Welcome to our Shipping Methods Explained blog series. In this series, we will deep dive into fulfillment methods – that is, how businesses fulfill their online orders and get products to their customers.
Sounds simple right? Well, in theory, it is. You could hop on your itty-witty bicycle and hand-deliver your product, mission accomplished. But consider the complexity when your company fulfills hundreds to thousands of orders daily, not to mention the skyrocketing shipping costs that could price you out of the market.
Managing inventory, navigating each carriers’ specific requirements, calculating the lowest cost from thousands of shipping options… it’s a daunting task. That’s why more and more businesses are outsourcing their fulfillment methods.
Are you ready to outsource your fulfillment? Let’s analyze your options to help you decide the best method for your business. In this second article, we’ll discuss Fulfillment-as-a-Service (FaaS). What is FaaS? What are the pros/cons? When is it right for my business? Let’s dive in.
(Check out our first article on Dropshipping here. And be sure to check back for future articles where we’ll cover even more fulfillment methods)
What is FaaS?
Simply put, Fulfillment-as-a-Service (FaaS) is where your company employs a third party company or warehouse to prepare and ship orders for you. This allows you to tap into fulfillment capabilities with no upfront investment of capital, and only pay for the services that you use.
Think about it like a subscription to Netflix. As long as you pay the subscription price, you have access to the content and services. Same with FaaS. As long as you partner with a third party logistics (3PL) provider, you can use them to pick, pack, and ship your product.
Now consider the alternative: in-house fulfillment, where companies must invest heavily in warehouse space, labor, management, and software to keep things running smoothly. With FaaS, this is all included in one subscription price, and you can pick and choose the specific capabilities that you need.
We wrote previously about how to choose which fulfillment method is right for you. Take a look here.
How to Start Shipping With FaaS
With seamless integration between your business systems and their fulfillment cloud-based platforms, getting started with a fulfillment provider has never been easier. All it takes is 3 easy steps to start delivering the goods.
Step 1: Find your Fulfillment Partner
The first step to outsourcing your fulfillment is to find the right FaaS partner for you.
There is an endless list of fulfillment companies vying for your business. So when you are vetting each, ask questions like:
- Does the 3PL provider have the capabilities to fit your business needs?
- Can the 3PL provider integrate with your business systems?
- Does the 3PL provider have a proven track record offering reliable services?
- What are the costs? Do they charge per hour, per unit or packet? Are there transactional fees or recurring costs?
Not all 3PLs operate the same way: some value customization over speed, some strive to be the low cost option at the expense of service, so be sure to select the fulfillment partner that aligns with your specific strategic goals.
Step 2: Integrate
Once you decide on a fulfillment provider, it’s time to integrate.
FaaS providers offer cloud-based software solutions so that your business can utilize their warehouse management capabilities to control the flow of your products. These solutions offer great value to your business because this allows for highly customized options when it comes to fulfillment – custom packing, custom unboxing, custom bundles – you name it.
Also, smart fulfillment companies like ShipHero provide you with the ability to create automated workflows and a frictionless return process through strategic partnerships with companies like Alloy and Returnly.
Step 3: Send Your Inventory
The final step is to send your inventory to your 3PL’s warehouses and get to shipping.
Once the inventory is received, the warehouse will begin to pick, pack and ship your products for you. If you picked a good fulfillment provider that is built for performance and scale, the 3PL will also disperse inventory across their network of warehouses, bringing the products closer to where the orders are coming from.
ShipHero is able to provide 2-day ground shipping for the contiguous US due to intelligent forecasting solutions powered by AI. We bring the products to where your customers are located, instead of a central fulfillment hub. This allows us to lower costs and our carbon footprint through an emphasis on ground transportation.
Fulfillment-as-a-Service Pros and Cons
Is FaaS right for your business? Or would you benefit from dropshipping or another fulfillment method? Let’s look at the pros and cons of fulfillment-as-a-service so you can decide for yourself.
FaaS Advantages
Business with big goals, fluctuating sales, and not enough time all find great value in the FaaS model. Beyond the obvious benefit of saving time and effort by having a third party fulfill your order for you, FaaS provides advantages in terms of skill specialization, agility, and scalability.
Flexible Pricing
As you grow, 3PLs are able to adapt to your needs and adjust costs accordingly. Conversely, when your business goes through a bit of a slow down (hopefully not), the costs can reflect this as well, and you won’t be weighted down with high overhead. FaaS allows you to forego the high costs, risk, and commitment of leasing and operating your own warehouse.
Skill Specialization
When you choose FaaS, you don’t just get a fulfillment provider, you get a business partner. Most 3PLs employ teams of logistics experts and support staff to help you with your shipping needs, and this comes standard with years of experience with fulfillment best practices and software solutions.
Not only do they provide shipping expertise, but also when handling the dirty business of returns. As online shopping continues to grow, so do the number of returned products. 3PLs can help you manage the nightmare of returns and offer a frictionless return experience for your customers.
Agility
If there is one thing that FaaS providers do well, it’s move quickly. Whether it’s shipping times or software development, 3PLs embody the spirit of agility. Many fulfillment providers like ShipHero offer 2-day shipping to anywhere in the US; this would require an immense investment from a business, so more and more retailers are partnering with 3PLs to achieve a level of agility they otherwise wouldn’t achieve.
FaaS Disadvantages
The advantages above explain why more and more retailers are partnering with third party logistics providers and fulfillment specialists. Despite the pros, FaaS is not right for every business.
Need Consistent Orders
If you are a startup or a small business still getting their feet wet, it may be better to handle your orders in-house due to the costs associated with fulfillment-as-a-service. But when customers are knocking down your door and you can’t handle the growing number of orders, 3PLs are standing by to help you as needed.
Lose Full Customization and Control
You’d be surprised with the range of customization that 3PLs can offer, but still there is a limit when compared to the full autonomy that you would have with in-house fulfillment. So if you have very detailed and highly specialized requirements when it comes to fulfillment, handling your fulfillment in-house may be a better option.
So, is FaaS right for your business? If you’re not sure, stay tuned for our next article as we dive into Fulfillment by Amazon (FBA).
Learn more about ShipHero’s industry-leading warehouse management software.
