Like everything related to shipping, fulfillment is complex.
But some e-retailers want nothing to do with it; they would
rather pay someone else to deal with their storage and
shipping. And that’s exactly what outsourced fulfillment
Outsourced fulfillment is centered around taking your inventory
and shipping operation and moving it to a privately-owned
warehouse that stores inventory, receives, packs, and ships
orders. You’ll still be purchasing inventory from suppliers, but
you won’t need to get your hands dirty with the grind of
The abbreviation 3PL will appear a lot from here on out, and it
stands for third party logistics provider — they’re the services
you’ll work with when outsourcing. An e-retailer who outsources
sends them inventory that they keep safe and sound in their
warehouse, plucking products from storage when it’s time to
fulfill an order.
E-retailers outsource fulfillment because they’d rather have
someone else handling the administrative task of fulfillment.
Maybe they can’t stand it, maybe their order volume is too large
for them to handle it themselves, or maybe they prefer the
efficiency of a 3PL. Whatever the reason, they’re outsourcing
the entire process.
That’s the source of outsourced fulfillment’s appeal, and it
can’t be understated. Because you won’t need to spend your time
getting orders on their way, you’ll have more time for
just-as-important matters, whether it’s content marketing, SEO
optimization, or building your brand — all while the 3PL stores
product and ships orders.
Plus, 3PLs are able to offer some bottom-line-beneficial perks
only accessible by using their services. Because they typically
ship a large quantity of orders for a variety of businesses,
3PLs have the power to negotiate discounted shipping rates with
carriers that their clients can take advantage of. And because
they’re handling it all for you, you don’t need to worry about
hiring and training temporary or full-time employees for
Handing off your fulfillment operation to experts is a big
weight off e-retailers’ shoulders. But big tradeoffs exist when
outsourcing. Compared to
just-in-time fulfillment, you won’t have nearly as much control over your fulfillment
—- you’re paying someone else to deal with it.
You’ve added a third-party to your business that does things
their own way, and that erosion of control can have some
repercussions that you should be aware of:
Harder to brand
Fulfillment is not in your control, and that puts your branding
in limbo. Personalized and custom packaging might not be an
option when working with 3PLs, especially if it adds steps to
the efficiency of their existing operation. That said, they
might be willing to accept material you send their way. Just ask
if it’s possible.
Lack of inventory visibility
This is a large cause of discomfort. Inventory, your largest
investment, is far away from you. It’s in the 3PL’s possession,
and you must have a way to get an accurate inventory count, less
you risk a stockout or overstock.
Complicated returns management
Packages that are returned are sent back to a ship-from
location, and that tends to be the 3PL when outsourcing, not
you, the e-retailer. That’s a barrier between you and an unhappy
customer that can cloud clear feedback on what went wrong in the
Outsourced fulfillment is not for everyone. It can get
expensive; with every order a 3PL fulfills, a slice of that
revenue will go towards paying them. Not to mention they charge
storage fees, you most likely will pay for shipping, and...
well, we’ll get to the costs soon.
All of these downsides aside, once your outsourced model is set
up, your fulfillment process should run like clockwork while you
go about growing your business instead of maintaining it. But
setting it up and dealing with the costs are, without a doubt,
the most difficult parts of the model.
Now for the nitty gritty, the factors that impact whether or not
you should use a 3PL and how much you’ll pay for their services.
Because you’re bringing an external service into the mix, the
fulfillment process of your business will get a little more
intricate and expensive. Ask yourself these questions as you
Is order volume consistent?
The expenses involved in outsourcing largely depend on how much
inventory you’re storing, and, by extension, the demand you’ll
need fulfilled. A consistent order volume that’s predictable and
reliable will help keep costs manageable.
Are the products suited for outsourced fulfillment?
3PLs speak one language: efficiency. If products are perishable,
personalized, handmade, difficult to store, or fragile,
outsourced fulfillment might be difficult. Non-perishable,
easy-to-store-in-bulk products are preferable.
Is it easy to route orders to the 3PL?
In order to fulfill them, 3PLs must have orders sent their way.
This can be done in a variety of ways that we’ll cover in
greater detail later; you can email, fax, call, or integrate
with a fulfillment provider to send orders to them for
The main hurdle to outsourced fulfillment is the mountain of
costs involved. They abound when working with a 3PL, and each
service has its own unique way of charging you. Here are several
costs you can expect to encounter.
As mentioned a couple of time already, lack of visibility into
inventory is a major issue when outsourcing. Product, your
largest investment, isn’t at arms-length. It’s at camp in a
third-party run warehouse that waits for your orders to do its
You need a way to get inventory counts and a way to send orders
their way for fulfillment. There are a few ways to do this.
When orders are placed, you can choose to email them to 3PLs,
give them a ring, or send faxes their way, so long as they
accept the method (email is the most common). Usually, a 3PL
will either email you product quantities on-hand or send them
through FTP (File Transfer Protocol) on a daily basis. They’ll
also provide quantities of a specific product on request.
Or you can forego all of that and integrate with them at the
cost of a setup fee that ranges from the hundreds to the
thousands of dollars. But don’t get too alarmed about that price
point. The setup fee tends to be worth it — it’s what the 3PL
charges to build an integration that works with your sales
Here’s how it goes down: once an order is placed on an
integrated channel, it’s able to communicate with the 3PL via
the integration, automatically alerting it to a
ready-to-be-fulfilled order. The 3PL gets the message and
fulfills the order, relaying additional information like
tracking info back to your channel.
Because they work with plenty of businesses, larger 3PLs usually
have integrations with common sales channels like Shopify or
Amazon, so there’s a chance that setup fees will be waived or
lowered. But any unique channel — like a home-grown cart or
fresh-on-the-market app — will require someone to build the
integration, whether it’s the 3PL or a freelance software
Order Management Systems
But the more sales channels, the more complications. If an
e-retailer sells on multiple channels, whether it’s via social
media, a cart, or a marketplace, they’ll have several channels
feeding into the same inventory that’s stored far away from you.
No e-retailer wants to pay a boatload for individual
integrations with each channel.
That’s where an order management system (OMS) fits in — it acts
as a central hub that connects to all sales channels and keeps
track of orders and inventory. Here’s how it works:
Sales channels integrate with the order management system
(OMS), letting the user manage every order from every
channel in a single place.
The 3PL integrates with the OMS.
As each channel’s orders flow into the OMS, it routes them
to the 3PL for fulfillment.
The 3PL receives and fulfills the order.
The 3PL relays pertinent order information like tracking
info back to the OMS, as well as an updated inventory count.
The OMS passes the order information to the channel it was
made on and updates inventory quantities.
Note: When using an order management system, it
isn’t strictly necessary that you integrate it with your 3PL for
automated routing. It’s perfectly possible to receive incoming
orders and then email them manually to your 3PL for fulfillment.
Be ready to pay for storage. Called storage fees, the 3PL will
typically ding you for how much space your stored inventory
takes up, calculating the fee based on how many pallets or
footage you need, which are usually measured in square or cubic
Calculations work like so: take the dimensions of your packaged,
stored product, whether it’s a box of 50 or box of one, and
determine how many will fit on a pallet or within a measured
space — a 3PL’s pricing will ascertain which of the measurements
they use. The 3PL will then charge a set amount based on their
pricing, like $0.50 per cubic foot or a $15 monthly fee for
every ½ pallet used.
Usually on a monthly basis, the 3PL will conduct an inventory
check to see how much space you’re taking up, and adjust their
charges accordingly. But be careful — while it’s technically not
a cost, 3PLs tend to require storage minimums.
Prior to storing and fulfilling products, a 3PL might demand
that a minimum amount be stored to guarantee that your business
is worthwhile. For example, if the quantity you need stored
doesn’t quite meet a pallet’s worth, some 3PLs are willing to
store it — but they’ll charge you for that minimum pallet’s
worth at the end of the day.
And the longer your inventory stays shelved with a 3PL, the more
likely they will ratchet up fees called “long-term storage
fees.” They’re pretty straightforward: a 3PL will tack on a
long-term storage fee alongside their normal storage fees when a
product collects dust for longer than a certain period of time.
Picking and Packing Fees
Whether it’s a human hand or robotic claw, something must
process orders; something will pluck SKUs from storage and
package them. Third-party logistics providers will charge a fee
for this, called pick and pack fees, on a per order or per item
Pick and pack fees are directly related to order volume, and
3PLs often aim to attract high volume merchants to make more
money. In their pricing, most 3PLs will adjust their pick and
pack fees, applying scaled discounts based on order volume.
Here’s a look at how
Shipwire, a popular 3PL,
charges, for example:
Full Pick Price
Additional Pick(s) Price
Call for pricing
Call for pricing
Pick and pack fees occasionally bundle in other expenses as
well. A 3PL may decide to charge a slightly higher pick and pack
fee that includes packaging material costs, for instance. Those
costs may also be charged separately — just be sure to review
their pricing structure.
Order and Weight Handling Fees
Alongside the pick and pack fee, a 3PL might attach a fee for
order or weight handling. Usually these charges depend on the
order’s weight, as well as how a 3PL ships the product.
Fulfillment By Amazon (FBA) —
another popular service used by plenty of e-retailers — offers a
good example of how order, weight, and pick and pack fees work
together. Their pricing structure lays it all out; fees are
segmented by shipping methods, and weight handling fees scale by
Pick and Pack
(first 15 lbs)
(next 16-70 lbs)
(next 71-150 lbs)
Of course, your 3PL will be shipping your orders, and —
depending on the service — you will have to pay that cost to
ship. That cost will vary based on the methods that the 3PL
uses, as well as whatever shipping methods you request that they
use. But the good news is that the 3PL’s fee tends to be cheaper
than what an e-retailer would normally pay on their own since
the 3PL is able to negotiate cost-effective rates due to the
high order volume they juggle.
The inventory you store in a 3PL has to get there somehow, and
that typically means another fee. Referred to as a receiving
fee, some 3PLs will charge you for receiving a scheduled
resupply, setting up storage for it, and reporting the new
inventory level. Typically the cost is based on either the SKU
quantity you’ll need handled or how many hours it takes to get
the job done.
Returns Processing Fees
Just when you thought returns couldn’t get more annoying, some
3PLs will ding you for packages returned to their HQ. They will
take the return, process it, inspect the packaging and product
for any issues, collect and record feedback, and alert the
seller of the return. After all of that, it’s up to the
e-retailer to decide if they want the return sent to them for
further inspection or if they want it restocked or thrown away.
For all that work, they normally charge a per order fee.
Alright, with all of those out of the way, let’s walk through
the flow of outsourced fulfillment. Because the model involves
multiple parties — you, your supplier and your 3PL — it makes
for a more complicated process. Here are its ins and outs.
Unless you’re manufacturing it yourself, you’re going to
need to request and purchase product from your
Have inventory shipped to your 3PL
As you order product, you can either request that it be
shipped to your 3PL’s warehouse(s) for storage or you
can receive the product, inspect it, and then ship it to
your 3PL yourself.
Make a sale
Thanks to your rockstar online marketing, traffic heads
to your site and a sale is made!
Route the order to your 3PL
As mentioned earlier, there are a few ways to route
orders that usually depend on the 3PL’s preference;
phone call, email, or integration.
Phone call — In this situation, an
uncommon one, you’d call your 3PL and place a verbal
order. It’s not exactly efficient, it’s a little
archaic, but it’s out there.
Email — The most common form of routing
is via email. A seller processes an order on their sales
channel or order management system and manually emails
the order to their 3PL who receives and fulfills it.
Integration — A more expensive but more
automated way of routing orders is through an
integration between your sales channel(s) or OMS and the
3PL. It comes at a cost, but every order that’s made on
a sales channel is auto-routed to the 3PL for
The 3PL fulfills the order
Your integrated 3PL receives the order, picks it from
storage, packs it, and ships it off. Order tracking info
is then relayed back to you via email or through your
integrated order management system.
It’s daunting, isn’t it? There are plenty of potential charges
just to get an order out of a warehouse door to the customer’s
door. To make matters a little worse, these prices have the
potential to rise as more and more merchants join the ecommerce
fray, looking for 3PLs to do the work for them. And the less
space, the more costly it’ll get.
This isn’t to discourage you from considering outsourced
fulfillment, because it comes with that serious advantage of not
having to handle fulfillment. Just be sure you understand
exactly how much of a slice of revenue your 3PL is going to take
from every order they fulfill, as well as the other charges,
like storage and receiving fees, that come with stocking product
Margins and expected order volume are the keys for forecasting
whether outsourced fulfillment is feasible for you. There’s no
average order volume universally understood to mark when it’s
time to outsource — it depends on too many business-specific
factors, like reliability of demand, product margins, and other
costs like overhead or marketing-related expenses.
Instead, you need to confidently forecast your demand, and, most
importantly, intimately understand the pricing of your 3PL to
ensure that your margins can take the hit. For that, selecting a
3PL with a pricing structure that works with you and your
product is an absolute must.