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Should you Outsource your Logistics?

By: Dave Howell - Updated: 29 Sep 2010 | comments*Discuss
Logistics Logistics Outsourcing Business

What many online business owners quickly realise as they develop their enterprise is that it is relatively easy to construct a website and take payment from customers. The other side of the business process i.e. moving the goods ordered to the customer’s address isn’t as straightforward as it seems to be.

When you start your new online business you have a choice to make when it comes to the logistic services you will offer. You can keep the logistic services in-house and handle this yourself, or you can use logistics outsourcing services that are available.

Both these options have their own merits and shortcomings. The type of business you operate and the kind of goods you need your logistic services to deliver will determine whether you can keep your logistic services in-house, or if they have to be outsourced.

In-house Logistics

Very small online businesses that sell relatively compact goods often opt to keep their logistics in-house to save costs. However, this can be in some instances a false economy. For instance, if you are renting office space as premises for your logistics, this isn’t an ideal use of your business’s financial resources as outsourcing to a dedicated logistics supplier could save your business substantial amounts of money.

However, if your business sells goods that require a high level of customer interaction, you may be more comfortable handling your logistic services in-house so you can handle these enquiries yourself, thus maintaining your business’s overall efficiency - something that logistics outsourcing could not achieve.

Outsourced Logistics

Logistical outsourcing may be the only logical way of handling your business’s fulfilment commitments. This could be because the goods your enterprises is selling need a specialist third-party logistics company to handle deliveries and returns. Large bulky items such as furniture are a good example where logistics outsourcing is a good idea.

However, if your business will be selling items that are sometimes termed commodities - examples include books, DVD’s and CDs - outsourcing your logistic requirements may also be beneficial as your business could use economies of scale. Firms handling the logistics of commodity items usually have multiple customers that enables them to centralise their services and thus reduce costs that they can pass onto your business.

Outsourcing Checklist

To help you decide whether you should keep your logistics in-house or look closely at logistic outsourcing, relate the guidance below to your business.

What Kind of Goods does your Business Sell?
If you intend to sell large bulky items with special delivery requirements, outsourcing your logistics will almost certainly be the better option than attempting to manage your logistics in-house.

Can you Handle Returns?
Inevitably, your business will have to deal with goods that your customers return. Again, the type of goods you sell could mean that in-house logistics simply isn’t a practical option. Talk to the logistic partners about returns as they may need special handling and consequently attract an additional fee.

Will you Rapidly Expand your Selection of Goods for Sale?
One of the great things about logistical outsourcing is that your logistics partner may have other goods in their warehouse your business can begin to sell to expand your website’s range. This not only increases your business’s income, your logistics partner doesn’t have to make radical changes to accommodate your new line of goods as they already have them in their warehouse.

Will you Sell Digital Goods?
If your business intends to sell digital goods because of the copyright and Digital Rights Management issues you will have to address, using a third party to handle the logistics is a good option. They can not only handle the payment and delivery of your digital goods, but also deal with customer services queries as well.

Are you Testing a New Range of Goods?
As your business grows you may want to test a new market with a new product. In this case handling the logistics in-house may be more cost effective in the short-term until you are sure that a full rollout of your new products is going ahead. You can look for at logistics outsourcing for these new goods once they have proven themselves in the marketplace.

Logistic services are the last component in the relationship you have with your customers. Research has indicated that consumers put a great deal of importance on how fast and efficient an online business handles its deliveries. The faster and more efficient you can make this component of your online business the better.

Think carefully about your logistics. In-house may be your first thought, but do you have the infrastructure and manpower to maintain an efficient logistics service? If not, the extra cost of outsourcing your logistics may be well worth it to maintain a high level of customer satisfaction.

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