how good a job you’re doing.

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You experience a rush of pride when you see evidence of healthy growth and development.

Then, before you know it, you begin to feel your old 24/7 hands-on approach just isn’t working the way it used to.

No - this isn’t about parenting a child. It’s about growing your online business - and recognizing when it may be time to adjust your grip.

Maybe it’s time to consider outsourcing your eCommerce logistics.

Loosening the Reins

What - someone else handling the intricacies of your operation? How could that possibly work?

Well – it can, and it does. It’s called outsourcing.

It’s crucial in any business – but the online market is one that demands you stay at the top of your game if you want to remain competitive.

In an industry where fast, free shipping and accurate fulfillment are standard consumer expectations, it can be difficult for small retailers to compete with larger businesses if they warehouse and fulfill their own orders.

But you can’t stay competitive if you’re so distracted by daily processes that you can’t focus on what matters: delivering a great customer experience, and continuing to grow your business.

That’s where 3PL comes in.

Three Little Words

Third-Party Logistics (3PL) refers to the outsourcing of logistics processes to another company. It could include tasks like inventory management, warehousing, picking, packaging, transportation, and delivery.

And it’s a booming business. As more companies recognize its benefits, expertise in the outsourced logistics field has skyrocketed in the past decade.

There’s a direct correlation between logistical efficiency and customer satisfaction. Logistics determine order accuracy, speed of shipment, product condition, and how problems are dealt with.

And based on those outcomes, your customers will make judgments about the kind of company you are - and whether they’re inclined to remain loyal.

So what’s in it for you and your business?

The Upside

  • By whittling down to your core competencies – and outsourcing the rest – you keep your business lean, cost-effective, and focused on the tasks that your in-house talent is best equipped to handle.
  • Outsourcing non-core tasks frees up your resources, allowing you to focus on strategic planning to grow your business.
  • With third party partnerships, you can scale your business to new markets easily – without worrying about investing in additional labor or warehouse space.
  • You can outsource as and when needed to deal effectively with seasonal and sales fluctuations.
  • You’re not locked into a long-term lease agreement for space you may not use, because the third party is an offsite contractor who charges for the space you actually need.
  • You’ll lower your shipping costs, since your third party partners are able to use their high shipping volumes to negotiate better rates with their delivery companies.
  • Whether it’s warehouse management or shipment tracking, good 3PL providers optimize their processes for a smooth operation – which means you enjoy the benefits of innovative software and technology without having to invest in it yourself.

So that’s an upside snapshot.

As you’ve probably guessed – there are some “but’s” coming ...

The Cons

While there’s much to be gained by outsourcing, it does pose challenges. Just bear in mind: these are by no means insurmountable.

Are You Safe?

When you outsource to a third party, you’re making your assets vulnerable.

And – given that cyber crime nets about $1.5 yearly, and is on the rise – it’s no surprise that customer data protection is a major online business concern.

Take precautions to reduce potential risks to your business and your customers.

  • Negotiate a contract that maximizes protection. A contractual agreement that minimizes the amount of data that can be shared is a good start. A 3PL provider shouldn’t need to access your company’s entire database to perform their work. Collaborate with cyber security experts to set up a network access control
  • Develop a risk management plan. This should be in place before signing off on the contract, and it should specify exactly what data the 3PL provider can access, how you can track that access, and steps that will be taken if a security breach occurs.
  • Be smart about outsourcing. That means vetting before shaking hands. Check out reviews from other customers, and arrange for an audit of the 3PL provider’s track record to confirm they merit your trust.
  • Ensure that your 3PL rep has a unique account – one that isn’t accessed by other reps. Shared accounts mean more people can  access  your data, making it much more difficult to determine the source of a security breach.

Remote Control

Outsourcing work, to a great extent, entails outsourcing control.

You’re no longer just minutes away from your team (or your product).

In-person interactions, inspections, performance and productivity monitoring  -  all these can become challenging.

Keep your finger on the pulse.

  • Vet your provider for their experience and skills: they should have a proven track record in successful remote team integration
  • Draw up a Service Level Agreement (SLA) that defines the level and scheduling of service expected from the service provider.
  • Establish reliable and consistent channels of communication – including a strict check-in schedule.
  • Provide regular feedback to ensure your provider stays on track and remains engaged with the work.
  • Use project management tools to ensure that expectations are understood and met.
  • The good news: if this pandemic has taught us anything, it’s that virtual communication is a powerful Use it.

Is the Price Right?

Outsourcing costs money.

Simple question: will its benefits outweigh its costs?

Costs include warehousing, transportation, picking and packing, shipping, and a fixed monthly fee.

Before outsourcing , consider whether the work could be done more cost-efficiently in-house.  But let’s face it  - if you had the appropriate resources,  you’d already be doing it yourself.

As a successful online marketer, you’ve already invested huge amounts of time and energy into your enterprise. So what now?

Maybe it’s time to nudge your creation to spread its wings by outsourcing.

And let it get on with the business of growing – under your watchful eye.

Updated on

Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at [email protected]
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