Updated by Neil
Direct fulfillment is the method of fulfillment that most new businesses start with. Here we compare its pros and cons against another one of the popular fulfilment methods: Outsourcing to a 3PL provider.
Direct fulfillment (a.k.a. self-fulfillment) entails doing everything yourself, and so this chapter also covers the topic: Inventory Management.
Advantages of Direct Fulfillment
- You have complete command over your logistics, orders, and branding.
- The only requirement for you to successfully get started is to have space, process orders, print address labels, and go to the post office. You can do the entire process of fulfilling orders.
- It is a great way to go if your significant customers are locals. This makes managing the logistics more comfortable, and the cost of shipping is less, more so when the business is just starting, and the quantity of orders is less.
- When it comes to 3PLs, you cannot ship and store perishable goods or hazardous goods (that can still be shipped) like batteries made of lithium or even flowers. Direct fulfillment does not have those restrictions.
- This option allows you to get closer to your clients as it requires more contact with customers. The packaging and branding is more comfortable with customizing.
Disadvantages of Direct Fulfillment
- This option requires staff to be employed to manage customer services and keep track of the process of fulfillment and, consequently, leaves fewer resources to be employed towards the enterprise’s sale and growth.
- A warehouse of sufficient capacity I required for the storage of commodities.
- It is not as easy to ensure quick international shipping as compared to when a 3PL aids you.
- As the volume of orders and complexity increases, the scope for human error also increases. More so when you are manually managing the inventory and not using any software for help.
Advantages of Outsourcing
- This method has no pre-requirements for particular skills or any resources.
- The space required for the process is significantly less.
- If you find the correct 3PL, it can help you earn significant savings concerning time and money.
- You can ensure quick international shipping as they have widespread storage locations. So it bodes well with local as well as the global customer base.
- It is easier to work with when it comes to a fast-growing business and has larger order quantities.
- You have the option of choosing to work with the customer service and returns aspect.
Disadvantages of Outsourcing
- You do not have complete control over the inventory and the overall experience of your customers.
- The process of finding the correct provider whom you can depend on can be tedious and slow.
- Using 3PLs for shipments can incur a higher cost, especially when orders are lower.
- 3PLs, in general, do not permit the storage of hazardous, perishable, or inflammable products.
Inventory Management Best Practices
The inventory management comprises having the correct amount of it, in the correct place, at the perfect time and the correct cost through the excellent selling, distributing, and fulfillment aids that will distribute your products. Here, we talk about some acceptable practices for inventory management.
Calculate the right amount of Inventory Stock: The tracking of your inventory should be in place and within your reach. If you order less stock, creating a deficit, you might start losing customers. Similarly, ordering surplus products might lead to you being stuck with excess inventory, which might run the risk of becoming outmoded unless sold off at cheaper rates.
Figure out the right place to sell and distribute your Inventory: A significant issue when selling via more than one channel is allocating the right amount of products to different channels. This is one of the pros of selling online; one need not worry about the amount of product allocated to varying modes as all the products are stored in a single set of items. This, although, come with a different set of challenges. For example: If your inventory says that you have three items of a particular product in stock, you would want the items in a single location ready to be sold and not in different places across the country.
Assess what inventory management tasks are better automated: You require the right cost fixed, know the correct time for placing the order to renew stock, and have the correct software for the inventory’s size management. A lot of small businesses are dependent on Excel Spreadsheets. When the enterprise starts growing, managing data in spreadsheets becomes long and tedious.
This is when you should start looking for and developing a system to keep track of your inventory and your products’ movement across various sales, distribution, and fulfillment channels. Having a system that manages your inventory in place will reduce your risk of over or understocking.
For New Businesses, direct fulfillment is a preferable option over outsourcing.
You may switch to outsourcing once the business starts growing.
Whatever fulfillment option you choose, you should put a system for managing your stock by selecting the right software for the job.