When to Consider Third-Party Fulfillment
"Just because we've done third party [doesn't mean it's] appropriate for everybody," said Klaus, president of the Richmond, VA, cataloger. "We happen to be a very attractive client for a third-party fulfillment company. We have the volume. We do between 300,000 and 400,000 orders per year.
"We are counter-cyclical, which is key. We have a large spring business in March and April, and we have a back-to-school business in September and October. And, most importantly, we have a small Christmas business."
Another advantage of third-party fulfillment is that these companies can shift resources to meet changes in demand.
"That's something that, just as a smaller company, we would not be able to do on our own," he said.
Another plus of using a third-party fulfillment house is that they typically have more robust IT systems "than we would be able to do ourselves," Klaus said.
But this approach has negatives, including less control over a critical function.
"If we wanted to change something in terms of an operating procedure -- the way we pack, the way we gift-wrap -- we'd have to go through a negotiation process to do that," he said. "We have to figure out with the third-party fulfillment company if there [is] additional cost and additional manpower required. And then we have to come up with a pricing change."
Being tied to the financial health of another company is another negative that was mentioned, along with "being a little bit of a small fish in a big pond."
Klaus concluded by emphasizing the importance of a positive relationship.
"It sounds simple, but it's really easy to let this turn into an adversarial relationship, and you really can't do that," he said. "If it ever breaks down to the point where you say, 'I'm not going to get this back on track,' you better start looking right away for another opportunity."