Understanding fulfillment as a service (FaaS): When does it work for brands?

understanding faas

Every up-and-coming e-commerce brand knows that the time will come when fulfilling orders in-house is no longer practical or cost-effective. The question is: What is the next logical step?

While outsourcing e-commerce fulfillment frees up time and resources for brands to focus on other parts of their operation, the wrong fulfillment partner can create more stress - and costs - for your business.

In this blog, we're going to explore the pros and cons of fulfillment as a service (FaaS) and how this differs from partnering with a third-party logistics (3PL) provider.

What is Fulfillment as a Service? (FaaS)

Fulfillment as a service (FaaS) is a type of outsourced fulfillment where ecommerce businesses can pay for different fulfillment services on an as-needed basis, according to a set menu of pricing. Common services include storage space, picking and packing, and shipping. FaaS is the natural next step for businesses that are struggling with in-house fulfillment and want faster delivery speeds.

FaaS is typically practiced by retailers with extremely large fulfillment operations and a lot of in-house expertise, allowing them to offer fulfillment services using their own warehouse network and labor force and as an additional source of revenue to online sales.

Amazon offers one of the most successful examples of fulfillment as a service. In addition to substantial earnings from Amazon sellers listing on the site, Its Fulfilled By Amazon (FBA) program is the go-to fulfillment partner for merchants. A whopping 94% of Amazon sellers use FBA to fulfill orders, making it one of the most popular ecommerce fulfillment methods.

What makes FaaS different from a 3PL?

At first glance, fulfillment as a service can appear almost the same as partnering with a third-party logistics (3PL) provider. Both allow ecommerce businesses to more easily meet customer expectations by outsourcing the order fulfillment process to better-resourced fulfillment centers. However, there are a couple of key differences between 3PLs and FaaS providers:

Fulfillment costs

Typically, a FaaS provider will offer brands an all-inclusive pricing structure for their fulfillment costs, depending on the weight and dimensions of the products being stored/shipped.

For example, Walmart splits its fulfillment pricing into two fee types: storage and fulfillment, which also includes shipping costs. This setup is an obvious benefit to brands who are new to outsourcing fulfillment services, as it's easy to understand and requires little experience in ecommerce logistics.

3PL pricing is a little more complex because it's usually custom-tailored to a brand's specific needs. Rather than all-inclusive pricing, fulfillment companies will itemize every action that takes place in a fulfillment center, from picking and packing to labeling. Aside from the order fulfillment process itself, there may also be additional fees, such as onboarding, client management, or integration costs.

Focus on last-mile delivery

FaaS providers are usually oriented around the last mile of delivery, taking advantage of nationwide warehouse space to shorten delivery timeframes to customers. This is a key selling point for brands who are managing fulfillment in-house, as the FaaS model allows them to increase customer satisfaction via quicker delivery and compete more effectively with other e-commerce businesses.

While 3PLs are also focused on lowering last-mile delivery costs and timeframes, they do a lot more than just getting orders from A to B. A 3PL partner is focused on supporting sustainable business growth through initiatives such as value-added services, custom technology integrations, and intelligent shipping strategies, which are often beyond the scope of a FaaS provider.

Pros of fulfillment as a service

It's easy to get started

The barriers to entry to partner with a FaaS provider are relatively low because their services as designed to accommodate as many brands as possible. For example, any seller on the Amazon marketplace is eligible to use Amazon FBA to fulfill orders. All merchants have to do is sign up to FBA and specify what inventory they want to store before shipping it to the allocated fulfillment center.

You don't need to have high order volumes

One of the challenges that an emerging ecommerce business faces as they grow is having too many orders across sales channels to fulfill comfortably in-house - but not enough to qualify for a partnership with a big 3PL.

For brands who are stuck in this no-mans-land, fulfillment as a service is an incredibly useful asset to help your brand scale effectively and maintain a positive customer experience.

You can run a hybrid fulfillment approach

A one-size-fits-all approach to fulfillment is rarely successful to meet today's customer expectations. With brands now operating multiple sales channels, it can be difficult to find a provider who can effectively manage every fulfillment service you require.

One of the major benefits of FaaS is that businesses don't have to choose between one fulfillment model or another. For example, you may choose to have online orders fulfilled by a FaaS provider, while managing BOPIS orders in-house.

Cons of fulfillment as a service

Limited customization options

While fulfillment as a service is easy to get off the ground because it's a generic set of services, brands may find that they outgrow their FaaS provider's capabilities. Fulfillment services such as custom packing rules, specialized packaging, or product kits are frequently unavailable within FaaS models because they are expensive and require more manpower to execute. This gives your business less control over your chosen fulfillment method and makes it harder to differentiate your brand.

Lack of account support

Because FaaS providers are in the business of providing the same services to all their customers, brands are unlikely to get dedicated customer support. This is especially common at low-cost FaaS services, which often don't include services like account management in order to keep their prices affordable. However, this makes it more difficult to get assistance when experiencing issues with shipping speed or damage to orders during transit.

One-size-fits-all pricing

While fulfillment as a service offers predictable pricing for brands, it's also not tailored to the unique characteristics of your business. This means you can end up spending more on certain services than you need because pricing isn't set according to the labor/resources your brand requires.

What to look for in a long-term 3PL partner

Fulfillment as a service is a great option when brands are beginning to scale and require more support to get their orders fulfilled. But once you start requiring specialist services or more dedicated customer support, it's unlikely that a FaaS provider will have the resources or flexibility to develop a custom fulfillment plan that is dedicated to your needs.

This is where partnering with a 3PL is the next step to ensure a positive brand experience for your customers.

Manage fluctuating sales effectively. The natural ebbs and flows of the sales cycle can make it difficult to plan your fulfillment operation. A well-resourced 3PL has the flexibility and infrastructure to scale warehouse space and labor levels in either direction, ensuring that you don't get stung by paying for fulfillment services you don't need.

Create a custom fulfillment strategy. No matter whether it's fun promotional packaging or a custom product, a 3PL who is able to support these initiatives is a partner you can rely on in the long term as you look for more ways to innovate.

Future-proof your business as it scales. A 3PL partnership isn't just about shipping orders, but making sure that your brand has a clear pathway to sustainable growth and maximizing sales opportunities.

Ryder is a leading provider of direct-to-consumer e-commerce fulfillment services. Our high-performance operations are supported by its namesake e-commerce platform and a suite of advanced technology solutions, enabling the multi-channel connectivity required by today's retail landscape. Operating 25 distribution centers nationwide across more than 10 million square feet of space, Ryder brings emerging and established brands the scale and vision they need to grow and succeed.

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