Choosing Between Self-fulfillment, 3rd-party Logistics and Dropshipping

The time has come.

You've done the product development, built your ecommerce site, worked on marketing and acquired your first customer.

Now it's the moment of truth: Fulfilling the order.

Order fulfillment doesn't come into play during the sales process, but it's arguably one of the most important aspects of maintaining loyal customers. Because if an order ships late or you don't communicate well with the customer, they're probably not coming back.

Ecommerce order fulfillment generally involves all of the following:

  • Communicating with the customer about the order
  • Managing the products in a warehouse
  • Handling the order itself
  • Packaging the product
  • Shipping it off to the customer

It sounds like quite a bit to handle, right?

Well, the good news is that you don't necessarily have to do all of this yourself. In fact, some online stores opt to outsource the entire process.

That's where the decisions come in. You can keep the order fulfillment procedure in-house or choose one of the many ways where other companies do the work for you.

Your options include the following:

  • Self-fulfillment
  • 3rd-party logistics
  • Dropshipping

Now that you understand what's involved with order fulfillment, keep reading to learn more about the pros and cons of each fulfillment method.

What's Self-fulfillment?

The self-fulfillment model works exactly how it sounds. You do all of the work. This includes the shipping, warehousing, packaging and customer relations. It typically requires your company to lease out warehouse space since you most likely don't own or want to buy.

Some smaller startups run the entire operation out of a garage or basement, but the ideal situation is to eventually end up in a warehouse that serves as your distribution center. In fact, most of the time this distribution center ends up being your main office.

The Benefits of Self-fulfillment

Self-fulfillment puts you in complete control. Smaller companies like going with this method when they're trying to save a little money. Just keep in mind that self-fulfillment can end up costing you more money in the long run. Larger brands are keen on self-fulfillment since they can keep an eye on the shipping and branding process. You get to slap whatever labels you want on the packaging, and if the customer doesn't get the package on-time you're the only one to blame.

The Disadvantages of Self-fulfillment

Although you might end up spending less money and maintaining control of the order fulfillment process, self-fulfilment proves rather time-consuming. Your company has to package and send all of the products yourself.

In addition, far more resources are required, potentially making it more expensive for you if not managed properly. You'll have to pay for the warehouse lease, staff to run the operation, all of the warehouse and packaging equipment and some sort of software to organize the whole thing.

When to Consider Self-fulfillment

Startups often package and deliver their own products simply because they don't know any better. It makes sense to run everything from a home or garage, and they haven't even thought of other solutions. And if it's working, more power to you.

But most of the time you can save lots of money into the future if you have someone else running the operation. The main reason you'd keep the order fulfillment in-house is if you sell highly-customized, potentially expensive products. For example, a company that sells embroidered clothing can't send a huge batch of shirts to a 3rd-party warehouse.  Each customer requires a unique logo or design on the shirts, so you need to keep it in-house.

The same goes for a business like Trunk Club, since they curate the clothing selections for each customer.

 

Another reason companies invest in self-fulfillment is when they grow big enough to spend a decent amount of money on warehousing and a complicated system. Take Amazon, for example. The brand has done a great job of opening up warehouses, and it allows for them to control how quickly they send out packages and what the packaging looks like.

What's 3rd-party Logistics?

This is when you partner with an order fulfillment company to handle certain elements of the packaging and shipping process. Your company buys a certain number of products to store in a warehouse. This warehouse is owned by the 3rd-party logistics company, and you pay a fee for the services instead of a warehouse lease.

Try-Shopify

The products sit in the warehouse until people start buying them. Then the logistics company packages the items and ships them out.

The Benefits of 3rd-party Logistics

The main benefit of 3rd-party logistics is time. You free up all sorts of time to spend on things like marketing, sales, web design and more. In addition, these companies can usually integrate with systems like Shopify and Bigcommerce. Each time an order comes in the logistics company sees it and gets to work. Therefore, you don't have to do anything.

The Disadvantages of 3rd-party Logistics

You might have to compromise on the quality of the packaging and the amount of time it takes to ship products. However, if you do your research and find a reputable logistics partner, this shouldn't be a problem.

But regardless, you lose at least some control over the shipping process with this method.

When to Consider 3rd-party Logistics

This fulfillment option works nicely for ecommerce stores that sell their own unique products. Think brands that invent something new, like pretty much anything you would see on Shark Tank.

As long as you don't have to customize the products for each customer, all you have to do is send off batches to the logistics company and they handle the rest.

Many expanding brands opt to go with a 3rd-party fulfillment company when they hit a point of too many sales. Basically, you're waiting until you don't have the manpower or resources to complete the shipping yourself.

What's Dropshipping?

Dropshipping allows you to focus on customer acquisition, leaving the warehousing and shipping to the manufacturer or supplier. Compared to 3rd-party logistics, dropshipping doesn't require you to ever buy inventory. The manufacturer makes a product, stores it, and only ships it out when they see that you've made a sale on your website.

The Benefits of Dropshipping

Dropshipping allows you to quickly start a business, making it easy for beginners. The costs are virtually nothing since you don't have to pay for inventory or storage. Not to mention you have access to a wide range of products since you can shop around when looking for suppliers. For example, Oberlo is a service that integrates with your store and connects you with various AliExpress suppliers. You choose products, and all of them are populated in your store and shipped when needed.

Most of the focus goes into business development and marketing, so your resources aren't diminished with shipping and storage. Finally, you can also test products to see how well they sell. It's imperative to learn how to choose the right products and suppliers with dropshipping.  Otherwise, you won't make money. The good news is that it doesn't cost much to test sell a product then shut it down if it doesn't work.

The Disadvantages of Dropshipping

Although you may get a few test products, this is where the control ends. Your company isn't buying any of the inventory so the product and shipping quality is impossible to maintain.

Sure, you might partner with a reputable dropshipper, but you still lose branding power since you're not necessarily able to customize packaging or products. Finally, it's difficult to compete with the dropshipping model since you're not selling unique products. Pair that with slower shipping times and it can be tough to scale.

When to Consider Dropshipping

Dropshipping costs are so low that it makes sense for tiny startups trying to get into ecommerce. It's particularly useful for already established businesses that don't want to mess with any shipping or storage. For example, a retail hardware store might want to start testing the waters with ecommerce. Dropshipping makes sense for that. A popular travel blogger might want to sell swag like t-shirts and hats. Instead of starting their own operation it'd be more prudent to consider dropshipping.

Which One Will You Choose?

When comparing self-fulfillment, 3rd-party logistics and dropshipping, it's important to take cost, quality and control into account. Where is your business at right now? Are you running out of resources? Do you only need a small online shop without the hassle of order fulfillment?

The good news is that you can change your fulfillment process whenever you want. It takes a bit of time, but most of these partner companies are streamlined enough to accommodate you.

That said, let us know in the comments how you manage your orders!

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Joe Warnimont

Joe Warnimont is a freelance writer who creates tools and resources to help other writers get more productive and market their work.

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