Outsourcing your fulfillment needs to a third-party vendor might be the smart choice for your company. Let’s take a look at how this could work for you.
Fulfillment, in business terms, is the safe, secure storage and efficient shipping and handling of inventory. Large companies often handle fulfillment in-house, but in many cases, it makes sense to hire a professional third-party fulfillment firm to handle this specialized and vital business function.
Most companies don’t own a warehouse or have staff specifically trained to handle inventory and shipping. When small, growing companies handle this function on their own, they run into problems. Staff members are pulled from their jobs to pack boxes and run to the post office; productivity takes a dive and ultimately, sales suffer. Companies learn that fulfillment is labor intensive and time consuming.
Hiring a third party to handle inventory, orders and shipping will cost money, but in the long run, it can pay off. Here are some reasons that outsourcing fulfillment makes sense:
Buying a warehouse is a major capital expense; leasing warehouse space costs between $4 and $7 per square foot. By contrast, a third-party fulfillment firm typically charges its clients only for the amount of warehouse space they use. If those needs fluctuate throughout the year, charges are adjusted accordingly. Companies that choose to operate their own warehouses also must pay for utilities, invest in security, safety and inventory management systems and hire warehouse staff.
Professional fulfillment companies can typically ship more packages per day for their clients than their clients could ship on their own. Because of the volume discounts fulfillment companies enjoy, they can also help clients cut down on per-package shipping costs.
Professional fulfillment firms use computerized inventory management systems to track inventory, eliminating back orders and other issues. The best fulfillment firms also ship items in real time rather than in batches, which slows down shipments. A third party will have contracts with all leading shippers so customers can choose the shipping option that best suits their needs.
The best third-party fulfillment firms will also serve as an unofficial consultant, looking for ways to improve their client’s inventory and shipping process. They might suggest changes in packaging to lower costs and better protect products. They will study customer complaints and product returns and suggest solutions. They will also use their shipping volume to negotiate the best shipping prices and, through a computerized inventory system, allow clients to easily monitor the status of their orders and inventory.
Many companies are leery about handing over their fulfillment function to an outside firm, and rightly so. The timeliness, accuracy and delivery of an order has a big impact on whether the customer does future business with a company.
Before choosing a third-party fulfillment firm:
After a contract is signed with a third-party fulfillment firm, expect to go through the following process:
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