You’ve probably heard of hybrid cars and hybrid work, but are you familiar with hybrid fulfillment? The principle is much the same: combine different things to try and get the best of both worlds.
Order fulfillment is one of the most complex, resource-intensive parts of ecommerce. And it’s not just a struggle for new businesses either. Fulfillment is one of the aspects of managing an online store that becomes more challenging as you scale. Any edge you can give yourself can make a massive difference to you and your customers.
Here’s a breakdown of exactly what hybrid fulfillment entails and how it can help you grow your business.
What is hybrid fulfillment?
Hybrid fulfillment is simply the use of multiple methods of order fulfillment. This approach brings more flexibility to your business, in that you’re not putting all of your eggs into a single basket.
While it might seem like a no-brainer, this is still a rare approach. Businesses often turn to outsourced fulfillment as a means of freeing themselves from the investment of time and resources required of self-fulfilling. They don’t want to have to think about fulfillment, focusing instead on other impactful parts of running their business, like marketing and customer support. Hybrid fulfillment does require a higher level of time and effort in planning and maintenance than outsourcing to a single fulfillment partner, but the upside may be worth that investment.
We’ll explore more of the pros and cons of hybrid fulfillment below.
Types of fulfillment
In-house or self-fulfillment
In-house or self-fulfillment is when a business fulfills their own orders from start to finish. This means storing inventory, picking and packing it as an order comes in, buying and printing shipping labels, and either delivering these orders or bringing them to a carrier for delivery.
This is how most businesses begin fulfilling ecommerce orders. When you only have a few purchases each day, it usually makes sense to own the fulfillment process. It’s cheaper to self-fulfill a small number of orders, and you maintain full control over your inventory.
But as your order numbers grow, in-house fulfillment can quickly eat up more and more resources. You may need to pay hefty costs to rent warehousing space to store your inventory and to pay employees to undertake all of the picking and packing. And you’ll likely invest a ton of time into the process, dealing with everything from buying materials to managing returns. Most businesses reach a point as they scale when outsourcing just makes sense.
Outsourcing fulfillment to a third-party logistics company (3PL) can free you from the burden of storing inventory, picking, packing, and shipping orders, and dealing with returns. It’s a quick way to regain time and resources that you can use to grow other parts of your business. Of course, outsourcing comes at a cost, but so does self-fulfilling.
There are a number of advantages to using a 3PL beyond simply not having to do the work.
- Lower shipping costs. As a high-volume shipper, a 3PL typically will negotiate preferable rates from carriers, savings that are passed on to you and your customers. This could also allow you to ship to more cities, states, and countries—maybe even the entire world!
- Faster shipping speeds. Speed is important when it comes to keeping buyers happy. Thankfully, 3PLs take advantage of modern technology, highly trained teams, and strong carrier relationships to ship your orders much faster than you would typically be able to do yourself. A supportive 3PL will also distribute your inventory across its warehouse locations, bringing your inventory closer to your buyers to speed up delivery time.
- Transparent, accurate shipping times. For your customers, knowing exactly when an item will be delivered might just be the extra push they need to click that Buy button. When you’re fulfilling your own orders, you may be impacted by holidays, staff shortages, and more. But your 3PL will never take a day off, and it’s bound by the terms of your service-level agreement. So, having a fulfillment partner allows you to provide your buyers with accurate shipping times at checkout.
All these advantages should help you attract more customers and keep them happy.
And if you use Shopify Fulfillment Network, an end-to-end logistics solution built specifically for Shopify merchants, you have the added bonus of being able to track everything directly from within your Shopify store. This makes it easy to get started and easy to follow orders as they’re delivered. It’s hard not to like that!
Dropshipping or print-on-demand
Dropshipping has risen massively in popularity in the past decade. Essentially, it entails a complete separation of the supply chain aspect of your business from the marketing or sales side. When someone places an order from your store, that order is automatically sent to a supplier, who then packs it up and ships it to the customer.
The advantage of dropshipping is clear: you don’t need to invest any money upfront for inventory or worry about anything logistics- or fulfillment-related. The downside is that in not touching any part of logistics, it’s not easy to provide quality control or customer support. You’re putting a lot of trust in the supplier. Also, many dropshipping businesses rely on suppliers in Asia or South America, which, if your customers are in Europe or North America, can mean slow shipping times.
Print on demand takes the dropshipping model to the extreme. Where in dropshipping the inventory typically already exists and is picked and packed when a supplier receives an order, with print-on-demand the inventory isn’t created until that order is placed. A print-on-demand company will manufacture the item when it is purchased and then handle the fulfillment. This approach is typically used for clothing businesses or art, but is becoming more wide-reaching, thanks to 3D printing.
Approaches to hybrid fulfillment
Much like there are a number of different fulfillment methods, there are an exponentially higher number of ways you can mix and match them. How you approach hybrid fulfillment should result from a comprehensive examination of your business, including your inventory (size, type, SKU count), your market (location, typical cart size), your finances, and your goals.
Broadly speaking, here are the main ways you can approach hybrid fulfillment:
- Use different fulfillment methods for different SKUs. This is arguably the easiest approach to hybrid fulfillment. You and your fulfillment partners have a different set of SKUs that you each fulfill. Maybe you want to handle fragile or expensive inventory yourself while sending your high-volume, low cost items to a third party. Because you’re each only responsible for a subset of what you sell, it’s a fairly straightforward split of the work. Things can get complicated if a customer’s order includes SKUs being fulfilled in different ways. This can lead to multiple shipping labels and fees and a fragmented buyer experience.
- Use different fulfillment methods for the same set of SKUs. This approach comes with a few more challenges. Imagine your business is on the East Coast and you’re working with a fulfillment partner on the West Coast. You each handle shipping for one geographic area in the country. This requires a bit more coordination and organization, but is still a common way to use hybrid fulfillment. The challenge here is how you address issues or product shortages in one location or through one method. For example, you might find yourself trying to self-ship across the country, missing your delivery deadlines.
- Use overlapping fulfillment methods for some SKUs but not for others. Imagine you sell hats through your store. You decide you want to use one partner to fulfill beanies and another partner to fulfill baseball caps, but you want both partners to fulfill visors. This approach requires a lot of coordination and planning. You need to ensure that the various fulfillment providers can communicate with one another and that the boundaries and priorities dictating who owns what are crystal clear. Ultimately, there are very few situations where this approach is beneficial to you or your customers.
Just so you know, Shopify Fulfillment Network supports all of the above approaches to fulfillment.
How to choose what inventory to send to fulfillment partners
So how do you decide what inventory to fulfill yourself and what to entrust to a partner? Here are a few factors that should help you decide.
First, there’s proximity to your buyers. Revisiting that hat company example, if you’re located in Vermont and you use a 3PL based out of Florida, it might make sense for you to fulfill beanies while they tackle visors and baseball caps. This could lead to faster shipping speeds for both you and your partner. Of course, don’t just assume that more people in colder climates want more beanies. Use your historic sales data to see whether you can identify patterns in terms of which SKUs are being purchased by customers in what geographic areas. Shopify Fulfillment Network actually does this for you—identifying optimal warehouse locations and distributing your inventory based on previous Shopify sales data.
Second, consider the cost of fulfillment between all approaches. We’re not just talking about the cost of shipping here. What are the secondary costs to consider with each approach? Does your 3PL partner charge more for certain types of returns? If you run an apparel business, for example, how expensive is it for your 3PL to restock a returned t-shirt versus a returned wedding dress?
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)
Finally, consider the volume and complexity of each SKU. Do you sell a luxury or high-value item that only gets purchased once per week? It might be worth self-fulfilling that or even using a dropshipping model if your supplier allows. Meanwhile, you’ll likely want to outsource fulfillment of that shirt that you sell 100 times each day. And do you have any items that require assembly or some other type of special treatment before shipping? Again, that’s probably something you want to do yourself. Generally speaking, the simpler the item is to pick and pack, the better suited it is for outsourced fulfillment.
The pros of hybrid fulfillment
Perhaps the biggest pro of using a hybrid approach to fulfillment is the flexibility it brings. In using multiple methods, you’re never locked into a bad situation. If you’re unable to fulfill orders because your printer breaks or your warehouse is out of stock, your 3PL or dropshipping partners can still serve many of your customers. If you can’t handle the uptick in orders for Black Friday, you can adjust and shift more responsibility onto a fulfillment partner.
As your business grows and changes, hybrid fulfillment means you have more open doors to walk through to find the right fit. And this flexibility is also reflected in how much you spend. The hybrid approach lets you find the cheapest option for each situation and each SKU.
With flexibility comes greater durability—your business’s ability to withstand all the challenges thrown at it to succeed in the long run. With multiple fulfillment methods, you can more easily pivot in response to issues, because you always have a backup plan.
You’re probably not able to afford a bunch of warehouses all over the country or in multiple countries. In partnering with 3PLs, you can widen your network of fulfillment locations. In doing so, you’re able to bring inventory closer to buyers no matter where they are. This proximity leads to faster delivery times—often two days or less—and happier customers.
The cons of hybrid fulfillment
There’s no denying the obvious downside of hybrid fulfillment: complexity. When you’re using multiple methods and multiple partners are involved, each with their own systems and tools, it can be a lot of work just getting everything up and running. You need to ensure that communication is happening at all times, that orders are getting pushed out the door, and that your customers’ questions are being answered. It’s a lot easier to track fulfillment when it’s all happening in one place. With two or three (or more!) methods in the mix, you may feel like you’re investing more time on coordinating everything and tracking down information.
When you use different fulfillment methods, they’re not all going to have the exact same performance.
You might self-ship orders slower than your 3PL can. And your dropshipper might take weeks to ship an item to your customers. And maybe you like to do custom packaging inserts in each box, but your print-on-demand supplier doesn’t support this feature.
This inconsistency isn’t a deal breaker, but it can be a source of frustration for detail-oriented entrepreneurs trying to build a consistent ecommerce experience.
Is hybrid fulfillment right for you?
If your top priorities are flexibility and speed or you want to bring in a partner but not hand over complete control, hybrid fulfillment might be exactly what you’re after. Or maybe after reading this you’ve realized that the simpler approach using one fulfillment method is better suited to your needs.
Either way, Shopify Fulfillment Network can help you find the perfect mixture of fulfillment methods for your store. We’ll increase your shipping speeds and help you grow your business, while taking time-consuming order fulfillment off your plate.