3 Reasons to Outsource Fulfillment

With signs of economic recovery taking shape this year, especially in the world of retail, marketers are refocusing their attentions on maintaining a competitive edge. One way they're doing this is by considering outsourced fulfillment operations with third-party providers. Here are three reasons why it may be the hottest iron to strike this year:

1. The efficiency equation. (Cost of Input) + (Quality of Output) = Efficiency. Many factors influencing retailers’ businesses are totally out of their control. Variables such as market demand, competitor interruptions and national economic health all play a part in the growth — or death — of a retail business. The efficiency equation, however, is directly under retailers’ influence.

Lower cost inputs in the forms of warehouse space allocation, labor and shipping rates mean a higher contribution margin on every product sold. Higher quality outputs in the forms of accurate order processing, delightful customer service and expedient delivery drive happy customers to repeat purchases and friend referrals. Good retailers are constantly reviewing these inputs and outputs, always trying to prevent cost-saving efforts from sabotaging quality and vice versa.

So, what more can be done to positively impact efficiency?

Outsourcing operational processes to a dedicated fulfillment partner will essentially replace your efficiency equation with that of the provider. Providers have developed warehouse infrastructures, labor forces, workflows and management systems specifically to achieve optimal efficiency — the highest possible quality at the lowest possible cost. Taking on that efficiency can make a phenomenal difference for retailers.

2. Retail core competency. It's entirely impractical for most retail businesses to develop their own extensive resources, like those offered by most fulfillment providers. Why? Because the repetitive ins-and-outs of order fulfillment operations don't represent retail’s core competency. These things are relegated to the status of “cost center” for a reason.

A retailer’s core competency lies in selling great products to ecstatic customers, not cycling SKUs through a warehouse. Retailers have sacrificed some measure of focus from that core competency to acquire operational resources and expertise. Although necessary, it also has the tendency to crimp business growth and profitability — no matter how good retailers are at dividing their attention.

Diminished focus on retail core competency represents unrealized market potential. Outsourcing order fulfillment operations may be the most effective step retailers ever take toward realizing that potential.

3. Redeployment of capital. New customer acquisition is one of the most expensive things any direct retailer does. Costs saved by outsourcing fulfillment operations — in both time and dollars — represent a significant amount more capital available to invest in the growth of your business. That means more new customers are added to a more efficient revenue-generation machine.

In fact, opportunities for greater focus on growth don’t end with the handoff of order fulfillment alone. Many warehouse providers can also assume the orbital responsibilities around moving products, such as outsourced customer contact centers, vendor management, reporting and even accounting assistance.

Every direct retailer should consider a greater focus on business growth instead of back-office operations. Leveraging the scale and efficiency of an outsourced order fulfillment provider is something many direct retail companies already use as a competitive advantage. Those who make the change could have a better future than they ever imagined.

Ronnie Johnson is chief operating officer for Fifth Gear, an Indianapolis-based provider of outsourced operations for direct retailers. Reach Ronnie at rjohnson@infifthgear.com.