The Key to Fulfillment Success: Public Warehouse, Your House, or a 3PL?

Shopify has completely changed the eCommerce game. Launching a business used to take years of planning, but now you have the tools to create and scale a brand right at your fingertips. Because of this, the number of first-time retailers in the U.S. is higher than ever. As you learn and grow as a new merchant, you will face questions about where to store inventory and how to fulfill orders.

Fulfillment Options In The Modern Era

Retailers have two options for fulfillment: internal or external.

Internal, or in-house fulfillment, is when the retailer owns the process (and associated costs) of the logistics operations. This can look like a brand buying or renting a warehouse space, purchasing conveyors and sortation devices, and hiring workers to pick, pack, and ship their product. This can also be as informal as an operation running out of a kitchen, garage, or basement.

External or outsourced fulfillment is when a merchant employs a third-party company to own the process of fulfilling daily orders. Most retailers use what is called a third-party logistics company, or 3PL. 3PLs provide warehouse space for multiple brands to store their product and take on the task of picking and shipping orders.

Some people use the phrases “public warehouse” and “3PL warehouse” interchangeably. However, they have some distinct differences that are important to understand.

Public warehouses provide storage space to various businesses, and any logistics services they offer are secondary. With this option, you are still responsible for fulfillment yourself. A 3PL, on the other hand, stores your products and manages the fulfillment logistics for your company. This allows you to get your products into your customers’ hands as efficiently as possible.

Internal Fulfillment

Typically, businesses that are either very small or very large do fulfillment internally. A startup business with less than five orders per day may find the cost associated with outsourcing fulfillment doesn’t make sense with their current volume. Not to mention, many 3PL companies have a minimum order threshold of 1,000 a month.

On the other hand, companies like Nike and Heineken who do thousands of orders per day find that the cost of renting a public warehouse and employing labor is less expensive than outsourcing it.

Signs To Fulfill In-House:

1. Order volume is too low.

If sales volume isn’t large enough, then the amount a business pays for storage will be greater than the amount they receive in sales. If the time it takes to fulfill orders does not detract from other business growth initiatives, it may make more sense for an entrepreneur to choose internal fulfillment.

2. Order volume is too high.

If sales volume is high enough, a business may find that renting a public warehouse and designing an operation built around its products saves the brand money.

3. Extensive customization is required on every order.* 

If a product requires unique packaging or is customized on every order, most 3PLs cannot handle that level of detail. Often, this amount of customization will cost a business hefty fees.

*While many 3PLs won’t take on this level of customization, Jay Group is different. We know this is what sets your brand apart, so we offer customization options that deliver personalized experiences that drive retention. From gift wrapping and gift messages to shrink wrapping, kitting, personalization, and prepping, we do it all.

External Fulfillment

Bigger than a startup but smaller than a Nike? At this stage in a company’s life, a residential house isn’t big enough to complete orders by hand, but the volume is not large enough to justify the cost of renting a warehouse, employing labor, and buying shipping supplies.

3PL logistics outsourcing can be ideal in this situation. When using a 3PL, the cost associated with owning and operating a warehouse is dispersed among many retailers. This allows the 3PL to offer a lower rate due to the economies of scale. Similarly, since a 3PL is shipping for many retailers, they can negotiate transportation rates much lower than a single business can. In addition, they can offer a diversified portfolio of carriers rather than being stuck with one option. This is especially important as you scale and your order profiles change.

Signs It’s Time To Outsource Fulfillment

1. Marketing and other growth initiatives are taking a back seat. 

Every entrepreneur knows that you can’t just put up a website and begin driving sales. Building brand awareness and standing out from the competition is a continual process. Don’t let fulfillment slow your brand’s growth path.

2. Seasonal or uneven sales volume. 

While revenue may be seasonal, the fixed expenses of owning a warehouse are not. With 3PL logistics outsourcing, your brand can turn these fixed costs into variable costs, and end up improving your margins more than you may think.

3. Storage space is disappearing, and managing SKUs and inventory is difficult.  

These are signs that a business is outgrowing its current infrastructure. Consider investing in a bigger space and updating your warehouse technology. If those investments are too much for your business, then you need to outsource your fulfillment.

4. Growth plans include expanding internationally. 

Shipping in the U.S. is one thing. Shipping internationally includes customs, tariffs, expensive international fees, and other complex factors. By using a 3PL, a business can dip its toes in a new market without fully committing to the risk of opening a warehouse abroad.

5. Slow shipping times cost sales. 

If a business is in Florida, shipping to Oregon either has long transit times or an expensive price tag associated with it. 3PLs, due to their volume, can provide better rates and are typically strategically located next to major shipping hubs to reduce time in transit.

Is A Public Warehouse Right For You?

You know you’re ready to scale up from doing fulfillment out of your home, but is a 3PL or public warehouse the best choice?

For some businesses, public warehousing is the smartest option. On a month-to-month basis, you can pay for room to store your products, allowing you to expand beyond your house. This gives you the flexibility for short-term or long-term storage, depending on your needs. In addition, accessing a public warehouse is cheaper than building and managing your own.

However, there are also a few disadvantages of public warehouses. With this solution, fulfillment is still your responsibility, which means less time spent focused on brand strategy, marketing, and developing new products. In addition, you’re missing out on the extra, value-added services a 3PL provides.

With this in mind, 3PL logistics outsourcing may be the way to go. At Jay Group, we do more than just store your goods. With our fulfillment technology, we provide inventory management, automation, kitting and assembly, co-packing, and more.

Internal Fulfillment vs Outsourcing: The Tipping Point

At the end of the day, what makes sense for any business always comes down to cost and quality. If the cost to outsource fulfillment is less expensive and will give a better brand experience, then it’s probably time to change.