7 Signs You Should Consider Outsourcing Your Fulfillment

By Steven L. Gregg

Hard times often require difficult decisions. Given the weak business environment and challenges facing multichannel marketers in particular, many have had to make tough choices to cut costs, with outsourcing being one of the options for doing so. Whether in good times or bad, however, outsourcing your order management, call center and/or fulfillment operations is one decision that requires careful consideration. Here are seven signs that you should think about outsourcing fulfillment:

1. You’re beginning to lose focus on marketing and merchandising. Your products are the essence of your brand. They make you truly unique, while your effectiveness in marketing your business determines your success or failure. If operational issues and expenses are keeping you from focusing on what makes your company special in the marketplace and conducting successful marketing campaigns, that’s a sign that it’s time to consider outsourcing noncore competencies.

While service quality is also part of your brand experience, the right outsourcing partner will deliver service that aligns with your branding efforts and leaves your management team to focus on differentiating you in the marketplace.

2. IT costs continue to be a significant percentage of your operating budget. Technology and the capabilities it provides continue to evolve rapidly. Time spent assessing technological options is significant, and the cost of implementing them is even greater. What’s more, finding and keeping staff who know how to support your system, leverage existing capabilities and develop new functionality is a never-ending challenge that requires a large commitment of time and resources.

Third-party fulfillment companies must continuously upgrade their systems and capabilities to remain competitive. But they’re able to spread those costs over many clients. Marketers can take advantage of this by “leasing” appropriate capabilities at the high end of the technology curve.

By outsourcing, you’ll reduce your ongoing capital investment and free up money to invest in other areas of your business.

3. Outbound freight costs are growing, and you need to gain control. Outbound freight costs comprise a growing percentage of overall fulfillment costs. In many cases, they represent more than half of the total cost. Although gas prices have come down lately, you can’t expect shipping costs to follow anytime soon.

The good news is that volume can be leveraged to get lower outbound freight rates from carriers, and third-party fulfillment companies aggregate their total volumes when negotiating rates. In many cases, they’re willing to share some of the savings as part of their overall costs of service. This can serve as a competitive advantage for outsourcing companies.

Don’t be afraid to ask what a potential fulfillment partner can do to reduce your freight costs. But keep your expectations realistic based on the volume you bring to the total packages shipped.

4. Seasonal peaks are a significant aspect of your business cycle. When you have large seasonal peaks in your order volume, you obviously must maintain quality service during those times — particularly from a facility, systems and labor standpoint. When you have unused resources you’re paying for throughout the year, you’re stuck with covering the cost of hiring for those peaks.

Third-party fulfillment companies often have a mix of clients that helps smooth out peaks. This way, they can charge rates that don’t build in the overhead you’d pay to maintain your own cyclical operation. And if your peaks run outside of the fourth-quarter holiday season, you’ll be attractive to many outsource service providers that have higher volumes during that time of the year.

5. You want to pay less, yet still have a high level of “best practice” expertise. A well-run call-center and fulfillment operation can mean the difference between the success or failure of a multichannel business. Beyond that, the application of best practices separates a merely adequate operation from one that’s continually finding ways to be more cost-efficient, and even help deliver sales growth.

That said, management staff and its knowledge of the latest best practices in operations truly make the difference. Technology is important, but you must have people who know how to use it and leverage it through the people and processes they manage. These types of managers are expensive to hire and often difficult to retain. Furthermore, there’s inherent risk to the quality of your operations if they leave for greener pastures.

Outsourcing puts the onus for attracting and retaining management talent on the service provider. Also, third-party fulfillment companies are often larger and have more “bench strength,” so they’re not as adversely impacted by the departure of a single person.

6. You’re looking to minimize fixed costs and free up cash to drive the growth of your business. When resources are tight for both start-up or growing businesses, the last place you want to spend money is on infrastructure that may or may not be right for the business as it grows.

Outsourcing gives you the flexibility to scale technology to fit the business as needed and only pay for the services required as the business grows.

7. You’re a control freak and need to learn what really drives the success of your business. Do you have a “no one else can do it as well as us” attitude toward your business and its operations? If so, you may have personal blinders that keep you from realizing the true potential of your business. No single individual or organization does everything equally well.

Focus on your strengths, and be honest about your weaknesses. You may or may not determine that call-center and fulfillment operations are noncore competencies that should be outsourced. Let facts and logic drive your decision making, not emotion.

Conclusions
So, how do you measure up? Not all of these issues will carry equal weight. But if several of them apply to your situation, it’ll be worth the time and effort to take a closer look at your outsourcing options.

As with any business decision, carefully weigh the pros and cons of your particular situation, both in the near and long term. There are consultants with expertise in this area who can guide you through the evaluation process. If you decide to outsource, perform careful due diligence to find the service provider that best meets your needs. This includes both the tangible (systems, ownership, management, relevant experience) and intangible (service approach, culture, chemistry).

Make service-level standards clear while holding both parties accountable for their parts. Ideally, the relationship should be a partnership. The vendor needs your active involvement to successfully meet your expectations.

If your business is squeezed by stagnant or declining top-line revenue growth and increasing operating costs, outsourcing your fulfillment operations may improve your bottom line. It’s a business decision that’ll continue to pay dividends in good times and bad.

Steven L. Gregg is senior director of business development at Merkle Response Management Group. He has more than 26 years of sales and marketing experience, including 17 years in outsourced response processing, call-center and fulfillment services. You can reach him at (703) 909-8666 or sgregg@merkleinc.com.