When to Outsource Your Fulfillment Needs

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Fulfillment has become the buzzword for the e-commerce arena. What once was considered an uninspiring subject is now one of the most exciting issues on the Web. If you are a small or medium-size business just going online, determining how you will handle your fulfillment is a major decision. Some questions you should ask are:


* Where will you fulfill orders?


* Will you need to acquire additional storage space as your business grows?


* How will you handle issues such as returns and customer service?


* Should you outsource your fulfillment initially, in the future or not at all?


* Can the time you spend fulfilling orders be used more effectively on another aspect of your business, such as marketing or forming strategic alliances?


* Do you have the time, skills and staff necessary to design an efficient distribution system? If so, what costs are involved?


* If you decide to outsource, what are the determining factors when considering fulfillment companies?


Eventually, most e-tailers come to a point when it is no longer profitable to fulfill orders themselves. Many e-tailers are quite good at buying products and determining the right price points, designing and maintaining an attractive Web site and marketing. But when it comes to the logistics functions, such as getting the actual product delivered to the customer quickly and correctly, things can fall apart. The bottom line that most e-tailers fail to realize is that fulfillment is a business like any other and if you want to do it correctly, you need to spend time and money learning how. If you have no time and money to spare, look seriously into outsourcing. If you decide to take the path of outsourcing your fulfillment, there are a few things to consider before choosing a fulfillment company.


Inventory Placement


Take the case of an e-tailer based in New York. The natural tendency is to bring the products into New York for distribution. But if your customers happen to be among the 32 million living in California, you're sitting six days UPS ground away from your customer if your entire product inventory resides in New York.


One of the emerging lessons from the 1999 holiday season is that return rates increase significantly for consumer goods when customer receipt is more than three days after submitting the order. So now, e-tailers are faced with finding a warehouse strategically located to meet the demands of their customers for fast delivery times.


Large vs. Small Fulfillment Houses


Today, the largest fulfillment logistics companies are primarily based on a one, two or three fulfillment house model, meaning they operate anywhere from one to three extremely large warehouses. Most of these large fulfillment companies, such as the Shipper.com and SubmitOrder.com, are set up for very large e-tailers or multichannel retailers. You will need a large amount of product that moves quickly to sign up with one of these groups, which usually is not the case for most budding start-ups.


Quality Service and Reputation


Do you feel confident in turning your inventory over to the distribution center? Is it an expert in its field? Does it take your inventory and success seriously? Do you get the feeling your business matters, or are you low on the totem pole? These issues are important for the success of your business. You'll need a distribution center that effectively acts as the fulfillment arm of your company because that's what it is.


Cost


E-tailers just starting out may have an urgent need to outsource, but they also need to keep costs down. Most will not pay high prices for fulfillment services they don't need and can't afford. What we've learned from speaking with countless e-tailers, business-to-business sites, exporters and wholesalers is that the ultimate need is for low prices and prompt delivery without sacrificing quality service.


Hidden Costs


It's important to realize that not all pricing for services is the same. What you'll find when you dig a little deeper is that many fulfillment companies have hidden costs. Questions you need to ask before signing up with a distribution center include:


* What are the set-up fees? These charges can be thousands of dollars in some cases, so find out what the expense will be before making any decision.


* Is there a per-item pick fee? Many companies charge a small fee for every item your customer orders, and some have a flat rate regardless of the number of items ordered.


* Is there a monthly minimum storage fee? Regardless of how much inventory is stored, some will charge for a minimum amount. Find out if you will be charged for actual storage held in the warehouse or a minimum.


* Is there a monthly minimum for volume shipped? Some companies require a certain volume to be met each month, and if this amount is not met, you can be charged for a certain number of orders.


* Is there a time commitment, and are there penalties if you want to change or cancel that commitment?


Global Scope


The Internet has redefined the term global marketplace. Your business becomes a global business when you go online. Make sure your distribution center can work within this context to offer customized international logistics solutions for you, your manufacturers and your customers.


Just as electronic-commerce is changing the ways we do business, outsourcing your fulfillment will change the back-room operations of many companies. By forming an alliance with the right distribution center, companies can quickly expand their global presence without significant capital investments. Perhaps more importantly, outsourcing removes many of the operational frustrations of running a business. Instead, it allows you to focus on what you know best to build and grow your business.
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