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Hybrid fulfillment: What is it and will it work for your business?

Illustration of three people: one person catching a shipping box floating from above with a parachute; one person scanning shipping boxes; and one person fulfilling orders using a locusbot.

It’s 2022. And despite the amount of technology we have available to aid us with packing and shipping, fulfillment has never been more complicated.

Why? Because businesses are no longer faced with the decision of choosing one fulfillment method over another. The decision to practice self-fulfillment or to partner with a third-party provider has been replaced by the arguably more difficult question of whether you should consider incorporating both into your business.

That’s right; we’ve now entered into the era of hybrid fulfillment – and all the challenges and opportunities it presents.

A hybrid model of filling orders doesn’t just help brands keep up with the ever-changing demands of modern retail. With fulfillment costs rising almost as fast as merchants are keeping up with them, hybrid order fulfillment prevents merchants from being tied to only one strategy. Yet managing multiple methods of fulfillment across multiple channels is not for the faint-hearted; to reap the benefits, your business needs to be willing and able to keep up with the demands.

We’re going to cover exactly what hybrid order fulfillment involves, and what your business needs to consider, to decide whether a hybrid approach is right for your needs.

What is hybrid fulfillment?

Hybrid fulfillment refers to an order fulfillment strategy where a merchant uses more than one fulfillment model to fulfill and ship orders to the end customer. This includes any combination of in-house fulfillment, third-party logistics, drop shipping, and more

By using multiple methods of fulfillment and inventory management, businesses can give themselves greater flexibility over how they get orders from A to B. This includes optimizing shipping costs, speeding up delivery, and otherwise meeting customer expectations for seamless experiences across channels.

Types of order fulfillment

In-house fulfillment

In-house fulfillment, also known as self-fulfillment, is a fulfillment method where businesses have complete control over the fulfillment process, as opposed to outsourcing fulfillment to a third-party logistics provider or drop shipper.

A direct-to-consumer brand that is handling fulfillment operations in-house is responsible for all order fulfillment processes, including:

  • Storing inventory
  • Order processing
  • Packing and shipping orders
  • Reverse logistics
  • Customer care

A self-fulfillment model is the usual route for new e-commerce brands when their online store is newly launched. When order volumes are small, it’s much more cost-effective to handle inventory and fulfill orders in-house than it is to outsource fulfillment.

But most successful brands will reach a point where in-house fulfillment strategies can no longer keep pace with their growth and ever-changing market demands. When this happens, you need to consider outsourcing e-commerce fulfillment to an experienced order fulfillment provider.

Third-party fulfillment

A third-party logistics (3PL) provider is an external fulfillment partner who presents a stress-free approach to inventory management and logistics operations. 3PLs are in charge of providing the necessary warehouse space, managing order fulfillment for one or multiple channels, shipping orders, and processing returns using real-time data to streamline workflows and optimize costs.

A key advantage of 3PLs is that they that act as a nerve center which allows you to combine multiple fulfillment methods within one strategy. A third-party provider can assist you in determining the best way to divide up your SKUs within a hybrid model, how to move your inventory closer to the end customer, and which fulfillment models are the best fit for your needs.

Amazon FBA/MCF

Fulfilled By Amazon, also known as FBA, is an e-commerce fulfillment method where Amazon sellers use Amazon’s nationwide fulfillment and storage network to fulfill orders. Businesses send their inventory to Amazon fulfillment centers for storage. When a customer places an order, Amazon is responsible for picking, packing, and shipping that order in exchange for a storage and fulfillment fee.

In addition to FBA, merchants also have a multi-channel fulfillment method available to fulfill orders sold in non-Amazon sales channels. This includes non-branded packaging and native integrations with e-commerce platforms such as Shopify and Bigcommerce.

Drop shipping

Drop shipping is an order fulfillment strategy where an e-commerce business doesn’t store or own its own inventory. Instead, they sell SKUs belonging to another supplier or manufacturer, who is also responsible for fulfilling and shipping orders to the end consumer on the merchant’s behalf. 

Because it bypasses the difficulties of in-house fulfillment and managing storage space, drop shipping is a convenient way to scale up fulfillment operations without increasing your workload.

Because without facilitating order fulfillment, the only thing a merchant using drop shipping needs to worry about is facilitating actual sales. This frees up brands to be able to focus on their marketing and customer service strategies.

Hybrid fulfillment

Hybrid fulfillment is any fulfillment strategy where you are combining together all or some of the fulfillment methods described above in order to reach more customers or optimize costs.

For example, if you’re interested in using Amazon FBA to fulfill some online orders, your 3PL can assist you by sending inventory to Amazon fulfillment centers, while also receiving and storing other SKUs in their own warehouses awaiting fulfillment. Likewise, if you’re currently self-fulfilling orders and struggling to manage demand, choosing to have some of your product catalog be drop shipped is a great way to dip your toe in the water of outsourcing fulfillment.

Types of hybrid order fulfillment models

There are many ways that brands can organize their hybrid order fulfillment strategy depending on the desired outcome. But it’s worth considering that the more complex the strategy, the more time it will take to implement and manage:

Fulfill different SKUs using different fulfillment methods. Designating different product lines or SKU ranges for different fulfillment methods allows you to easily segment your inventory between providers. For example, you may decide to designate, low-cost higher volume SKUs for drop shipping to save on storage space, while fulfilling slower-moving SKUs yourself. This system makes it straightforward to keep track of who is fulfilling what. However, multi-item orders can become complicated if multiple fulfillment methods are involved, necessitating split orders. 

Fulfill the same SKUs using different fulfillment methods. If you’re a brand with a nationwide presence, it may be necessary to have multiple fulfillment providers managing the entirety of your product catalog, depending on where your customer is ordering from. For example, you may want to work with two different third-party logistics providers to handle orders placed on the east and east coast respectively.

Allocate overlapping fulfillment methods to some SKUs, but not others. Overlapping methods is useful in situations where you want speed to dictate which fulfillment method is used. For example, if a particular color of a garment is proving to be popular with your customers, you may decide to make the single SKU able to be fulfilled by several providers, while the rest of the colors are only available to one or two providers. However, this is an extremely complex system to manage, and you may find that the benefit of increased speed is negated by the time spent administering this system.

The benefits of using a hybrid fulfillment model

The ability to scale quickly

As their order volumes grow, many brands find themselves being hamstrung by the limitations of in-house fulfillment. As consumer demand grows, it becomes too inefficient or costly to continue self-fulfilling orders – especially if delays or errors in order fulfillment are becoming more frequent.

The decision to outsource fulfillment can be very daunting for D2C brands. It’s no easy thing to give up complete control over the fulfillment process and all of the opportunities for customer engagement it involves. Amazon and many standard third-party fulfillment providers do not offer any kind of value-added or customization services, which may be of considerable value to your business.

With a hybrid order fulfillment strategy, your brand can have the best of both worlds. For example, you could decide to fulfill orders belonging to loyalty program members in-house, allowing you to offer additional perks such as free examples and custom packaging that third-party fulfillment services cannot offer. 

Find faster, more cost-effective fulfillment methods

No matter how you spin it, fulfillment is easily one of the biggest running costs for e-commerce businesses. Storage space, shipping costs, packaging, and labor quickly add up, even with robust cost measures in place. In many cases, the only way for brands to incur significant cost savings is to do exactly what your customers do: Shop around.

Tying yourself to only one method of fulfillment only gives you one strategy to focus on, but because every order is different, you could end up missing out on the ability to optimize costs. For example, it’s much cheaper and quicker for you to fulfill local orders yourself, rather than sending them to your 3PL. However, wholesale discounts with major carriers mean that your 3PL will certainly get a better deal on cross-country shipping. By embracing hybrid order fulfillment, you no longer have to choose between the two. 

Offering customers multiple fulfillment options

Today, consumers don’t just care about speed; they also want the flexibility to choose which fulfillment method is right for their needs. For some, this isn’t going to be home delivery; the growing popularity of BOPIS and curbside pick-up, for example, is adding greater complexity to brands’ ability to meet consumer expectations for great service. 

Partnering with outsourced fulfillment options like Amazon can put these capabilities at your fingertips, even if you don’t have your own storefronts. Adding in-person pick-up options is also a great way to decide whether a brick-and-mortar presence would be advantageous for your business, without having to dive into the deep end first.

Achieve a more resilient supply chain

They say it’s never a good idea to put all your eggs in one basket. Anything from adverse weather to software problems has the potential to derail fulfillment temporarily, much to the chagrin of your customers. Taking a diverse approach to order fulfillment with multiple methods ensures that if you face problems in one channel, it’s possible for your business to pivot and divert new orders to a different logistics operation without skipping a beat.

Moreover, maintaining relationships with multiple fulfillment partners allows businesses to identify weaknesses in their fulfillment approach and where it could be a good idea to rethink their strategy.

The drawbacks of a hybrid fulfillment model

It’s more complex to manage. Although a hybrid approach to fulfillment gives your business more options, there are also a lot more moving parts for you to manage. Every fulfillment method has its own list of pros and cons, its own systems, and its own network of partners. Even when you aren’t coordinating the fulfillment process directly, keeping track of all of these workflows can take up a significant amount of time and energy.

It’s harder to make changes. If you pull a thread in one place, it can so easily unravel somewhere else. The same is true of a hybrid fulfillment strategy. These overlapping workflows have been carefully set up to complement each other and manage weaknesses in the supply chain, meaning that changes can have unintended consequences if not managed correctly.

Inconsistent customer experiences. When a customer makes a purchase within hybrid model, they have no idea which fulfillment method is going to handle their order. For example, drop shipping is typically a much slower fulfillment option than Amazon. Likewise, a well-resourced 3PL can assist you in adding custom inserts or branded packaging to your orders, something that isn’t possible in other channels. This means there can be a huge amount of variation in the customer experience they receive, which can affect brand trust.

Is hybrid fulfillment a good choice for an e-commerce store?

A hybrid fulfillment approach can be a great option for some e-commerce brands who don’t want to be locked into one fulfillment option. However, hybrid fulfillment works best for businesses who:

  • Manages large order volumes and needs to expand fulfillment capabilities quickly.
  • Has the ability to effectively coordinate a hybrid fulfillment strategy.
  • Want to be able to offer online-to-offline fulfillment options to their customers, such as store-based pick-up.
  • You are expanding your business and are looking for nationwide fulfillment coverage.
  • Wants to continue with in-house fulfillment but wants the ability to outsource some e-commerce orders.
  • You don’t have the ability to store large quantities of inventory yourself.

As consumer expectations rise for faster, more seamless delivery of their purchase, hybrid order fulfillment is a powerful strategy to give your business a Swiss-army toolkit of options to get orders from A to B. Put simply, more fulfillment methods mean more flexibility and more ways to cut costs while delivering memorable customer experiences. However, managing a hybrid fulfillment strategy is a big undertaking even for well-resourced brands; if you’re going to manage multiple fulfillment partners, it’s essential to have the right support.

This is why a reliable third-party fulfillment provider is a key ingredient to keep hybrid fulfillment running smoothly. An omnichannel 3PL like Ryder E-commerce By Whiplash can connect the dots between your fulfillment channels through seamless order management and technology integrations with a range of best-in-class retail solutions. Contact us today to find out how Ryder E-commerce By Whiplash can assist you in pioneering the perfect hybrid fulfillment strategy.

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