As digital consumers, we know that shipping and delivery is a make-or-break part of the customer experience. We want the delivery process to be quick and reliable. Unsurprisingly, shipping speed is among the top contributors to customer experience—90% of consumers expect two- or three-day shipping to be standard, and 66% say they would stop ordering from a company after a late delivery.
Whether you’re a small ecommerce store or a colossal seller like Amazon, order fulfillment is an essential part of your target customer’s experience and a key process to get right. Should your business fulfill orders in-house? This guide will discuss the pros and cons of in-house order fulfillment, along with steps to get started if you decide it’s the right strategy for your business.
What is in-house order fulfillment?
In-house order fulfillment is when a business manages the entire order fulfillment process themselves. To fulfill orders in-house, businesses need systems in place to:
- Receive and store inventory
- Track inventory levels
- Process orders
- Pick and pack orders
- Ship orders
- Process returns
- Manage customer service
Small and medium-sized ecommerce businesses can conduct many of these activities from a small office, garage, warehouse, or other space, depending on the size of the company and the volume of orders they receive.
Pros and cons of in-house order fulfillment
In-house order fulfillment can be a complex and time-consuming process. Still, it can be important, and even rewarding, for business owners who want to maintain control over the customer experience. Here are a few points to consider when exploring whether in-house order fulfillment makes sense for your ecommerce business:
Pros of in-house order fulfillment
In-house order fulfillment allows ecommerce businesses to own, oversee, and optimize a critical part of their business, which can directly impact profitability and customer satisfaction. Here are three main benefits in-house order fulfillment might offer your business:
Control
When fulfilling orders in-house, you have complete control over every aspect of the process, from receiving and storing inventory to picking, packing, and shipping the orders. You also have more control over a critical element of the customer experience. You may be able to offer faster shipping times and more accurate order processing, along with personalized or customized packaging.
Flexibility
You can make changes to your order fulfillment process as needed. This flexibility is especially useful to new businesses still developing their order fulfillment strategy, along with businesses that have unique products or shipping requirements.
Cost savings
In-house order fulfillment can be more cost-effective for some ecommerce businesses. After factoring in the costs of warehouse space, packaging, shipping, and insurance, fulfilling orders in-house may still be less expensive than using a third-party logistics (3PL) service.
Cons of in-house order fulfillment
In-house order fulfillment provides ecommerce business owners with complete control, but it may also put a strain on resources and day-to-day operations. Here are three main challenges of fulfilling orders in-house:
Operational complexity
When running your own order fulfillmentoperation, you’ll need to manage inventory levels, handle returns, and ensure accurate picking and packing of all orders, which can be time consuming and challenging. There may also be a greater risk of error as your orders increase, such as picking the wrong items, packing orders incorrectly, or shipping orders to the incorrect addresses.
Scalability
It can be challenging to scale in-house order fulfillment as your ecommerce business grows. You may need to invest in more warehouse space, staff, and equipment to keep up with demand, which requires time and investment. Scaling up may also create a bottleneck or otherwise impact the running of your existing fulfillment operation.
Ongoing time and resource investment
From initial setup to ongoing execution, in-house order fulfillment requires a time commitment from ecommerce business owners and their employees. In-house fulfillment can also take away from your other core business activities, such as marketing, sales, and product sourcing or development.
Before moving to fulfill orders in-house, factor in things such as the investment for equipment and fulfillment software, packaging costs, and shipping rates for local, national, and international orders alongside your order volume.
How to implement in-houseorder fulfillment
- Secure storage and working space
- Purchase equipment and software
- Develop your order fulfillment strategy
- Develop the fulfillment workflow
- Hire and train staff
- Finalize shipping and logistics details
- Monitor and optimize as needed
Is in-house fulfillment a good idea for your business? Here are seven steps to get you started:
1. Secure storage and working space
You will need a dedicated space for managing inventory and processing orders. Your space could be your garage, a spare room in your office, a storage unit, or a dedicated warehouse facility. The size you need will depend on the volume and type of orders you expect to fulfill. A candle company, for example, will have smaller space requirements than a shop that sells large houseplants.
2. Purchase equipment and software
You will likely need equipment for your working space, such as shelving, packing materials, shipping labels, and a printer. You can also invest in a bar code scanner or warehouse management software to help you keep track of your inventory and orders.
3. Develop your order fulfillment strategy
Compare rates between major shipping carriers, then consider your costs for packaging and shipping to local, national, and international customers to help determine your pricing strategy for shipping. Establish quality control measures to ensure accurate and safe order processing.
On the customer side, decide on order cutoff times, or the time by which a customer has to complete an order to receive it in the next day or week, and develop a clear return policy and a process for handling returns and exchanges.
4. Develop the fulfillment workflow
Once you have a higher-level strategy set, you can develop a workflow for order fulfillment. Your workflow should include detailed steps and documentation for the entire process: receiving, storing, and inventory management, picking, packing, and shipping orders, and finally, the returns and exchanges process.
5. Hire and train staff
Depending on your order volume, you may need to hire staff to help with order fulfillment. Train any staff who might help with order fulfillment on your process, safety procedures, and customer service expectations.
6. Finalize shipping and logistics details
Integrate your ecommerce platform with shipping software to streamline label printing and order tracking. Offer various shipping options to customers, including express and international shipping.
7. Monitor and optimize as needed
You can measure the efficiency and accuracy of your in-house fulfillment system by tracking key performance indicators (KPIs) such as order accuracy, shipping times, inventory turnover, and customer feedback. Monitoring KPIs will help you make data-driven decisions around improving your fulfillment processes, reducing fulfillment costs, or improving customer satisfaction, so measure and analyze regularly.
Shopify offers seamless integration for your in-houseorder fulfillment needs with Shopify Shipping. You can enjoy discounted rates with industry-leading carriers, buy and print shipping labels, and fulfill orders right in Shopify—all while skipping the extra apps, accounts, or fees.
In-house order fulfillment FAQ
What are the different types of order fulfillment?
There are three main types of order fulfillment: in-house (also called merchant), dropshipping, and third-party fulfillment. In-house fulfillment is when a merchant fulfills orders themselves, whereas dropshipping is a process where the manufacturer of their products fulfills orders. Third-party fulfillment (3PL) is when a merchant uses outsourced order fulfillment through a logistics and warehousing specialist.
Is a 3PL fulfillment company worth it?
The value of a third-party fulfillment partner depends on the size of your business, the volume of orders you receive, and the costs of fulfilling orders in-house compared to a 3PL solution. For some ecommerce businesses, in-house order fulfillment is the more cost-effective or preferred choice. For others, the cost of 3PL fulfillment services and the operational bandwidth they gain by outsourcing fulfillment is the right choice for their business.
What are the potential cost savings associated with in-house order fulfillment?
You have complete control over the process when you choose in-house order fulfillment, meaning you can opt for the most cost-effective packing materials, shipping rates, and other expenses. You can also optimize your fulfillment process with dedicated software or automation to help cut labor costs and save money.
