Outsourcing Fulfillment To A Third-Party Fulfillment Vendor
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.
What is fulfillment?
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.
Why outsourcing fulfillment makes good business sense:
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:
1. Buying or leasing warehouse space is a big expense
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.
2. A third party makes fulfillment more efficient
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.
3. Shipping improvements benefit your customers
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.
4. Having an inventory and shipping consultant on board
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.
5. How to find a third-party fulfillment firm
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:
- Ask for references; check them out. Ask fulfillment firms under consideration to provide contact information for at least a dozen clients–one or two are not enough. Call several to talk about the fulfillment firm
- Talk to your peers. Ask other companies whether they contract with a fulfillment firm and if so, who they recommend and why.
- Research members of professional associations. Check out members of the various fulfillment industry associations. Among them are the International Warehouse Logistics Association (iwla.com), Warehousing Education and Research Council (werc.org), American Chain of Warehouses (www.acwi.org) and Southeastern Warehouse Association (swaonline.org).
- Tour the warehouse. Always visit a fulfillment firm’s warehouse before signing a contract. Take notes, ask questions as you tour the facility and follow up afterward with other questions or concerns.
Things to look for on a warehouse tour
- Cleanliness and organization. Is the warehouse clean, neat, tidy and well organized?
- Staffing. Are staff professional in their demeanor and appearance? Do they ask good questions about your business? Are warehouse staff busy and working. Do they wear appropriate safety gear?
- Security and safety. Who has access to the warehouse? How is the warehouse secured? What about fire suppression systems and workplace safety history and incidents? Are there issues with dust, pollutants, pests? Are there limits regarding the types of materials that can be stored? Ask about workers’ comp claims, adherence to OHSA regulations, etc.
- Sophisticated inventory software. A professional fulfillment firm will use inventory software that allows clients to monitor inventory, orders and shipping.
What to expect when you contract with a third-party fulfillment firm
After a contract is signed with a third-party fulfillment firm, expect to go through the following process:
- Have a face-to-face meeting between key staff from your company and your fulfillment provider. During this meeting, all elements of your inventory, ordering and shipping will be discussed.
- After you sign on with a fulfillment firm, your inventory will be delivered to the firm’s warehouse. The shipment is accepted, items are counted, date and time is noted and the inventory is assigned space in the warehouse. This data is entered in the inventory management system; you receive a notice that inventory has arrived and have access to all the details.
- Labels or placards are created so that warehouse workers can easily find and identify items when it comes time to pick and pack orders for shipment.
- A professional warehouse will routinely double check inventory numbers by doing periodic physical counts of items. The numbers are compared to the inventory recorded in the computerized fulfillment system. If there are discrepancies, this sort of audit will uncover them so that the problem can be investigated and solved.
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