of you may be wondering why fulfillment companies exist in the first
place. Why would a company want to outsource this type of service?
answer is the same as why companies might outsource any kind of service. Each business has core competencies, and it
is rarely economical for a business to do everything themselves. From landscaping to tax preparation,
businesses find it much easier to let the pros handle certain things that
aren't central to their core competencies.
But if a business can produce and market a product, why not fulfill it
see why fulfillment companies bring so much value to the table, let's look behind the scenes to see what exactly fulfillment is. Basically,
a fulfillment company stores and distributes other companies’ products for them. On the B2C side, this can be just about
anything that can be ordered online, from apparel to books to DVDs to
electronics. On the B2B side, it might
range from marketing materials to any number of promotional products. It boils down to putting something in a box
and slapping a shipping label on it, right?
Storage Space –
you outsource your fulfillment, you only pay for the space you use. Space requirements tend to fluctuate, so
maybe this month you need 50 pallets worth of storage. Next month you may need 300, then the
following month 250. By outsourcing
fulfillment, you pay only for what you need.
On the other hand, maintaining your own space means there are fixed
costs regardless of how much space is used at a given point. With a building capacity of 250 pallets, the
space would be fully utilized only during certain months, but you’re paying for
the full capacity every month. Even if
the fixed costs seem acceptable, what happens when you need to store 300
pallets? Those extra 50 pallets have to
go somewhere, and the labor to move product temporarily to an alternate
location adds up quickly.
lease agreements usually entail a fairly lengthy time commitment. Since it isn't always easy to forecast what
you'll need that far down the road, the tendency may be to overestimate
capacity needs, negatively impacting the bottom line. When you outsource fulfillment, you’re not
locked in for any length of time. You
pay for what you need when you need it.
Outsourcing moves the storage risk from you to the fulfillment provider.
Storage Space –
packing or "kitting" jobs come with their own unique storage needs,
which can vary widely from job to job.
When there are no kit packing jobs, can you afford to have a fixed
amount of staging space unused? As with
pick/pack/ship orders, outsourcing kit packing jobs means you pay only for the
use of that space with a fulfillment company who has it readily available at
companies usually operate on a fixed per-transaction model when it comes to
pick/pack/ship orders, so if you have 1,000 orders a day, multiplying the
transaction fee by 1,000 gives you an accurate fulfillment cost. It gives you the freedom to pay only for what
you use. Sound familiar?
compare that to maintaining an in house fulfillment workforce, or even if YOU
personally are doing the work. What is
your fulfillment cost to handle 1,000 orders?
If volumes are steady at 1,000 orders per day it may still be possible
to come up with a close estimate, but you'll have to add in the loaded employee
cost, including salary, benefits, and all manner of fixed overhead costs. If volume drops, those salary and overhead
costs remain constant, translating into a significantly higher fulfillment
cost. And if volume spikes, the
additional overtime costs to get those orders out the same day can quickly
diminish profit margins.
course, you could wait until the next day to catch up, but that only makes the
phones ring with customers disappointed that their rush order didn't ship on
time. Either way it causes your
fulfillment costs to eat into the bottom line, and can result in negative
online reviews that harm your reputation.
But with a solid fulfillment partner behind you, these same order
fluctuations are expected and your service levels remain constant.
you’re thinking you’ll just ship the orders personally. That's a great way to begin, and if you're
doing that right now you are in great company.
One of our most famous clients, now-billionaire Sara Blakely of Spanx,
did just that. But like Sara, growing a
business eventually means it makes financial sense to outsource the fulfillment
component. It translates into a decision
either to get into the fulfillment business, or to focus on core competencies. In Sara's case, she was actively trying to
market her product and sell it to retail stores. How could she be out selling if she was
always having to ship what she had already sold?
great fulfillment company will have employees who specialize in specific
aspects of the fulfillment process.
Different teams are trained to receive inventory, pull orders, etc. so
that you have experts guiding your order throughout the process. Companies that handle fulfillment in house
find it difficult to be experts on all of it, leading to inefficiencies and
higher error rates. Going back to the
example of having to get 1,000 orders
out in a day when your capacity is 1,000, can your workforce still spend time
to accurately receive and put away the new inventory needed to fulfill those
orders? Better yet, what if it’s a live
container that is floor loaded and has to be unloaded within a certain
timeframe? Add in a fluctuating number
of product returns and all of a sudden the true labor cost for pick/pack/ship
orders just went up another notch.
once had a major client who had a defective electronic part in their gaming
system, and the defect wasn't known until right before Christmas. Immediately following the Christmas rush, a
huge number of these products were returned.
FSI handled thousands of returns and exchanges in a timely manner which
saved our client from what would have been a PR nightmare. Going it alone makes it difficult to manage
these special situations, but with outsourcing, you don’t have to juggle these
Labor – Kit
let’s talk about the labor for kit packing projects. These jobs differ from ongoing pick/pack/ship
fulfillment in the sense that kit packing is usually short term and with a
definite beginning and ending date. If
you handle this yourself, is there a steady flow of kit packing jobs to keep a
crew busy all the time? Again, going
back to the order volume scenario with pick/pack/ship, if you have 500 kits
that need to ship and your onsite staff can handle a max of 500, then
great. But what do you when you have
5,000 kits to get out in the same time period?
Do you quickly hire and train temps? If so, do you have regular crews who are accustomed to the unique dynamics that come from working with temps? A fulfillment company is used to working with temp agencies and dealing with the fluctuating requirements. By
outsourcing your labor needs, there’s less risk involved for you.
related to both pick/pack/ship and kit packing jobs can be accomplished far
more efficiently with specialized equipment such as forklifts, pallet jacks,
tape machines, stretch wrap machines, shrink wrap machines, bar code scanners,
shipping stations, and so on. There’s
also racking that helps you store more inventory with more density which allows
you to increase your storage capacity, as well as reduce the travel time for
the pickers. All of this equipment costs
lots of money, and a fulfillment company can spread the cost over all
fulfillment clients. Going it alone
often means a difficult decision between justifying significant capital outlays
or accepting ongoing costs due to process inefficiencies. And don’t forget that you’re probably paying
more for your internal labor already, especially if there is not enough volume
to justify having someone pick/pack/ship orders all day.
inventory requires a good warehouse management system (WMS). This software helps us to be as efficient as
possible in managing inventory and orders.
Unfortunately, this type of complex software is expensive, requiring a
large up-front investment as well as ongoing fees for support and
upgrades. Fulfillment companies can
spread this cost over all of their clients, whereas a business using a WMS to
fulfill their own orders would bear the full cost alone.
again businesses find themselves at a crossroads. Do they handle the fulfillment without a WMS
and deal with the inefficiencies and errors, or do they select a solid
fulfillment partner and let someone else handle it? And as volume grows, so do the stakes. With that much sales revenue riding on 1,000
orders a day, any significant systems downtime is unacceptable. So the cost of redundant servers, backups,
disaster recovery plans, and technical teams to make it all work also must be
factored in. The systems challenges alone convince many companies that outsourcing their fulfillment makes
excellent business sense.
are just some of the reasons why savvy companies choose to outsource their
fulfillment. So in summary, partnering
with a world-class fulfillment provider lowers your risk and opens up systems,
equipment and personnel that are fine-tuned to handle your fulfillment
needs. And it affords you the time to
grow your business while maintaining full control and visibility of your
products through a convenient, web-based reporting portal.
is it possible for you to do all this yourself?
Absolutely. But in the immortal
words of one of our longtime clients, FSI “takes on the headaches of
fulfillment for them” with what we do best, so that they can focus on doing
what they do best. We couldn't have said
it better, and we hope you'll give us the opportunity to prove it.