Outsourced Order Fulfilment for Online Merchants

Mark Freidin

29th Sep 2009

Outsourced Order Fulfilment for Online Merchants

By Chris Chan

For small business and online retailers contract logistics is just not flexible enough to support rapid growth. Modern internet technology now makes it possible for an alternative approach, delivering better service, flexibility and superior ROI. E-tailers can now take on the big end of town and really compete globally.

Contract Logistics Warehousing and Distribution

The third party logistics (3PL) industry is dominated by contract logistics operators.  Basically, users “contract” a service provider to an agreed scope of activity for the contract term, typically a number of years.

Although this is fine for most large organisations, for many small merchants this model has many short comings.

Firstly, a contract arrangement may not provide the required flexibility to support rapid growth, during a start up or new market entry stage.  Additionally, a 3PLs capability may only be limited to a certain portion of work and they may not be able to provide the full suite of services required to take product from supply to consumer.

Secondly, contract logistics is expensive to implement, for a small business. The set up costs can be prohibitive because 3PLs need to recover capital invested in technology, facilities and equipment. Most small merchants cannot afford this overhead.

Furthermore, 3PLs providing contract logistics are “asset” focused. They need to focus on utilising their assets. This will often conflict with the imperative to provide continuous improvement and ongoing cost savings. Think about it, if you require less space and handling their revenue suffers.

An introduction to “on demand” logistics services.

On demand logistics does not have these short comings. There is no fixed contract term and the range of services are far more comprehensive. Because users (merchants) only pay for what they need, they can access a greater range of services with far lower fixed costs.  They can enjoy much greater flexibility, benefit from scale economy and can compete with larger competitors.

“What about the set up costs?” I hear you say. Well one critical element differentiates the “on demand” logistics model. The internet. Only recently has the internet been used as a medium to conduct commerce (ecommerce) hence the increase in sites like EBay and others. This coupled with the massive advance in web technology over the past few years has now made it possible to host more sophisticated applications online and provide a huge range of services.

This is where the majority of set up cost has been removed. Small business can now access the benefits of sophisticated Warehouse Management Systems (WMS) via the web.

This technology allows “on demand” logistics providers to give customers more visibility and control for far less cost. Users can interface web sites and shopping carts for a fraction of the cost and much more securely than traditional methods.

Clearly this does not address all the issues of outsourcing. However, cost is often a major factor in the decision making process and affects all online businesses. Outsourcing, if harnessed properly, can enhance an online business’ ability to leverage their supply chain agility as a source of competitive advantage.

Chris from Pik Pak understand the challenges for online selling and delivering customer satisfaction and can be reached via pikpak.com.au or chrisc@pikpak.com.au