HOW TO KNOW IF ITS TIME FOR YOU TO OUTSOURCE YOUR ORDER FULFILLMENT

Choosing a Warehousing and Fulfillment Partner

Choosing a warehousing and fulfillment partner can be an overwhelming experience.  Oftentimes, it is the last thing that a company considers before launching a product.  But making this decision doesn’t have to be difficult.  And with a little thought during the planning stages, companies can make the best decision for all of their warehousing and fulfillment needs.

Analyze Your Needs

In order to make the most informed decision, a company must have a thorough understanding of its warehousing and fulfillment needs.

• Geographic Needs - One critical factor to consider is the geographic needs of your business. Is it important that your warehousing or fulfillment partner is located close by?  Will you be shipping all throughout the country or world? Where is your manufacturer located and how does that relate to your geographic requirements?
• Technological Needs - Second, a company must explore its needs related to technology. Do you have a web store in place currently? If not, what are your technology needs? Web stores range from very basic (with low monthly costs) to complicated and highly customizable (with larger up front costs). Furthermore, the reports that accompany your web store are vital to making the most informed decisions. Does the web store offer real-time reporting? Finally, if you already have a web store, does the warehousing and fulfillment company have an interface to download orders, send out tracking information and offer inventory reports?
• Specific Types of Fulfillment Needs - Third, warehousing and fulfillment companies usually specialize in certain types of projects. For example, some companies are quite proficient at e-commerce fulfillment, while others focus on B2B projects. Finding out what types of verticals potential warehousing and fulfillment providers specialize in will assist you in selecting one that best suites your needs.

Compare Warehousing and Fulfillment Companies

Taking the time to search for a quality warehousing and fulfillment company is an important step in the process. WarehousingandFulfillment.com makes it easy. Simply fill out a quote request form and receive up to 5 responses from quality warehousing and fulfillment vendors.

Of course, knowing what to look for will ensure a successful choice. Use the tips below to make the best decision on a warehousing and fulfillment vendor.

• Obtain a list of all warehousing and fulfillment charges
• Determine how many customers the warehousing and fulfillment company has
• Ask how many locations are under management and where they are located
• Ask for references from existing customers
• Check the vendor’s BBB rating
• Obtain a tour of the facilities
• Obtain a demo of all technology systems and reports
• Ask for an understanding of the processes and procedures of the vendor
• Ask for historical error rates of the warehousing and fulfillment company
• Gain an understanding of the customer service support mechanisms of the vendor

Make the Best Decision

By taking the time to understand your needs and the capabilities of each warehousing and fulfillment prospect, you will be able to make the most informed decision. Remember, the back end storage and distribution of your product is an important part of your business that deserves adequate time and consideration.

An Amazon order fulfillment warehouse near Milton Keynes, U.K. has everything you can think of and then some (Click Image To Enlarge)

What do Fulfillment Companies Charge?

One of the most frequently asked questions about warehousing and fulfillment is “what do fulfillment companies charge”? Of course, this is somewhat of a complicated question to answer, but those new to “fulfillment” could benefit from a broad idea of the types of charges that they’ll encounter should they decide to outsource their fulfillment.

We understand that in order to decide whether you should do fulfillment in house or outsource, you have to have an idea of the costs of third party fulfillment. Before we elaborate on some of the more common charges, we wanted to give you a few words of wisdom when comparing costs. First, when comparing to the costs of doing it in house – make sure that you’re looking at all of the costs that you’ll incur to do the fulfillment in house. This means that you can’t ignore things like management time and the most commonly overlooked cost – opportunity cost (what you could have done with your time had you not been, for example, on the warehouse floor shipping packages). Second, when comparing costs among various outsourced fulfillment companies, make sure that you’re comparing apples to apples. This is a very difficult task, because for some reason many fulfillment companies like to make things extremely complicated! But beware, because what seems like good pricing at first glance may not be the best option when you look at all of the fees.

Okay, so on to the most common fulfillment charges! These are the most common types of charges that you’ll see in the fulfillment industry. If after looking at these charges you’re interested in getting “live quotes”, then just let us know and we’ll get you connected.

• Receiving to count and enter your materials into inventory (each time they receive inventory)
• Storage of goods per pallet per month (or square footage or cubic footage)
• Processing of orders either a flat per order fee OR a per order fee combined with a per item fee
• Shipping charges (usually a discount off of published rates – and most likely better than you’d be able to get on your own)

There are other fees that vary from company to company – such as account management, fees to interface with a shopping cart, returns fees, etc. Remember, keep a close look on all of the charges when comparing costs – not just between fulfillment options but also when you’re comparing against keeping it in house.

Click Image To Enlarge

Click Image To Enlarge

Is Fulfillment Right for a Start Up or Small Business?

Each month, quite a few start up and small businesses are looking to find information on whether or not it makes sense for them to use outsourced warehousing and fulfillment services. Usually, they’re looking for the costs of fulfillment services to see if they can afford to use them. There’s really a few good reasons to do the warehousing and fulfillment internally to start. And we believe there’s one good reason to outsource from the very beginning. Let’s explore the options…

There’s really two good reasons to not use outsourced warehousing and fulfillment services as a start up.  First and foremost, if your core business involves distribution or if you believe that the logistics are so important and critical that you cannot outsource, then by all means keep it in house. However, most companies don’t fall into this bracket. Secondly, we totally understand that your start up may be constrained by capital, and therefore you may not have the funding to be able to use a fulfillment service. In this case, the only option is to use your own labor – which, by the way, isn’t FREE!

Which brings us to our last point – why we believe that many small businesses would be best suited by outsourcing fulfillment. If fulfillment and warehousing aren’t your core business and if you at least have enough money that outsourcing is an option, we believe that it can be the best option for you. Why? Because of that beautiful thing called “opportunity cost.” A lot of small business owners like to have control over all aspects of their business. But by keeping control of the fulfillment and therefore processing orders yourself, you lose valuable time that could be spent elsewhere – like in sales and marketing.

It is absolutely true that the biggest problem that most companies will face is a “sales problem.” And by sales problem, we mean not enough sales! Think of it, what inhibits you most in your business? Not having enough funding (or sales) to expand and do what you need to do to run the business the best way possible. By getting the warehousing and fulfillment of of your shoulders, you’re much better suited to spend time where it needs to be spent – in growing the business. And if you’re not growing as a business, you’re shrinking.

Nonetheless, if you do want to compare costs of outsourcing versus the costs of performing the warehousing and fulfillment in house, here are a few pointers to keep in mind:

• Labor Costs: Be sure to total up all of the labor costs of everyone doing warehousing and shipping related work – including management time spent. Oftentimes, the president or owner doesn’t factor in the time that they spend on shipping issues. Total up all of these costs and compare them to the outsourced costs for pick and pack fees, returns fees, and customer service fees.
• Storage Costs: This comparison is relatively straight forward. Compare the costs of your space (even if it’s in your garage – because there is a cost associated with this space) with the costs an outsourced company will charge for space – whether it’s square footage, per pallet, or cubic footage.
• Shipping Costs: This is one of the greatest areas of potential for outsourcing. Fulfillment companies ship a lot of products, so they get great shipping rates. By working with a fulfillment company, you’ll potentially be able to receive larger shipping discounts – which can add up quickly. Ask the fulfillment company what discounts you’ll get by shipping on their account, and then compare that to your current shipping costs.

Finally, don’t underestimate the opportunity costs discussed earlier. A small business owner’s time is worth a lot of money. Spending time in other areas of the business outside of shipping may add more value long term for the business.

What’s the Best Location for a Fulfillment Company?

Many small and medium sized businesses are searching for a fulfillment company to store and ship their goods for them. But determining where the fulfillment company should be located can be a great challenge. Of course, most businesses would prefer for a fulfillment company to be located right down the street. This way, they can easily travel to them to check on stock and in case there are any issues. While this isn’t a bad strategy to employ, looking at the world this way could also lead to missed opportunities.

First and foremost, finding a fulfillment company right down the street doesn’t necessarily mean that they’re going to be the best fit for your business. There are so many other factors that mean a great deal when considering who to choose to perform your outsourced warehousing and distribution. Other things could have a big impact such as the specialty of the fulfillment company and their pricing. For example, most people wouldn’t know this because most third party fulfillment firms tell you that they can do “any” project, but the reality is that most fulfillment vendors focus on certain types of clients. Some are really good at e-commerce fulfillment, others are really good at retail fulfillment to retail stores. Furthermore, there are some really good fulfillment companies that offer great service and some of the most competitive pricing, but if you won’t consider anyone outside of your city, you might miss on these potential cost savings.

Second, a huge indicator of costs involved in any fulfillment project is shipping. If you choose a fulfillment company right by your company, it may or may not be the best decision to lower your overall shipping costs. Two factors come into play when making this determination – where your product is manufactured and where your customers are. For example, if your product is produced in China and most of your customers are in California, then it would make sense to located a company in or near a major port in California. And for many companies that ship to customers all across the US, finding a fulfillment company that is centrally located may be the best option.

As you can see, this is no easy decision. But taking into account all of the factors, instead of just looking at convenience, will lead to the best decision overall for your company.

Warehousing and Fulfillment Pricing Tips

Looking at a pricing proposal from a warehousing and fulfillment vendor is akin to browsing the statutes of a typical homeowners association. Although it may be a good solution for sleep troubles, reviewing the pricing proposals of warehousing and fulfillment companies should be done with great care and diligence.  Below are some tips to help avoid some of the challenges of warehousing and fulfillment pricing.

• Make sure that the warehousing and fulfillment vendor has listed ALL costs
• Beware of monthly minimum charges
• Ask for volume discounts that are available for higher volume order processing and storage
• Determine all monthly fixed recurring charges
• Ask if the handling charges can be rolled into your product costs and make sure that you are comfortable with the resulting net profit
• Ask if the vendor makes margin on freight
• Ask for referrals from current customers to make sure that costs don’t change after sign up
• Check the vendor’s BBB rating
• Make sure that everything is documented in a contract

Taking a few precautions when looking at warehousing and fulfillment proposals can help in avoiding unncecessary troubles, and can lead to a long-term agreement that works for both sides.

COMMENTARY:   Excellent advice on how to determine if you should keep your order fulfillment inhouse or outsource it.

When looking for an order fulfillment center it is important to pay close attention to their cost structure. Many clients have come to us expressing frustrations with their current order fulfillment centers. Confusion about what they are actually being charged for and hidden fees are not uncommon. When looking at outsourcing your order fulfillment it is important to know what to expect. Some common costs that you may see include:

• Storage fees 
• Order charges 
• Line item charges 
• Receiving charges 
• Kitting and assembly charges  
• Monthly minimums 

Monthy minimums are particularly important especially if your business is highly seasonal (e.g. toys, seasonal apparel, pool supplies, etc.).   Ask yourself whether its wise to pay for a monthly minimum when you are not warehousing any inventory during the off-peak part of the year.

It is very important that you know your direct and indirect costs of fulfilling orders inhouse versus outsourcing all order fulfillment.  Some costs are fixed and will continue to be incurred by a business even if  all order fulfillment is outsourced.  For example, you can eliminate warehousing and storage costs, but if you were renting your warehouse space, you may still be required to pay the monthly rent on the vacant space, or may have to negotiate a costly lease buyout with the landlord.   You need to factor that fixed cost into your total order fulfillment oursourcing decision.

If you own the building, the costs of the former warehouse space may continue to be incured and they should be factored into the analysis:  

• Monthly payments on the outstanding mortgage 
• Insurance 
• Taxes 
• Utilities
• Maintenance

In addition, if you intend to convert the former warehouse space into usable office or retail space or other use, you may incur significant buildout costs.  It is also very likely that you will have a lot of unused warehouse shelving, packaging and shipping equipment left.  You will need a plan to dispose of these items and estimate the disposal costs.   Factor those costs into your final order fulfillment outsourcing decision.

It is extremely important to have a clear understanding of what you are being charged for before entering into an outsource fulfillment agreement.

Pricing can look overwhelming when looking at quote sheets, but there are in fact several advantages to outsourcing your order fulfillment. In most cases, companies can save a significant amount of money even for small companies. The cost of the systems necessary to handle inventory and order fulfillment effectively can be extremely expensive. For that reason alone, many companies come to us looking for a solution. Other cost savings can be seen with freight and personnel. Since order fulfillment centers are constantly shipping, they often have negotiated rates with freight companies that give them large discounts that they can pass on to their clients.

When it comes to personnel, paying a salary for one person to handle your order fulfillment is probably costing you over $30,000 conservatively. That $30,000 can go a long way when using outsourced fulfillment services. Order fulfillment centers normally have the ability to scale up and down with temporary employees which gives your company more flexibility to focus on growing business without the worry of hiring and firing personnel.  And, as noted above, don't forget opportunity costs.  Your time is valuable, and you will still be responsible for supervising and overseeing the fulfillment service function.

If outsourcing order fulfillment is not a good option due to the costs or other issues, you may wish to consider drop shipping.    Some suppliers will drop ship your orders for you, but will charge a shipping and handling charge.  Drop shipping works best if your inventory list is very small (10 items or less), you are buying from just a few suppliers (1 to 5) and you are shipping to customers within the U.S.  You will still be required to take the order, notify and pay the supplier for each order.   You must also insure that the supplier is reliable, can handle the volume and has an adequate fulfillment and tracking system in place that will notify you and your customer when each order is fulfilled.  

It is very important that you checkout the fulfillment companies you are interviewing carefully. Find out how long they have been in business, whose on the management team, how many employees they have, how much insurance they carry and what is covered, security systems in place, order processing and fulfillment systems used, and the size, number and locations of their fulfillment warehouses.   Get references of both past and present customers and check them thoroughly   If you can personally visit the fulfillment warehouses, I encourage you to do so, in order to determine their exact location, how clean and well organized they are and how well your inventory will be maintained and protected.      

CompanySeek.com prepared a fairly comprehensive list of order fulfillment companies.  You can find that list by clicking HERE.

Courtesy of a whitepaper dated March 27, 2012 by WarehousingAndFulfillment.com

 

Comments

[Adrienne Mahaffey]

Thank you for sharing. Great article by the way.

[Billie Robinson]

When you have a business as big as the one on the picture, you should not have double thoughts in ordering out sources. It is just normal to have it.

[Tommy]

Tylerm

Thank you for your feedback. Look forward to having you visit my blog regularly. Tommy

[tyler]

Great post and very informative. This is a big question for many businesses. Outsourcing warehousing can save considerably as opposed to trying it handle it in house.

[Niamh at Norfolk storage]

Informative post at all. there is a question occurred in my mind that how much they offer discount on published rate.