Depending on what stage your business is at, there may be different reasons why you seek a fulfillment center.
It's likely that your business is growing rapidly and you can’t keep up with orders internally.
It could also be the case that there’s seasonal variance and you need the ease of scalability during these periods.
You might be taking the leap and entering a new market or just simply trying to cut down on your operational costs.
Fulfillment Centers can help you if you are facing any of these challenges. Besides the dilemma at hand, outsourcing toa fulfillment center will buy you additional time to spend on growing your business.
Before committing to a fulfillment center, it’s crucial to understand the disadvantages that come with using fulfillment centers.
Fulfillment centers should be looked at as tools. Like any other tool, they can be extremely useful but can also pose risk if not used properly. It’s likely that the fulfillment center you end up choosing does a good job of eliminating or minimizing these disadvantages but it’s still important to understand them.
Let's discuss some of them.
Lack of Control
This is big and that’s why it’s first. When using a fulfillment center, you give up control. This is because you no longer have the order in front of you. If you need to open a package to modify an order, it’s not as simple as grabbing a box cutter and walking over to where the package is.
It’s also possible that the fulfillment center you’re using doesn’t allow packages to be modified once they’ve been processed. For 3PLs where they have this option, you’ll need to go into your dashboard and put in a request to have the order modified. They probably have dozens of other requests from sellers which means they won’t be able to make the change that very minute you put the request in. This is just 1 example of loss of control but the point of focus here is that it’s going to slow things down when there’s lack of control.
Getting more time to focus on areas of improvement instead of shipping is convenient, but it comes at a cost. Handing over the responsibility of a big part of your business requires you to trust your 3PL. Giving up control of the shipping process can be tricky. If your fulfillment centre makes a mistake and the customer complains, you will need to depend on them to figure the situation out and get back to you. In the circumstance that the product was damaged, it could be difficult to determine whether that was a problem on your part, the vendors, or if it occurred while being shipped, since you would not have been physically present to know. This could result in some difficulties if not properly communicated, though fulfillment centres will often compensate for any losses made on their part. Other major and minor issues could also surface, and it is possible that you may not have been made aware of them until a customer complained.
Loss of control isn’t always a bad thing. It’s simply the tradeoff that comes with delegating the task at hand to someone else. It can be seen in non-fulfillment related things as well such as hiring. Most successful companies have multiple people working for then. The synergy of people working together allows for the organization to succeed. If the founder decided that he doesn’t want to hire people because he wants to maintain his control, it would severely limit the growth of the organization. Although lack of control is a disadvantage, it’s often a tradeoff that’s made in exchange for growth.
Losing control over the shipment cycle will need some getting used to, and will require you to trust the 3PL. The fulfillment process is an important aspect of your business and that’s why I encourage you to do your due diligence when finding the right dance partner. Let’s look at other issues.
Lack of Customization
Fulfillment centers are special businesses that have optimized the processes of storage, picking & packing and shipping and offer these services to others. You’re in business because you do something you’re really good at. Depending on what you sell, you might have unique processes in place that are different from other businesses. It could be anything as simply as hand-writing a “thank you” note to a strict quality control process that you put products through before final shipment. In either case, this is going to be difficult to do when using a fulfillment center. Most 3PLs offer simple services and won’t do anything beyond their offerings. Others are highly customizable and will work with you to understand and implement your processes. Even after you find a fulfillment center that can accommodate your requirements, it’s hard to ensure remote work.
How your customers receive their orders is also extremely important - everything from the speed, the packaging, the condition and care all matter. Companies such as FabFitFun are big on making sure their brand stands out with their unique packaging and exciting unboxing. Aside from the products they deliver, they're actually selling an experience. They’re able to do this through their personalized materials and their own custom packaging. This isn’t possible without the level of customization they do at all levels. If FabFitFun goes searching for a fulfillment center, they would ensure the fulfillment center gives them the ability to use their own packaging instead of generic boxes.
It’s important to ensure the fulfillment center you’re using will allow full customization options if your business requires that. Whether that’s using your own custom packaging or adding promotional inserts such as brochures or business cards. Accepting custom work orders and special instructions is also important - especially for Amazon sellers who require FBA Prep Service from fulfillment centers. Labeling and preparing items to be sent to amazon requires unique care and attention to detail as each product is different.
Once you’ve found a fulfillment center that can take care of your customization needs, it’s also important to look at costs.
May Not be Cost Efficient for You
The irony of this one. There are many reasons why a brand may hire a fulfillment centre. For most, letting a 3PL handle their shipping process is a way to manage time. Others look towards fulfillment services in an effort to reduce costs. Using a 3PL will reduce your workload, but it’s not guaranteed that it will reduce your expenses. Ultimately, your order volume will decide whether a fulfillment center is cost-effective.
Fulfillment centres provide sellers with many different services and all of those cost something. From the moment your items arrive at their warehouses, to when your customer’s order is shipped, you will be charged. Some of the most common fees include receiving fees, storage fees, picking & packing fees, shipping fees and also fees on additional services. Besides this, some fulfillment centers may also have minimum charges that they will charge you no matter what.
Fulfillment centers are usually affordable (they wouldn’t be in business otherwise) but if your own operations are extremely streamlined, it can be cheaper fulfilling orders yourself. For this to be true, you also need to be doing a significant volume so that your overhead expenses are justified. When fulfilling orders yourself, your storage is only being used for your items. What this means is that you have the flexibility of storing items the way you want to store them and you can customize your storage for your unique efficiency. What this also means is that the space can be optimized and your items can also be placed closer to the packing area to reduce the picking time.
A fulfillment center is storing items on behalf of hundreds or even thousands of other businesses. Where your item is stored is decided by the fulfillment center and the price you’re paying is based on the average time it takes to pick an order. This time is usually higher than if it was picked at your warehouse (where the placement of products will always be your products first) and because that factor and additional profit is what dictates the price, it is likely that the fulfillment cost per order is higher.
This is the very reason fulfillment centers also have SKU limits sometimes. With more SKUs in the warehouse, it impacts the fulfillment time of all orders and ultimately costs more.
For a company that’s growing and shipping 300+ orders per month, this may not be an issue for you. For a smaller business with tight margins, using a fulfillment center could mean higher cost especially when considering minimums.
The attraction of a fulfillment center mainly comes from their cheap prices for storing your products. It might sound like a great idea to send all your inventory over and make it their responsibility, but in the long term, that can be a risky move as they are more than a warehouse for storage space. The cost of storing your products at their warehouses is usually determined by how many products you send, how much space they take and the quantity of each.
If you have SKUs that sell a lot, you won’t mind paying storage fees. The drawback is that if your products are not selling, you still have to pay the storage fees. Certain fulfillment centers may even charge long-term storage fees which can be really expensive. If you were storing on your own, you’re also paying rent but this forces you to be extra careful with your inventory projections - especially for seasonal businesses. it doesn't make sense to be honest but in their defense, they can replace your product with a product that sells more which is more beneficial for them.
ShipHype doesn’t care whether your product sells or not because of the way our business is structured but certain fulfillment centers do.
Multi-Location Fulfillment Centers
As supply chains grow, you may need to consider a fulfillment center with various locations for optimal reach and to stay competitive. This will have its advantage but also comes with its own set of challenges. Although your shipping cost and order processing cost will go down, you will have to account for the doubled inventory, storage, and handling costs. This is especially true if you’re using multiple fulfillment centers.
In addition, different locations can have different strategies for servicing. It will be crucial to keep up communication with each location. Even if the fulfillment centres are handling your shipping, the products and business are yours and the ultimate responsibility is on the seller to keep the inventory balanced and avoid confusion between locations. Managing inventory is important with just one fulfillment center. With multi-location fulfillment centres, it becomes crucial. If you are looking to expand your business, the tradeoff of having access to a bigger market might offset the drawback. It all just depends on your exact business. In any case, it’s always best to be well prepared knowing both the pros and cons before diving in.
As you can tell by now, there are quite a few disadvantages of using fulfillment centers and there’s probably a lot more. I believe the ones I’ve listed are the most important and should be considered before hiring a fulfillment center.
You might be asking yourself why I’m listing disadvantages of a fulfillment center when I work for a fulfillment center. The reason is because we want you to be in the know and to make the most informed decision for your business. We’re successful as a fulfillment center because we focus on providing value to our clients. Depending on the current stage and goals of your business, we might not be a good fit today but we’ll be right here when the time is right.
Fulfillment centers have been around for a while and it’s a business model that’s constantly challenged. Running this kind of business forces you to adapt to change and constantly improve your services. Another part of the reason we’re listing these disadvantages is so people know we’re aware and paying attention to where we need to work. As a fulfillment center, our job is to minimize these issues to ensure excellence.