The key advantages and disadvantages of logistics outsourcing
Do you operate an online shop and are you currently wondering if it would make sense to outsource your logistics management?
Well, you’ll find the answer here!
Our fulfilment experts shed light on the advantages and disadvantages of logistics outsourcing and provide examples of the challenges that you may encounter.
What is logistics outsourcing and how does it work?
"Outsourcing logistics" means hiring external companies to take care of your logistics. So that you no longer have to deal with it.
This usually happens with logistics companies named "fulfilment providers". They store your goods in so called "fulfilment centres" and connect your online shop to their system. Orders arrive automatically and are packed and shipped directly, without you having to take care of it.
All in all, you always keep track of everything that happens in the outsourcing of your logistics via logistics software.
Suddenly it has happened: your number of daily orders is rising! And that means your sales too. Congratulations! Your small warehouse has almost become a small shipping centre. And naturally you are no longer running the shop alone but are reliant on colleagues who help you to keep your online shop up to date, process orders, pack and ship.
But the success of your online shop also means that the logistical challenges increase. So the following “growing pains” may be familiar to you:
Examples - The 5 most frequent logistics problems of online shops:
1. Storage space is becoming scarce
Your existing storage space is planned down to the last detail. Even upwards there is no more space and actually you need a separate incoming goods area. Furthermore, the packing area is also only set up for your current circumstances. What happens when your online shop is growing and more and more orders are coming in?
There are several options:
- Renting space,
- changing location,
- or simply outsourcing your logistics to a so-called fulfilment provider.
They not only outsource your warehouse, but also take care of packaging and shipping.
2. Keeping an overview is tough
New orders are constantly being received which need to be checked against stock. Yesterday’s orders still haven’t been dispatched. What's more, several returns have been lying around for days unprocessed – customers are waiting for their money. Your supplier will not be resupplying until the end of the week and the next transport needs to be organised again. A colleague needs to be there to receive and store the goods …
And all of these tasks and many more besides are your responsibility. So it’s difficult to keep an overview. What inevitably happens from a certain point?
3. Mistakes occur
Products more frequently reach your customers too late. There is transit damage or the wrong product is delivered. When your order volume grows, mistakes are made more often.
This directly affects your customers and has a huge impact on their satisfaction.
4. Packages pile up
Depending on how many products there are in your online shop, packing and shipping can quickly get out of hand. In particular if your items significantly differ in terms of type and characteristics, different packaging material is swiftly required. Logistics processes also become more complicated and require more of your team’s resources.
All of this delays the shipping of your orders, which can both negatively impact the satisfaction of your customers and result in lost sales.
5. More orders = more returns!
Depending on the sector, as many as half of all orders may be returned! In order to minimise the effort expended on returns handling, the returns process must be very effectively organised. Otherwise, the processing of returned goods can quickly cause significant costs.
From a certain point, it makes particular sense to consider outsourcing your logistics to fulfilment pros like us. All of your customers’ returns will be swiftly processed in accordance with your instructions without you having much to do.
The biggest advantages of logistics outsourcing:
You are probably familiar with the common advantages of outsourcing your logistics. We would also like to familiarise you with the positive aspects of logistics outsourcing, that are often not taken into consideration - or which only become apparent over the course of time.
These are the general benefits of outsourcing your logistics to a fulfilment provider:
- A scalable storage system smoothly adapts to order volumes.
- Thanks to automations the error ratio is kept to a minimum.
- Improved efficiency in storage, swift packing and immediate shipping.
- Your logistical effort will be hugely reduced, saving time and money.
- You will also no longer be responsible for onerous returns processing.
- The satisfaction of your customers increases, generally resulting in increased sales.
- You would probably have to recruit your own logistics operative – so we save you time and reduce your administrative burden.
5 benefits of logistics outsourcing that are frequently overlooked:
1. Resources
The most important advantage of outsourcing your logistics is that you can fully focus on your core business, without having to concern yourself with the distribution of your packages and other logistics factors.
In a nutshell: you sell, your fulfilment provider ships. It’s a textbook win-win situation.
2. Expertise
When you work with fulfilment experts, you can completely rely on their experience. Because storing, packing and shipping is their bread and butter! Thousands of times. Should logistical problems arise, they know what to do and solve them in a flash.
3. International growth
Geographical factors also play a role, as fulfilment providers like LOGSTA generally have several warehouses throughout a country or even around the world. If you decide to outsource your logistics, we facilitate international shipping for you – so that your business is free to expand in every country!
We also take care of the shipping services, customs clearance and other regulations.
4. Shipping Costs
Low shipping costs are one of the keys to more growth! By outsourcing your logistics you automatically benefit from the good relationships and contracts of your logistics company. The conditions for the shipping of your packages are therefore on average lower than if you were to ship yourself.
This becomes all the more apparent the larger your order volume is.
5. Specialisation
From a certain business size logistics outsourcing is the logical next step. The larger your e-commerce business becomes, the greater the effort logistics requires, and the sooner it becomes worthwhile to outsource your logistics. It is with good reason that companies in every sector specialise in their corresponding direction. You are probably not a logistics company, with all that this involves.
So it is certainly conducive to the success of your company if you hand over all responsibility for logistics to fulfilment specialists and focus on what you do best. In this way you constantly avoid a great deal of effort and free yourself up again to drive the growth of your business.
What are potential disadvantages of logistics outsourcing?
Less control:
If you hand over your logistics to someone else, you inevitably have less control over your logistics processes. This is necessary and to an extent also intentional. But it doesn’t mean that you don’t have access to your logistics or that you are completely relinquishing control. However, it will become difficult to handle single packages in the fulfilment centre completely individually as the processes are automated.
But:
- Everything happens only after consultation and in accordance with your instructions at the agreed prices.
- A modern fulfilment provider always offers you a complete overview of your logistics with a digital logistics tool.
This means you are always up to date and will be informed when you need to intervene.
Are you wondering what logistics software is and what you can do with our logistics tool, the Connector? You can find out more here.
The greater the effort, the greater the expense
If you outsource your logistics to a fulfilment provider, they pack your packages according to their standards. If you wish to provide your packages with an individual touch, be it with your own packaging, stickers or personalisations of any kind, this additional effort must be charged for.
The price of the personalisation naturally depends on your picking requirements.
Fewer orders, larger costs
If your online shop only has a small order volume, outsourcing your logistics may not be worthwhile. The overall expenditure on automated processes would only pay off if your number of orders increases. Until then self-shipping could be a suitable solution for you.
This is another solution that we offer – discover our Send It Yourself service.
Large, bulky products are also more cumbersome to handle in a fulfilment centre and could result in high costs which would not be incurred using our Send It Yourself service. It depends entirely on your products.
In this case we advise discussing the topic with our sales team.
Is logistics outsourcing worthwhile?
A simple rule of thumb: If you calculate the cost of your internal logistics with self-shipping including:
- Administration
- Warehouse rent
- Storage system and material costs
- Staff costs
- Picking
- Shipping and returns processing
- Customer satisfaction
… and you compare these costs with the offer of a fulfilment service provider, you should reach roughly the same figure.
From this point it’s also financially worthwhile for you to outsource your logistics!
Quite aside from all of the effort and headaches, much of which disappears at a stroke!
How do you handle your logistics at the moment? Do you need support? Write to us with absolutely no obligation and we’ll come up with the perfect logistics solution for you. Fair, transparent and with no frills such as commitments or fixed costs.
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