Warehouse Outsourcing Pros and Cons

DecisionsAll ecommerce businesses will get to the stage where they have to re-evaluate their logistics and fulfilment processes. That may be due to the need to accommodate rapid expansion, or it may be due to the need to cut overheads to allow for the staving off of heighten competitive pressures. Every business owner or senior executive will already have insights into how their businesses are run and have a mental note of the potential pros and cons of outsourcing their warehouse operations, however, it would be interesting to see if any of the points below are in your own lists.

PROs

» Shipping Costs
One of the clear advantages of outsourcing your warehousing and fulfilment processes is the ability to tap into the shipping accounts of the courier networks. When you combine the throughput of a number of ecommerce businesses into the one account then these economies of scale can be passed on to the individual business – often with significant cost savings.

In terms of pure shipping costs a small packet up to 5kg on a two day service level can be shipped for as little as £5.50+vat (at the time of writing) via DPD or have a minimum charge of £7.35+vat direct. For heavier items the savings will be even greater.

For Parceforce 24 shipments you can save even more. A 2kg order would cost in the region of £6.47+vat via Cloud Fulfilment or £13.30+vat direct.

There are even greater rates for deliveries to business addresses with express shipping via TNT priced at £3.84+vat for orders up to 31kg with direct prices being significantly more.

Compare these prices to your own and then extrapolate the cost savings (or otherwise). Of course you will are likely to have orders across a variety of dimensions and weights, however, exporting your sales list with the total weights and setting up an “IF” formula such as:

=IF(AND(C1>=A1,C1<=B1),”5.50″,”6.15″) where A is the upper weight limit and B the upper

This may look something like this:

Cloud Service Lower Weight Limit (kg) Cloud Service Upper Weight Limit (kg) OldService Lower Weight Limit (kg) Old Service Upper Weight Limt (kg) Your Order Weight New Price Old Price
5 31 8 25 24 7.35 7.35
5 31 8 25 12 5.50 7.35
5 31 8 25 7 5.50 15.40
5 31 8 25 1 6.15 15.40
5 31 8 25 15 5.50 7.35
5 31 8 25 12 5.50 7.35
5 31 8 25 21 5.50 7.35
5 31 8 25 25 5.50 7.35
5 31 8 25 4 6.15 15.40
5 31 8 25 30 5.50 15.40
5 31 8 25 17 5.50 7.35
5 31 8 25 7 5.50 15.40
5 31 8 25 5 5.50 15.40
5 31 8 25 29 5.50 15.40
5 31 8 25 8 5.50 7.35
Our Price Calculation =IF(AND(E2>=C2,E2<=D2),”7.35″,”15.40″) Total Our Price Total Your Price
Your Price Calculation =IF(AND(E2>=C2,E2<=D2),”7.35″,”15.40″) 72.80 151.9

or you can just reorder the columns and then copy the new shipping cost down until the next weight band.

» Flexibility
When you own and manage your own warehouse seemingly the only flexibility you have when it comes reducing cost is the reduction in staff you employ. You could turn some of the lights off and the heating down, but I’m sure the staff won’t appreciate you doing that. Reacting to slowdowns in your business when it comes to staff numbers can be a soul-destroying process, not least because of the HR hoops you will have to jump through, however if you are making loyal and hard-working staff redundant it can a wrench. There is logic in taking that step to the local conclusion and not paying for a warehouse and the staff to process orders – or at least only tying that cost directly to the number of orders processed. It would be difficult to find staff willing to work on that basis, but what if you could actually do that by outsourcing your warehouse and order fulfilment processes?

We offer a solution that allows you to reduce those costs related to how much stock you hold and on performance. You won’t have to pay for empty shelf-space as you reduce your seasonal stock levels nor will you have to pay staff to wait for orders to come in or try and accurately predict the most efficient and cost-effective staffing levels. You won’t have to train them up and manage order-processing downtime related to your fulfilment logistics processes suffering interruptions.

The persuasive positive point of outsourcing your warehouse is that costs are clearly related to your anticipated and actual performance.

Just as with the likely savings on your shipping costs, you will have to calculate your current storage and fulfilment overheads. Our pricing gives you the raw data on how to calculate the potential costs of using Cloud Fulfilment and your actual costs. We would suggest that you download your orders for a given month, add in our pick & pack costs per SKU and order. At the end add in your average cubic meter of stock held and multiply by £0.40 per day and then compare this figure to your total staffing cost for fulfilment and the cost of your warehouse for the month. Make sure you also include the utility, insurance and administrative costs and packaging costs.

» Dispatching Orders
When you outsource your fulfilment operations and integrate them with your order processing systems then there are undoubted efficiencies. Orders may be picked, packed and despatched at all times of the day and night, even weekends. The optimal courier will be used and the correct service level assigned. Your staff will not have to manually process orders and ensure that they are ready for the courier to collect. Nor do you have to take orders to the Post Office or courier depot. The whole process is automated. Our warehouses have significant other advantages in that bouts of sickness in your warehouse, especially order processing, can have damaging consequences in your company’s ability to process orders. The fulfilment centres we work with will typically have greater pools of staff to deploy and can easily reallocate them according to shortages of staff for whatever reason. Keeping your business online in the face of these staffing shocks is one of the most powerful reasons to outsource your warehousing.

» Reporting
Looking back at the Excel work needed above to establish your variable costs, it becomes apparent that if you can easily export them from a service that you can have a much greater insight and control of your costs. With Cloud Fulfilment you can easily download orders and the costs associated.

In our reporting suite you can track stock movements over time against a particular SKU; view and download all billing events such as costs for picking and packaging as well as shipping and storage. You can also view all billing events and download invoices.

» Have your life back
One of the greatest problems small businesses have when they start to become successful is the desire to micromanage every aspect of their business. It is essential that you outsource and remove from the front of your mind anything that doesn’t attract more customers. Picking and packing orders yourself or acutely controlling that process will not help you expand your business. Exporting sales and cost data and making sure you’re on the right track operationally and financially is a far better use of your time.

Allow yourself the room and opportunity to grow your business is something you set up your company for – not for packing orders and running to the post office or chasing couriers.

» Handling returns with greater efficiency
Returns is something no business likes to manage. Checking the packaging and restocking items sent back is a distraction that we could all do without. Just as is the case with despatching orders, managing returns should be done by someone focused on that roll and it shouldn’t be done by you. You have better things to do. Make sure that any outsourced warehouse can manage returns and ensure that the costs are agreeable.

» International Orders
Costs of international shipping can vary so greatly against couriers and they change regularly that it can be impossible to keep on top off. When you outsource your warehouse and fulfilment then you can not only obtain discounted domestic shipping rates, but also international rates too. For example a packet weighing 250g would cost £3.92+vat via our own services or significantly more with other couriers.

It’s not only the price that you gain advantages with. We handle much of the documentation, such as pro forma invoices (it is your responsibility to check specific import restrictions, prohibitions, duties, taxes and exclusions). This extra paperwork can be another distraction for your staff, and can often be forgotten or completed incorrectly.

When you start to operate internationally often you have significant costs when it comes to warehousing, getting the stock inward, foreign HR laws, requirements to set up local legal entities etc. Outsourcing at low cost can allow you to significantly the costs of international expansion. You can even run separate websites in local languages on targeted, local domain names and hook up to the one, central Cloud Fulfilment account. This allows you to look significantly larger than you actually are.

» One Point of Contact
If anything does go wrong, you will have one point of contact to sort it out. You will be assigned an account manager who is there to not only help you set up your account, get your goods into the warehouse, but also to take much of the headache of running an ecommerce business away from you. We will endeavour to solve any stock, picking, packing or shipping issues with urgency. You won’t have to call various people at different companies to resolve issues. You have our number and it would be down to us to solve any problems.

» Focus
After you have settled into outsourcing your fulfilment processes then you can have much greater focus on running your business and leveraging all the other advantages in outsourcing into expanding into new markets.

CONs

» Control
Some company owners or managers like to have physical sight of their stock. Walking into a warehouse and seeing the shelves bursting with stock gives them a sense of security – they can see where their investment lies. We fully understand this. You might not want to take the plunge and move all of your stock into a warehouse. But you could move your fastest selling items, or new stock into Cloud Fulfilment and see how the process works. If you use a shopping cart such as Shopify, Magento or the like you can assign, at the product level, which items of stock will be fulfilled by which service: your own or Cloud Fulfilment,.

» Learning Curve
Although the concept is simple: you move your stock into a warehouse, orders are taken by your site or a channel such as eBay or Amazon and the warehouse operators pick, pack and ship your order. The actual steps to achieve this will require some thought. You will need to understand how you label your stock so they can be managed by the warehouse processes of goods inward and outward. You should also think about which person within your company is assigned with overseeing the account. You will need to think about whether your suppliers send goods straight into the warehouse or they’re sent to you first. As with anything new, it may take some time getting used to, but you do have the benefit of having a dedicated account manager to look after you.

» Costs
Costs can always vary. Just as with the stock market they can go up as well as down. Make sure that the financials of outsourcing your fulfilment processes aren’t slight, but significant. This way if the prices of Cloud Fulfilment do increase then you are still going to be very much in profit. The same goes with your costs elsewhere such as your stock acquisition costs.

» Low Volumes
If you have very low volumes then the storage costs of 40p per cubic metre may eat into your profits. The counter-argument that when you outsource you will have more time to grow your business to increase sales volumes. Speak to us if you feel that your sales volumes are less than you expected and our in-house experts may be able to help.

» Data Protection
You may be nervous about sharing your sales data with third parties – that’s an understandable concern. The contract that exists between yourselves and us mean that we won’t be sharing your data with anybody else. We already have a significant number of customers in incredibly competitive industries already working with us and although most have those concerns during initial dialogues they all came to realise that the benefits Cloud Fulfilment far outweigh any concerns about data protection.

Our own list details many more ‘pros’ than ‘cons’, however, it is your own personal list and how it applies to your business that is key. Outsourcing may not be suitable for all companies, but those of a certain size and who are looking to expand it often is, similarly, those who wish to cut fixed costs also see the advantages outsourcing their picking, packing and shipping.

Image © Edwin Steele

  • Phuong Thao

    PowerGate Software Company in Vietnam (http://powergatesoftware.com/) is also one of the leading reliable outsourcing company in Vietnam