In-house fulfillment: the alternative for new e-commerce brands
There are a number of order fulfillment options available to e-commerce brands. When starting out, keeping it simple and fulfilling orders in-house can often be the best option. In-house fulfillment refers to storing inventory and picking, packing, and shipping orders at the company's own facilities.
Why should you do it? Advantages of in-house fulfillment
Even if you aren’t a big DIY person and in-house fulfillment sounds daunting, thanks to an emergence in fulfillment technology it is now easier than ever to set up and this approach to fulfillment comes with several advantages, especially when first launching a new brand.
Flexibility and control
The most common reason to handle fulfillment in-house is flexibility. When you’re launching a new brand several things will likely change including the product, marketing strategies, order frequency, and packaging decisions. All of these have a direct impact on the fulfillment operation and require change.
Traditional third-party logistics (3PLs) do not handle change well. They design operations based on decisions you make during the integration stage, from how to store products to how to pack orders. They manage a large amount of labor which requires you to provide forecasts for when products will arrive at their facility and how many orders you plan on shipping each day/week/month. These things are typically very difficult for a new brand (with limited to no history) to predict and variations from these forecasts often have financial consequences. This is where most relationships between a brand and its outsourced fulfillment partner strain: you demand flexibility and they demand consistency.
In-house fulfillment gives you complete control of the fulfillment process. This makes change much easier to manage and reduces the financial risk associated with it. Additionally, you will have more control over how customers experience your brand when receiving a shipment, particularly around customization and other value-added initiatives, and will gain insight into what type of fulfillment operation works for your product. This is all extremely valuable information, especially to brands just getting started, and that information will help you decide if (and how) you outsource down the road.
Faster order processing
In-house fulfillment offers the advantage of faster order processing due to direct control over the entire fulfillment process. With orders managed internally, businesses can streamline workflows, optimize picking and packing processes, and expedite shipping procedures. By reducing the need for communication and coordination with external parties, in-house fulfillment results in quicker turnaround times from order placement to delivery.
Better customer service
Direct oversight of order fulfillment processes means the customer experience is in your control. By maintaining direct communication channels and personalized interactions with customers throughout the fulfillment journey, brands can build trust, loyalty, and positive brand perceptions, ultimately driving repeat purchases and word-of-mouth referrals.
Cons of in-house fulfillment
Costs
The cost of operating an in-house fulfillment operation includes three key components: labor, real estate, and equipment.
Labor costs are variable and driven by the frequency and time required to receive your product, pick, pack and ship orders, and manage inventory levels. Early-stage brands can avoid additional labor costs by managing the order fulfillment themselves, often in batches throughout the week.
Real estate is fixed and dependent on the location of your operation and how much space is required to store inventory and set up space to process orders. Typically this requires leasing a warehouse space but we have seen apartments, garages, back offices, and vacant retail stores used as well.
Equipment typically includes racks to store your product, computer equipment needed to process orders and print shipping labels, packing materials, and tables to create surfaces to pack orders. This cost is fully dependent on the amount of inventory you carry and is often negligible in the early stages when levels are low.
Tracking these costs every month will be essential in determining if an in-house operation makes sense for your business. While that task seems obvious, it’s something we consistently see new brands overlook.
Labor management
Once you have an in-house operation set up, your attention turns to managing the people executing it. Finding reliable employees who have the flexibility to handle the fluctuations of order volume can be challenging. Like a traditional 3PL, it helps if you can predict when volumes will spike to ensure you have enough labor to execute. This requires determining the time it takes to execute the various functions of a warehouse, such as receiving inventory, storing inventory, and picking, packing, and shipping orders, combined with the expected volumes of each function. Both will allow you to calculate the number of people you need to meet a service level you deem adequate.
However, even if you perfectly predict how many people you will need, you will likely encounter problems given people are prone to error. Accepting this upfront will better equip you to solve problems when they do arise. Perfection is not realistic when humans are involved and the number of touchpoints increases the likelihood of unexpected challenges.
Not a core competency
Managing an in-house fulfillment operation inevitably becomes challenging as your business grows. You need to constantly monitor performance, tweak your operation for new products, ensure you have enough labor and space to execute, and do this within a budget that makes sense for your business.
We often see brands start to outgrow their in-house operation when they reach 50 orders per day. At this point, it becomes necessary to determine if you want fulfillment to be a core competency of your business, as significant investment of both capital and time is required to scale the operation. This is often the point where brands explore outsourcing to a logistics or fulfillment company to free up time to focus on their core competencies (marketing, product development, technology, etc.) and potentially reduce long-term fulfillment costs.
The process of managing in-house fulfillment
Managing in-house fulfillment involves overseeing several key processes to ensure smooth and efficient operations.
Inventory management requires tracking inventory movements, conducting regular stock counts, and replenishing stock as needed to prevent stockouts and overstocking.
Order processing involves efficiently processing incoming orders, verifying product availability, and allocating inventory for picking and packing. This involves coordinating with various departments, such as sales and customer service.
Shipping and logistics include selecting appropriate carriers, generating shipping labels, and tracking shipments to ensure timely delivery. Additionally, optimizing packaging and shipping methods can help minimize shipping costs and reduce the risk of damage during transit.
Returns and exchanges require brands to establish clear policies and procedures for handling returns and exchanges, including issuing refunds or replacements, inspecting returned items, and restocking inventory.
Technology helps fulfill orders
To execute in-house fulfillment, you’ll need to be able to print shipping labels for orders received. There are several ways to do this and ensuring whatever system or software you choose seamlessly integrates with your shopping cart is critical. Here are a few broad options to consider:
Platform or marketplace shipping
Many e-commerce platforms and marketplaces provide native shipping label tools, such as eBay or Shopify Shipping. These tools allow you to quickly generate discounted shipping labels with the major carriers (i.e. USPS and UPS). Typically smaller merchants prefer these native tools for the ease and simplicity they offer, and because the shipping rates are superior to what many younger brands can negotiate on their own.
Shipping software
Shipping software providers such as Shippo and Shipstation are our preferred methods as they allow brands to integrate shipping functionality directly with their online stores. There are a number of cloud-based platforms with seamless order entry, batch printing, address validation, and automated tracking notifications. Typically these tools carry a per-label fee or monthly subscription fee, and offer discounted postage to users.
Carrier direct
While we only encourage this for brands shipping very small volumes, another option is utilizing the carrier’s direct shipping tools, such as UPS.com (or its Worldship desktop software) or FedEx.com (or its Shipment Manager desktop software).
In Conclusion
In-house fulfillment gives brands greater control over operations, cost savings, and improved customer service. It's often a smart solution for brands in their early days and will give brands valuable information for when they're ready to scale and work with a 3PL.
