Outsourced Warehousing and Fulfillment for Small Businesses

01/22/2013 — Scott Frederick

The following guest blog post is being published compliments of Will Schneider, the Co-Founder and CEO of WarehousingAndFullfillment.com.

Is Outsourced Warehousing and Fulfillment Right for Small Business?

At some point in time, most small businesses that sell product will be faced with the option of either keeping the warehousing and fulfillment of product in house or outsourcing it to a third party fulfillment company. This is a very difficult decision for small business owners, in large part for three main reasons. First, this is your company and your product — and despite the wonderful things that outsourced providers will tell you, no one will care about your business as much as you. Second, many small businesses face cash flow issues that make it seem easier to use internal resources. Third, change is painful, especially when you consider that you'll be moving your inventory and the logistics of establishing new processes and procedures. But be careful of letting these factors make the decision for you. Performing a full comparison may reveal that outsourcing is a better option than anticipated.

Is Too Much Control a Good Thing?

It's certainly true that no one will ever care as much about your product as you — but there are countless providers that will care about your product enough to get the job done extremely well. And on top of that, fulfillment companies specialize in the distribution process, so they will most likely be able to perform these services more efficiently and effectively than you — which can translate into cost savings and happier customers. The best fulfillment companies will have standard procedures in place for product training so that they fully understand your product and business as well as quality controls and performance metrics that can be used to hold them accountable just as you would any employee. Finally, consider the fact that warehousing and fulfillment takes a great deal of time if done right. Is this really where you want to allocate your valuable time? There may be more beneficial things for you to pursue with this most precious resource.

Does Outsourced Warehousing Really Cost Too Much?

Sometimes finances can cause small business owners to shy away from outsourced fulfillment. In fact, this is the area of the analysis that causes the greatest amount of challenge — largely because small business owners fail to account for all of the relevant costs and because they struggle with comparing —apples to apples.' When running the cost comparison, be sure to include the following in the analysis:

• Include all —in house' costs, such as salaries, benefits, insurance, leased space, utilities, depreciation, materials, packaging, equipment, etc.
• Don't forget to allocate any management time or support services such as customer service
• Pay close attention to —hidden' in house costs, such as shipping supplies (scales, postage software, etc.) — these costs can add up to more than $3,000 per year and are often ignored
• Include all opportunity costs — such as the cost of spending time on shipping when it could be spent on value producing activities
• Ask the outsourced providers to help you determine any cost savings from using their freight account
• Account for the value from paying a fulfillment company on monthly invoice terms rather than paying expenses, such as payroll, more frequently

The bottom line is that there may be significant cost advantages of outsourcing if all costs of in house operations are considered.

Don't Let Fear of Change Inhibit Future Freedom

Moving inventory to a third party warehouse requires a good amount of work. Think of how much fun you had moving to a new residence. No wonder many businesses refrain from outsourcing because of the fear of the logistics of moving! But keep two key points in mind when deciding if the pain of moving is enough to stop you from outsourcing. First, be aware that fulfillment companies have created processes and procedures to make a move as streamlined as possible. From integrations with shopping carts to procedures for quickly receiving product into inventory, they've mastered the art of bringing a customer on board while minimizing pain. Second, be careful to remember that the only way you can free your plate of the large amount of time spent on shipping is to overcome the hurdle of the transition. Getting over this hurdle is necessary to achieve the freedom that comes with having another provider take the heavy burden of shipping for you.

Unfortunately, there is no all inclusive answer as to whether or not outsourcing is the best option for your company. However, the only way to determine the best course of action is to take a look at all of the pros and cons. By looking at each factor, you'll be able to make the best decision for your company.