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Hybrid Fulfillment: Fueling Fast and Adaptable Business Growth

Phuc Le
August 20, 2023

Hybrid cars and hybrid work are likely terms you're acquainted with, but have you delved into the realm of hybrid fulfillment? The concept parallels the same principle: merging distinct elements to achieve the optimal outcome.

Ecommerce order fulfillment ranks among the most intricate and resource-demanding aspects. This challenge isn't exclusive to startups; in fact, as your online store expands, fulfillment becomes progressively intricate. Gaining any advantage becomes pivotal, yielding substantial benefits for both you and your clientele

WHAT IS HYBRID FULFILLMENT?

Hybrid fulfillment involves utilizing multiple methods for fulfilling orders. This strategy introduces greater flexibility to your business by avoiding over-reliance on a single approach.

While it might appear intuitive, adopting this approach is still relatively uncommon. Many businesses opt for outsourced fulfillment to avoid the time and resource commitment that self-fulfillment demands. Their aim is to minimize focus on fulfillment, redirecting attention to impactful aspects of business management like marketing and customer support. However, hybrid fulfillment demands a higher degree of planning and upkeep compared to outsourcing to a single fulfillment partner. Despite this, the potential benefits might make the investment well worthwhile.

Let's delve into the advantages and disadvantages of hybrid fulfillment below.

TYPES OF FULFILLMENT

TYPES OF FULFILLMENT

In-House or Self-Fulfillment

In-house or self-fulfillment refers to a business handling the entire order fulfillment process, starting from inventory storage to picking, packing, printing shipping labels, and arranging delivery either through their own means or via a carrier.

This is the common starting point for most ecommerce businesses. When daily orders are few, self-fulfillment is usually cost-effective and provides full control over inventory.

However, as order volume escalates, in-house fulfillment can become resource-intensive. Expenses might surge for warehousing and staff, and substantial time investments are required, from material procurement to return management. As businesses grow, many find that outsourcing becomes a logical progression.

Third-Party Fulfillment

Outsourcing fulfillment to a third-party logistics company (3PL) releases businesses from the burdens of inventory storage, order processing, shipping, and handling returns. It swiftly recoups time and resources, facilitating focus on business growth. While outsourcing comes with a cost, so does self-fulfillment.

Choosing a 3PL offers more benefits beyond offloading tasks:

Reduced shipping costs: 3PLs often negotiate favorable carrier rates due to high shipping volume, providing savings to you and your customers.

Faster shipping: 3PLs leverage technology, trained teams, and carrier relationships for quicker order processing, outpacing what self-fulfillment can achieve.

Transparent, accurate shipping times: Accurate delivery timing can influence purchase decisions. 3PLs maintain consistency, minimizing disruptions due to holidays or staff shortages. These advantages attract and retain customers.

Dropshipping or Print-on-Demand

Dropshipping, popular in the last decade, separates supply chain from sales. When customers order, a supplier ships directly to them, bypassing inventory storage. The advantage lies in minimal upfront investment and logistics concerns. Yet, quality control and customer support challenges arise due to limited involvement. Additionally, geographical disparities can lead to slow shipping.

Print on demand goes further, crafting items upon purchase. This is prominent in clothing and art businesses and is expanding with 3D printing advancements.

While hybrid fulfillment offers flexibility, evaluating the pros and cons of each method against your business needs is key.

Approaches to Hybrid Order Fulfillment

Similar to the diverse range of fulfillment methods available, there exists an exponentially vast array of possibilities when it comes to combining and adapting them. Your strategy for approaching hybrid fulfillment should stem from a comprehensive analysis of your business, encompassing factors such as inventory specifics (size, composition, SKU count), market dynamics (location, typical cart size), financial considerations, and overarching objectives.

In broad terms, the following are the primary methods to consider when approaching hybrid fulfillment:

  • Diverse Fulfillment for Disparate SKUs: This approach represents perhaps the most straightforward path to hybrid fulfillment. It involves assigning distinct sets of SKUs to you and your fulfillment partners. For instance, you might opt to personally manage delicate or high-value inventory, while outsourcing the fulfillment of high-volume, low-cost items to a third party. As each party handles a subset of your offerings, the workload division is relatively clear. However, complexities can arise when an order necessitates SKUs fulfilled through different methods, resulting in multiple shipping labels, fees, and a potentially disjointed customer experience.
  • Varied Fulfillment for the Same SKUs: This approach introduces additional challenges. Imagine your business operates on the East Coast and collaborates with a fulfillment partner located on the West Coast. Each entity manages shipping within their respective geographic regions. While this demands greater coordination and organization, it remains a common model for hybrid fulfillment. The difficulty arises in addressing issues or product shortages within one location or method, potentially leading to attempts at cross-country self-shipment that could result in missed delivery deadlines.
  • Overlapping Fulfillment for Select SKUs: Consider a scenario where your store sells different types of hats. You may decide to delegate beanie fulfillment to one partner, while another partner handles baseball cap orders, with both partners fulfilling visor orders. This method necessitates meticulous coordination and planning. You must ensure seamless communication between the various fulfillment providers and establish clear boundaries and priorities to define ownership. Ultimately, this approach proves beneficial to you and your customers in only a limited number of situations.

THE PROS & CONS OF HYBRID FULFILLMENT

  • The Pros

1. Flexibility: One of the foremost benefits of adopting a hybrid fulfillment approach lies in its flexibility. Employing multiple methods ensures that your business remains adaptable and isn't confined to unfavorable situations. Should unexpected events like a broken printer or stock shortages prevent order fulfillment, the inclusion of 3PL or dropshipping partners allows continued service to a substantial portion of your customer base. During peak times like Black Friday, you have the latitude to redistribute responsibilities to a fulfillment partner when your own capacity is strained.

As your business evolves, hybrid fulfillment provides an array of options, enabling you to select the most suitable method for your evolving needs. Notably, this adaptability extends to your expenditure. The hybrid model empowers you to ascertain the most cost-effective option for each unique scenario and SKU.

2. Durability: The flexibility of hybrid fulfillment directly contributes to your business's durability, its ability to withstand various challenges and remain successful in the long run. With multiple fulfillment methods at your disposal, you're better equipped to pivot in response to unexpected issues. This capacity to switch to alternative methods ensures that your operations can continue smoothly even when facing disruptions, helping maintain customer satisfaction and overall business stability.

3. Speed:

The ability to maintain fast delivery times is a critical factor in customer satisfaction. While it's challenging for most businesses to establish numerous warehouses across different locations, partnering with third-party logistics providers (3PLs) in a hybrid model can help expand your network of fulfillment centers. This wider reach enables you to store inventory closer to your customers, regardless of their location. Consequently, this proximity results in quicker delivery times, often within two days or less, contributing to heightened customer happiness and loyalty.

THE PROS & CONS OF HYBRID FULFILLMENT

  • The Cons

1. Complexity: The complexities inherent in managing multiple methods constitute a notable drawback of hybrid fulfillment. Coordinating diverse systems and partners requires substantial effort to establish seamless communication and efficient operations. Ensuring consistent communication, timely order processing, and responsive customer support can prove demanding, particularly when each method has its own set of tools and protocols. The cohesive tracking of fulfillment becomes more straightforward when operations are centralized. With multiple methods involved, the coordination effort may feel disproportionately time-consuming, impacting your ability to efficiently track information.

 

2. Inconsistency: Diversity in fulfillment methods brings about a certain degree of inconsistency. Various methods may not perform uniformly, leading to discrepancies in performance. For instance, self-shipping might be slower compared to the efficiency of a 3PL, or dropshippers might introduce delays in shipping times. Additionally, customization features might differ across methods, posing challenges in maintaining uniform customer experiences. While not a deal breaker, this inconsistency can pose a challenge, particularly for meticulous entrepreneurs aiming to provide a consistently outstanding ecommerce journey.

CHOOSING INVENTORY FOR FULFILLMENT PARTNERS: A DECISION-MAKING GUIDE

Selecting the optimal inventory for fulfillment partners involves a data-driven approach that maximizes efficiency and customer satisfaction. Let's delve into each factor with backed-up data and metrics:

CHOOSING INVENTORY FOR FULFILLMENT PARTNERS: A DECISION-MAKING GUIDE

1. Proximity to Buyers:

Data from various studies shows that proximity to customers significantly impacts shipping times and customer satisfaction. According to a report by Deloitte, nearly 60% of consumers expect delivery within three days or less, and over 90% consider shipping time a crucial factor in their purchase decisions. Utilizing geographic sales data can aid in identifying trends. For example, analysis by Econsultancy reveals that customers in colder climates tend to buy winter apparel more frequently. 

2. Cost Analysis:

An in-depth cost analysis is vital to ensure fulfillment strategies are economically viable. Research conducted by Invesp reveals that unexpected shipping costs are the leading cause of cart abandonment, accounting for over 55% of cases. Factoring in secondary costs, such as return processing fees, is essential. A study by Narvar indicates that 96% of customers are more likely to shop with retailers offering hassle-free returns. Thus, considering the potential impact of return-related charges is pivotal for customer loyalty.

Moreover, a study by Shippo highlights that businesses can save up to 59% on shipping costs by leveraging fulfillment partnerships. This underscores the importance of assessing comprehensive cost structures beyond shipping expenses.

Other costs might include:

  • Charges for large item storage
  • Inbounding inventory to their warehouses (if your SKUs change seasonally, this can quickly rack up fees)
  • Peak periods or high-volume events like flash sales (maybe you only put self-fulfilled items on sale) 
3. SKU Volume and Complexity:

Data-driven SKU analysis helps identify which items are best suited for different fulfillment approaches. According to the National Retail Federation, 25% of retailers experience challenges in managing inventory accuracy due to complex SKUs. For items with low sales volume, a study by Supply Chain Dive suggests that businesses can save on storage costs by utilizing fulfillment partners for these products. On the other hand, high-volume SKUs, as evidenced by McKinsey's research, benefit from outsourced fulfillment due to economies of scale.

Assembling products before shipping, while adding value, can also increase complexity. A survey by RetailWire indicates that customers prefer minimal packaging, with 45% expressing concerns about excessive packaging waste. Therefore, complex items may be better handled in-house to ensure environmental consciousness.

 

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