Order fulfilment is a big consideration for many businesses, and particularly e-commerce companies. Although it’s a stage of your operations that customers never see, getting it right can still make the difference between earning a profit or suffering a loss.

And it’s not easy to master. There are many elements to it to bear in mind, ranging from warehouse size and location to labour requirements and inventory management.

So it’s perhaps not surprising that around 41% of retailers choose to outsource fulfilment to a third-party logistics (3PL) provider.¹ 3PL companies manage order fulfilment on your behalf, holding your inventory in their warehouses, packing orders and sending them out for delivery.

Deciding whether this is the best approach for your business will depend on many factors, including the size and capabilities of your company. Here we take a look at three of the main reasons why businesses choose to outsource to 3PL providers – and some of the advantages and disadvantages to consider.

Third-party logistics providers will typically operate at a larger scale than individual e-commerce companies – with bigger warehouses and more staff. That means they can take advantage of cost efficiencies which you might not be able to access as a single business, such as better rates from packaging suppliers, a more economical cost per square foot of warehouse space, or technology to streamline warehouse operations.

How this could benefit your business:

Running your own warehouse operations can be expensive – from the cost of the warehouse itself to the staff to operate it and inventory management systems to make sure it all runs smoothly. What’s more, the price of warehouse space is predicted to increase as demand for it outstrips supply.²

With that in mind, working with a specialist may be more cost-efficient for your business, and free-up your team to focus on other areas such as product development and marketing.³

What to bear in mind:

When looking at potential 3PL partners, cost shouldn’t be the only factor to consider. As with any other supplier you work with, you should take into account their scale and capabilities, too.⁴ And, it goes without saying, it’s important to find a partner you trust with your inventory and that you can build a good working relationship with.³

Dedicated fulfilment providers can typically offer a large and experienced workforce with a diverse range of skills and expertise. This can be very attractive to many e-commerce companies.

According to one survey, the desire to expand into cross-border commerce is a key motivator for retailers choosing to work with a third-party fulfilment partner, as these providers are likely to be experienced in preparing goods for shipment to international markets.¹

How this could benefit your business:

If you don’t have the scale and resources to retain a similar level of expertise in-house, then working with specialists can allow your business to benefit from their knowledge. This could bring wins for your business, from reducing handling and shipping errors to helping you reach international customers more easily.

What to bear in mind:

Mistakes can still happen. And if there is an error that impacts one of your customers’ orders, the customer is likely to hold your business accountable.⁵ And without the oversight you would have from managing fulfilment yourself, you may not even know about the mistake until a customer complains.⁶

Most businesses expect to experience peaks and troughs in customer orders throughout the year, which can present logistical challenges if they are running their own warehouses. The flexibility that third-party logistics companies offer can therefore have a strong appeal for those businesses facing a need to flex their fulfilment capabilities up or down.

How this could benefit your business:

Surges in demand are often unexpected, but working with a 3PL can help you to take full advantage of these opportunities. Providers will typically have the capabilities to manage a sharp increase in order numbers – including the space to store additional inventory – and if the spike in demand is temporary, you can scale back just as easily.⁷

What to bear in mind:

Handing over control of your fulfilment to a third party could feel daunting for many small business owners. Inventory stored with a 3PL provider isn’t immediately accessible to you. Plus, packing and presentation will be the provider’s responsibility, so overseeing quality control could be more challenging.³