First Person: Should a Small Business Outsource Order Fulfillment?

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As your small business grows and its warehousing and distribution requirements become more complex, you may have to decide whether to outsource order fulfillment or keep it in-house. This is a big decision that can have a significant effect on your business's ongoing success, so it is important to do a thoughtful analysis of your options. Here are some factors to consider when deciding whether to outsource fulfillment for your small business.

Is Now the Time to Make a Change? It is probably time to consider your fulfillment alternatives when this function becomes so complicated and time consuming that it is negatively affecting the productivity of your business overall. If you are running out of space to store inventory and spending a big chunk of your day picking, packing and shipping orders, it may be time to make some changes.

Outsourcing Fulfillment Isn't for Everyone. If your business sells high volumes of large and/or standardized products, the warehousing capacity of an outside vendor and the efficiency of its picking and packing operation may be ideal for you. Outsourcing order fulfillment also could make sense if your business is highly seasonal, resulting in wide swings in inventory levels during the year, since it can help you avoid the cost of excess capacity during the slow times of the year. On the other hand, if your business offers customized products; if personalized customer service is essential to its success; or if it markets high-value items that don't require a great deal of storage space, such as one-of-a-kind jewelry, you may be better off handling fulfillment yourself.

Do Your Homework on Providers. How a fulfillment company performs can directly affect customers' perceptions of your business, so do your homework before committing to one, including checking references and talking to other small businesses that use its services. Among other things, be sure that the company you choose can meet your need for reliable, on-time order fulfillment; shipment tracking and delivery options; efficient handling of returns, and accurate order completion. Also, don't overlook customer service, including who will handle your account and how responsive they will be to your needs.

Run the Numbers. Before deciding whether to keep order fulfillment in-house or to outsource it do a careful financial analysis. Project your in-house fulfillment costs for the next year or two, including the cost of leasing warehouse space, of hiring someone to fill orders for you (or the value of the time you will spend doing it yourself), and of shipping your products. Also, don't overlook "soft costs" such as the value the time you devote to fulfillment, which could be spent on activities to grow your business. Get quotes from two or three small business fulfillment services and compare the estimated cost to keep this function in-house with the cost of using an outside provider.

Know Your Responsibilities. If you go from storing, packing and shipping products yourself to using an outside fulfillment service, you may have to make some changes to your business. In particular, you probably will have to label and barcode your merchandise so that it can be efficiently and accurately tracked. And, of course, it will be up to you to be sure that there is sufficient inventory on hand to meet demand, since your fulfillment provider can't ship what isn't there. Also, you will need to provide insurance on the inventory being held at the fulfillment center.

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