The Dangers of 3rd-Party Fulfillment

Among the many promises early Internet companies claimed they would fulfill was taking customer service to a new level.

This was smart, as good customer service helps build customer loyalty and repeat orders. All remote-shopping companies strive for high repeat orders, since that is where profits lie. The service would far exceed that provided by the old-economy remote-shopping companies such as catalogers and would cost less. This would allow them to devote more of their money to building brand awareness through advertising.

They did make improvements in providing some customer service information, most notably by providing instantaneous order confirmation and shipping information as soon as it was available. Customers see these services as benefits and appreciate them.

However, for most of the remaining customer service, they failed to provide service as good as the older remote-shopping companies and costs did not go down. This was one more reason for the high failure rates among dot-coms.

This happened because of a major fundamental error. The dot-coms, in building their business models, never recruited anyone with direct marketing experience to advise them. This has been well documented during the past year as a reason many dot-coms failed, especially in building their business plans.

All companies must build customer loyalty if they wish to have repeat business. To achieve this, customers must feel they paid a fair value for the product or service they received and that they received good customer service. Since what is considered a good value varies from customer to customer, all a company can do is be sure its price value relationship is within industry norms. Better yet, it might strive to exceed industry norms.

In the second part of the equation — good customer service — dot-coms made it harder for themselves by relying on outsourcing fulfillment. Properly managing a third-party fulfillment source requires excellent knowledge of your customers, their expectations and the requirements for providing good fulfillment.

Before any of the companies that supply third-party fulfillment put out a contract on me, I will explain that the problem lies primarily with the company buying the service and not with the provider.

The danger in outsourcing fulfillment is that the remote-selling company quickly decides that it can leave the majority of the day-to-day management of its fulfillment to its supplier.

The problem is that fulfillment companies — most of which try to do a good job — service multiple clients that offer different products. And there are problems associated with selling and servicing those products. For their own efficiency and profitability, fulfillment companies tend to seek common solutions to problems rather than finding individual solutions for each client.

Unlike relationships with many providers, such as product or system suppliers, the relationship with a fulfillment provider must be constant. This differs from a relationship with a list broker or printer. The expertise of brokers and printers is needed primarily when you do a mailing. This occurs periodically and is of such magnitude that remote-shopping companies have staff to manage the relationship closely.

However, fulfillment happens every day and every hour. The majority of a company’s orders are similar, and rather than treating each as a major event, like a mailing, it is seen as one of thousands. For many companies, even those that do their own fulfillment, this creates complacency regarding their processing, which can easily lead to poor customer service — especially since operations in most companies are frequently seen as a cost and not as a profit center.

The most important contact with customers is in fulfilling their orders. If this is done poorly, even if the customers think the price value relationship was fair, your customers are not likely to come back, especially first-time buyers.

This does not necessarily mean that companies should build their own fulfillment facilities. Whether a company fulfills orders internally or through a third party, the company must invest the human and financial resources to ensure the customer experience is the best it can be. There is a tendency when using third-party fulfillment to rely too heavily on the third party’s personnel and systems.

Since many companies use third-party fulfillment and will continue to do so, they must have sufficient staff to manage the supplier. Fulfillment suppliers may not relish the idea of having client personnel living in their plants, but it is best for both parties.

Issues arise every day that need resolution, from quantities received that do not match the shipping slip, to how to handle a customer’s inquiry. These issues must be resolved instantly. Since these problems are ultimately the responsibility of the remote-shopping company, it should be the one to resolve the problems.

Many companies do not see this resolution, since they assume that an advantage of third-party fulfillment is lower personnel costs. The best analogy is that you would not let the printer OK the color of your catalog printing, so do not let your fulfillment supplier control your relationships with your customers.

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