The global ecommerce market is booming, and online sales – which are set to hit $6.3 trillion in 2023 – are forecasted to reach $8.1 trillion by 2026, according to Forbes.
Is your ecommerce business positioned to capitalize on this growth? To set yourself up for success, you must be able to keep your customers happy (by offering them a first-class online shopping experience across all your sales channels) while keeping your costs down (by optimizing the efficiency of your operations).
One area where it’s critical, but challenging, to maintain customer satisfaction and operational efficiency is ecommerce fulfillment. With customer expectations for fast, reliable deliveries rising and the complexity and costs of logistics increasing, companies struggle to effectively handle their order fulfillment.
That’s why many ecommerce businesses opt to outsource the storage, picking, packing, and shipping of their orders to third-party logistics (3PL) providers like Amazon Multi-Channel Fulfillment (MCF).
Working with a 3PL can provide numerous business benefits, empowering you to boost the efficiency of your order fulfillment process and cut operating costs – so that you can safeguard the long-term profitability of your business. According to a recent study, 64% of companies that use 3PLs say that that doing so has reduced their operating costs.
But how exactly can a 3PL help you reduce your ecommerce fulfillment costs? In this blog, we highlight the four main ways.
#1: Improved inventory management
Inventory is one of the main drivers of higher costs for ecommerce businesses. Inventory management involves numerous different expenses – including purchasing, storage, and distribution costs – that can add up and take a tremendous toll on your bottom line.
To keep these costs down while meeting customer demand, you must be able to maintain the right products in the right fulfillment center locations at the right time. A 3PL can help you do this by optimizing all aspects of your inventory management, including:
- Warehouse operations: A 3PL will strive to ensure that your inventory management process (from inbounding, to picking, packing, and shipping) – runs efficiently. Some 3PLs – like MCF – utilize state-of-the-art robotics solutions to dramatically decrease the amount of time and manual effort it takes to manage your inventory.
- Inventory distribution: A 3PL like MCF can help you distribute your inventory so it’s as close as possible to your customers – thereby minimizing shipping times and costs.
- Inventory consolidation: By consolidating your inventory with a 3PL provider, you can expose your pool of inventory to multiple sales channels, increase the likelihood that it will be sold, and decrease storage costs.
- Inventory accuracy: By leveraging the latest warehouse management systems and automation technologies, a 3PL can give you an accurate, real-time view of inventory levels – so that you can reduce excess inventory and stockouts.
By streamlining the way you manage and utilize your inventory, a 3PL can help you slash storage, shipping, and other ecommerce fulfillment costs.
#2: Optimized order fulfillment operations
Many ecommerce businesses start off by handling their order fulfillment processes in-house, but typically realize that – as their business expands to serve more customers across different sales channels – they need a 3PL to help them deliver products more rapidly and reliably and decrease their costs.
By engaging a 3PL to handle your pick, pack, ship, and returns operations, you can cut storage, shipping, and other operating costs by optimizing the efficiency of your end-to-end fulfillment operations. For example, online footwear retailer JMFA Ltd. reduced its order fulfillment costs by 80% after engaging MCF as its 3PL provider. Read the case study.
Speaking about why JMFA Ltd. selected MCF as its 3PL provider, the company’s founder Michal Aleksandrowicz said: “As my business grew, I started looking for a 3PL that could manage my operations effectively and use their existing systems to identify opportunities to improve value within our supply chain. Since we sell on a number of different channels and across a number of different countries, it’s important that we have a 3PL provider that can handle our order fulfillment at a low cost.”
A best-in-class 3PL – like MCF – can help you unlock opportunities to drive greater efficiency and reduced costs across your end-to-end logistics operations.
#3: Better pricing
Another way that a 3PL can help you cut fulfillment costs is by offering you better pricing for storage, picking, packing, and shipping services.
Without a doubt, the cost of fulfilling online orders is on the rise – in fact, 51% of ecommerce companies stated that their fulfillment costs have increased over the past year.
A 3PL can help you drive down your fulfillment costs by giving you access to more attractive pricing for fulfillment services. Two common methods of doing this are:
- Offering discounts for high-volume orders. MCF, for example, offers discounts of up to 50% on multi-unit orders.
- Negotiating better shipping rates with carriers. Shipping is by far the biggest fulfillment cost, and working with a 3PL can help you reduce the amount you are paying to ship your orders. Some 3PLs – like MCF – are carriers themselves and can provide shipping services at lower rates. Other 3PLs have close relationships with carriers and can help you negotiate discounted shipping rates with them.
Through these and other methods, a 3PL can help you decrease the price you’re paying for fulfillment services.
It’s imperative that you take the time to review and understand your 3PL’s pricing structure and rate card. Some 3PLs, like MCF, offer simple, predictable pricing with no contracts or hidden fees – making it easy for gain a good grasp of how much you’re paying for fulfillment services.
#4: Reduced overhead costs
If you handle your fulfillment operations in-house, you will have to shoulder a significant amount of overhead costs – including costs for labor, warehouse facilities, specialized equipment, and software systems and other technologies – to make your logistics operations run.
By outsourcing your ecommerce fulfillment to a 3PL, you can decrease your overhead expenses by eliminating the necessity of hiring in-house staff and investing in logistics infrastructure, equipment, and technologies. For example, if you engage MCF, you get access to Amazon’s world-class fulfillment network – which has over 2,000 facilities including over 200 fulfillment centers, 120,000 trucks, vans, and planes, and 1,275,000 associates and partners – and can use this network, on-demand during peak periods and throughout the year, to deliver your customer orders.
Wyze, a smart home device retailer, was able to decrease the number of full-time time employees dedicated to fulfillment operations by 50% (and realize a whole host of other business benefits) by using MCF along with order management system Pipe17. Read the case study.
Wyze’s Principal Technical Program Manager Eric Morris commented: “With MCF and Pipe17, we’ve been able to automate our order fulfillment process, cut our delivery times in half, and leverage Amazon’s fulfillment network to provide a Prime-like experience for customers – while, at the same time, reducing overhead in terms of full-time employees needed to manage our order fulfillment operations.”
Conclusion
By allowing you to improve your inventory management, optimize your order fulfillment operations, get access to more attractive pricing for fulfillment services, and minimize overhead expenses for logistics, a 3PL can help you boost your bottom-line.
If you work with a 3PL, you can decrease your ecommerce fulfillment costs, while driving greater on-time delivery performance and customer satisfaction – and this will put your business on a path to long-term profitability.
