We’ve covered how fulfillment services can help you grow your business. But what we haven’t talked about is how different fulfillment methods work and whether or not they work with your specific business model. Some methods are more complicated, costly, or feature a different array of services, so it’s all about balancing your fulfillment goals with your fulfillment needs.
When debating dropshipping vs third party fulfillment, there are several factors to consider. For example, larger businesses heavily weigh the decision to manufacture products themselves, or to outsource it. On the other hand, if your operation is still small enough that you have no problem fulfilling orders on time and storing your product, outsourcing to a third party fulfillment center is not a good option.
Dropshipping: Buying Inventory after the Customer Places an Order
Let’s start with dropshipping. It’s frequently used but it can be hard to understand what it actually means. According to Shopify, “Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer.” Essentially that means you’d never handle the product. In fact, you wouldn’t even purchase the product until an order has been placed. The cost of storing is zero, while unsold inventory waste is minimal. Retailers that choose not to keep an inventory in stock and mostly operate online are the only ones that should utilize dropshipping. There are many benefits to this business model. It requires less capital and overhead, and it’s relatively easy to get started. But it’s specific to one type of retailer, so it’s not quite so useful to every business.
How Manufacturing Businesses Should Choose their Fulfillment Methods
If you manufacture or store your product, you’ll really be debating between direct and third party fulfillment. While it’s a good place to start, cost is not the end of the debate. What is more important is what is best for the growth of your company.
Direct, or in-house, fulfillment requires three major things: time, energy, and space. If you have a surplus of all three, then there isn’t much reason to consider outsourcing order fulfillment. A crucial issue for many growing businesses is that those three things are usually in short supply. A time surplus right now may not be a time surplus tomorrow. You may get a new deal and have to scramble to meet that demand, or you may lose a valuable customer and have to refocus your energy into other areas. No matter the situation, direct fulfillment requires your company to be steady so your fulfillment services can be flexible.
It’s this level of uncertainty during the growth phase that makes third party fulfillment a better option for some businesses. Outsourcing your fulfillment needs saves you both time and space, and enables you to focus on wowing your customers with great products and customer service. The ability to store your finished products off-site is a benefit itself. Third party fulfillment companies are then able to pack and label your products for shipping.
While cost is a big factor in the equation, third party centers also offer the ability to scale as your business grows. You can do this with direct fulfillment, but that eventually means expanding your business space and storage capabilities. A third party fulfillment company is capable of expanding operations with you, eventually saving your business the costs of that expansion.
So, direct vs dropshipping vs third party fulfillment doesn’t really come down to whether one way is cheaper or easier. It comes down to the structure of your business, and the best way to meet your order fulfillment demands. Regardless of which method you choose, the biggest objective in the decision-making process should always be timely order fulfillment and customer satisfaction.