Why Outsourcing Logistics Management Makes The Best Business Sense



Outsourcing logistics management resized 600When it comes to order fulfillment and your supply chain process, the more your business grows and the more orders it takes on, the more complicated logistics management becomes.

The processes and transactions that take place during order fulfillment – done on a one-to-one basis – is a simple “pick and pack an order” scenario. However, when you multiply the number of orders you must fulfill – over and over, again and again – supply chain management quickly becomes very cumbersome.

Also, when dealing with a high volume of orders, one mistake in the way something is packed or shipped could trigger a customer service/return/chargeback chain-of-events nightmare.

As your direct marketing business grows, partnering up with the right supply chain management company is the key to avoiding many overwhelming costs and headaches associated with keeping fulfillment services in-house.

Here are the top reasons why outsourcing logistics management makes the best business sense:

1. Reducing Risk, Liability And Management Headaches

When you have a large amount of orders to fulfill, within each order exists the potential for exceptions and errors.

Each order typically has more than one physical item, and at least one literature item (not including the packing slip). It’s very easy during order fulfillment not to include an item in packaging. This is just one example, but it generally becomes complicated to manage every one of these mishaps in a timely manner.

Whether it’s a packing slip or running out of enough packaging when you have an uptick in orders, decisions need to be made fast. If you are unable to react fast to recover from each error, this causes a backlog that’s very challenging to catch up with.

The last thing you want is to be buried in the daily barrage of errors that come with a high volume of orders. When you outsource with the right partner for supply chain management, this constant stress on you and your business is alleviated. Your packages get out right and on time.

2. Achieving A Fixed Cost-Per-Order

From a purely top-level, solid-business-sense place of reasoning, the major reason for outsourcing logistics management is that it provides you with the ability to remove surprise costs associated with the supply chain. No surprises mean you get the assurance of a fixed cost.

When you outsource your order fulfillment services, the right fulfillment company is going to agree to a fixed rate.

For example, if the fulfillment company doesn’t have systems in place to prevent errors, then they need to correct that mistake – not you or your company. They have to pay the additional expenses of correction or risk losing your business.

3. Overcoming Order Spikes And The Benefits Of Scalability

If your order volume always remained constant every single day and never changed, it would be great, but that’s not reality. Once you have a proven campaign, the number of orders starts to climb quickly, as does the amount of inventory you need to stock. The market will take notice of a hit product and if you are sitting on the sidelines trying to add space, staff, equipment, technology, quality processes, etc., you risk a competitor knocking you off and stealing that the success of that campaign.

If you chose to keep your logistics management in-house, significant investments in things like large commercial warehouses would soon follow. Although your business might be prospering and the future looks bright, you never know what the future holds. Your 5-year, $80K per month building lease doesn’t stop just because your business is on a down cycle.

When you partner with the right supply chain management company, they offer you scalability to the warehouse space they offer you. When business is up and you need to store more inventory, it expands with you. When sales are slow, your warehouse space shrinks back with your business while never interrupting supply chain efficiency.

4. Giving Up Costly Insurance And Keep Cash Flow

As a growing direct marketing business, there are many assets and expenses to cover.

Insurance costs come in the form of:
  • Insuring physical assets, expensive property and equipment
  • PCI compliance to limit exposure of credit card numbers
  • Workers comp insurance for employees hurt on the job
  • Unemployment insurance for hiring and firing as labor is needed

Other cash flow expenses are due to buying:

  • Large racks for storing house pallets
  • Equipment like forklifts, pallet jacks and conveyors
  • Barcoding equipment and system (very expensive)
  • Warehouse Management Software
  • Transportation Management Software

Outsourcing logistics management means you never have these expenses to deal with yourself. Their warehouse already has all of the equipment and they are responsible for insuring their own assets, employees and anything else that falls directly under the umbrella of their supply chain process.

5. Keeping Up With Constantly Evolving Technology

New technology and order management systems are coming out at a fast pace, making management of these IT systems extremely challenging.

To make matters worse, even if you decided you weren’t going to change the way you handled your data and IT systems, a significant amount of your vendors and clients are going to make those updates. Either way, you are forced to maintain, upgrade and change these systems to stay current with the world around you.

Why would you want to make investments in this area? When you outsource your fulfillment services, your business is kept up-to-date with order management technology

Ultimately, outsourcing takes all of these expensive capital outlays and complicated management of labor, systems, processes and software out of your hands, giving you a fixed cost per order you can count on.

Ready to learn more about how outsourcing logistics management and finding the right partner for your business? Call 800-808-3304 or click here to speak with a supply chain management expert at Moulton Fulfillment


About The Author

Patrick Moulton specializes in logistics and marketing with 15 years of industry experience. He is currently enrolled in the USC Marshall School of Business Executive MBA program.