Although more and more eCommerce sellers are moving to a third-party logistics (3PL) model, fully outsourcing your fulfillment isn’t always feasible. Often, retailers have slow-moving, low-profit, or other complex inventory that’s difficult or costly to shift to 3PL.
In these scenarios, hybrid fulfillment allows retailers to offload some of the burden of logistics where it makes sense. At the same time, this method either finds specialty partners to handle other specific fulfillment needs or retains those capabilities in-house.
Hybrid fulfillment also offers numerous benefits: You’ll be able to better manage costs, you’ll have the fallback of a dependable warehouse in case your partnership hits trouble, and you won’t have to rely completely on any one solution.
What is hybrid fulfillment?
In short, hybrid fulfillment is the process of employing more than one fulfillment option or logistics provider to ensure timely deliveries. Many Amazon sellers have embraced this approach without realizing it: Those who fulfill with a 3PL and FBA, for instance, are leveraging hybrid fulfillment.
This method also entails in-house operations, a series of external providers, and solutions like FBA to create a best-fit or lowest-cost scenario for your fulfillment. For example, you may have in-house warehousing for low-margin items (e.g., low sales/small margins) where you want to keep the SKUs but can’t afford to move them to your fulfillment partner (such as if you sell replacement parts for model airplanes). In-house storage also lets you hold your slow-moving stock to decrease long-term warehousing costs. Meanwhile, you can shift faster-moving SKUs to a 3PL.
Alternatively, you could leverage multiple 3PL partners based on their geographic coverage, their rates for different types of items, and even how they store inventory. Another option is channel- or marketplace-specific fulfillment, like FBA, which can help you satisfy the specific requirements of various platforms (e.g., qualifying for Amazon Prime customer service).
Why hybrid fulfillment is vital for brands
Hybrid fulfillment can complicate your logistics, so why add more moving pieces to an already complex process? The answer: increased resilience, improved buyer experience, and better options to manage costs.
Hybrid fulfillment makes your logistics more resilient
Hybrid fulfillment enables distributed fulfillment, where you strategically allocate inventory to locations based on demand. This way, if something goes wrong, you’ll always have other nodes that can fulfill the order — the customer will never know there was an issue.
Hybrid fulfillment reduces supply chain issues
Spreading inventory can mitigate problems in the supply chain as well. Should you stock out on FBA for example, your FBM listing will kick in and ensure you continue to make sales.
Storing inventory in different locations also means you’ll have more stock in general. That can earn you longer lead times in case your manufacturer runs into issues, or you’re otherwise unable to replenish stock as quickly as you’d like.
Hybrid fulfillment enables faster, more affordable shipping
Hybrid fulfillment can lower fulfillment costs in several ways:
- Optimize inventory placement based on the fulfillment provider (some charge extra for large or heavy items, others cost more for customization or bundling, etc.)
- Place inventory closest to demand so you can use ground shipping and make tight delivery windows
- Decrease 3PL expenses by keeping slow-moving inventory in your own warehouse to reduce long-term storage fees
- Offload sales to a 3PL during peak seasons to avoid costly temporary hires
- Leverage large fulfillment providers to cut the cost of shipping and packing materials without also relying on them for fragile or specialty fulfillment
If you can leverage 3PL providers for the bulk of shipping while keeping low-margin or special preparation items in-house, you can lower costs significantly. In addition, once you understand your network, geographic distribution of sales, etc., you can strategically distribute inventory to manage total expenses.
Hybrid fulfillment creates a better buyer experience
On a broader scale, hybrid fulfillment delights customers with its reliable, fast, and affordable shipping — all while protecting your bottom line.
How to execute hybrid fulfillment
Making the move to hybrid fulfillment requires thorough planning, implementing a strategy, and choosing 3PL partners that meet your specific needs. Often, the process starts with an inventory and fulfillment analysis to determine those needs.
Consider: If you already use a 3PL, do you have inventory that costs too much to maintain in third-party warehouses? Can you cut it, or would it be better to move it back to your own storage?
If you rely on in-house warehousing, what are your biggest problems? If keeping up with demand causes you trouble, relocating your fastest-moving inventory to a third party would resolve most of those issues.
You’ll also want to look at fulfillment requirements such as your geographic distribution of orders. If you can pinpoint hotspots for orders, finding a 3PL provider with either global distribution or warehousing central to that area can reduce costs.
SKU distribution strategy
It’s also important to establish a SKU distribution strategy before choosing a 3PL. That’ll help you decide what you need from a partner. For example:
- Each SKU has one fulfillment method/company
- Each channel has one fulfillment method
- Each geographic region has a specific fulfillment method
- You use different fulfillment methods for the same SKUs based on geographic region, proximity, or stock
Often, the latter is the most practical in the long term but only becomes feasible once you have a reliable central data repository in place to manage all of your information. It’s imperative you’re able to update inventory across fulfillment providers and in as close to real time as possible; this is mandatory to manage the complexities of distributing one SKU across all fulfillment options and completing orders based on real-time logistics.
One potential solution is to adopt inventory management software to act as a data center, unifying all of your nodes — whether in-house or outsourced — to prevent errors like selling out, sending items twice, or overselling. As a bonus, you’ll also be able to track item profitability on a SKU-by-SKU basis, measure performance on a partner level (e.g., which 3PL, marketplace fulfillment, or in-house warehouse is the most/least profitable?) with centralized data.
- Cost of fulfillment per geographic region/fulfillment method. If one 3PL has a local warehouse, it’ll probably cost less to ship orders from their location to that region.
- Throughput/Rate of sale versus cost of storage. If items cost too much to store, you probably want to keep them in-house.
- High inbound costs. Establishing new inventory for seasonal items can be expensive, so you may want to store short-term seasonal items internally.
- Peak periods require significant planning, especially if you use multiple providers. Often, you’ll want to offload as much during peak sales periods as you can, but that’ll likely mean choosing your 3PL partners carefully.
No fulfillment strategy is ever complete. You’ll want to revisit your strategy, partners, and inventory distribution as you collect data, grow, and gain more insight into what’s profitable and what isn’t. Fulfillment is a continuous process of tweaking, checking for improvement opportunities, and tweaking again based on your data findings.
Wrapping up – Embrace hybrid fulfillment to fortify your logistical network
Hybrid fulfillment lets brands step away from dependence on a single fulfillment partner, move low-cost items in-house, and guarantee a strong network of fulfillment nodes in case something goes wrong at one location. In the long term, this builds network resilience to maintain a consistent and seamless customer experience while reducing costs on the back end.