Imagine having a state-of-the-art fulfillment department. This fulfillment department would have the most up-to-date order management software, computer hardware and warehousing functions. The employees of the fulfillment department would be experienced and professionally trained. Shipments out of the fulfillment department would be expertly packaged, boxed and labeled, all to your specifications. Fulfillment and shipping errors would virtually never happen. And the freight cost would be 35% less than your competitors.
“Most of our ecommerce customers are shocked at how little third-party fulfillment services cost,” says Brad Felker, President of MDS Fulfillment in Milwaukee. “This is especially true when they compare it against what they already spend to warehouse, package and ship their products. We operate transparently and the purchasers of our customer’s products never know a fulfillment center was involved.”
Eliminates investment in software and equipment
Indeed, for many ecommerce companies, third-party fulfillment houses offer benefits that they could never afford themselves. Doug Sternberg is Vice President of Client Relations for DotCom Distribution in Edison, New Jersey. “Outsourcing provides the ability to virtually eliminate up front investment in software, equipment, facilities and personnel,” says Sternberg. “This is particularly key for a young, growing organization.”
That investment can be material. eCommerce companies can spend thousands of dollars in order management software, computers, warehouse space, packing supplies and more. Many third party fulfillment companies have invested millions of dollars in those functions and can operate much more efficiently than an ecommerce firm could itself.
“Our warehouse personnel carry wireless bar code scanners,” says MDS’s Felker. “Once an order arrives from our customer, they scan the bar code on the picking ticket, gather the items and deliver them to the packing station. Simultaneously, our order management system has determined the cheapest method to ship the products and has automatically generated a shipping label. Our software determines the most efficient packing supplies. We eliminate as much human interaction as possible, and that type of automation is hugely expensive.”
Import files from ecommerce customer
Gone is the time when an ecommerce firm faxes or phones an order to their fulfillment company. These days, the ecommerce firm’s shopping cart or accounting system automatically integrates to the order management system of the fulfillment company. An ecommerce firm downloads electronic files from its shopping cart and sends those files to the fulfillment house via FTP or email. It’s almost always in batch mode, every day.
Eric Lybeck is Chief Operating Officer for Oral Fixation Mints, a wholesaler of high-end breath mints through its website, Oralfix.com. Oral Fixation Mints has been a MDS customer since September. “We developed our own customized shopping cart and we were impressed with MDS’s ability to work with our overall system,” says Lybeck. “For us, we download a file from intuit.com (which is linked to our customized cart) every day, and email that file to MDS. MDS has mapped that file to their order management system and automatically imports it when we send it. A human never touches the data.”
Save on personnel and shipping costs
Fulfillment companies can frequently save ecommerce firms personnel and shipping costs. Says DotCom’s Sternberg, “It can be challenging to predict order management and distribution requirements. On days when orders are high, your fulfillment personnel could be busy. On other days, they could be idle. We eliminate the cost of that fluctuation.”
It’s that fluctuation, in part, that caused Oral Fixation Mints to move to outsourcing. “We couldn’t keep a full-time person busy, “ says Eric Lybeck, “It just made sense to eliminate that expense.”
Fulfillment companies typically ship thousands of orders a day and can, therefore, negotiate cheaper rates with shipping companies. This negotiated savings can materially reduce their customer’s shipping cost.
Says Felker, “In many cases, our freight discounts on inbound and outbound delivery can result in savings large enough to offset all, or a great portion of, the costs of fulfillment. If you can have someone else receive, inventory, store, pick, pack and ship your product to your customer for about the same amount as you are paying in shipping materials and freight alone, why would anyone want to do it themselves?”
For Sternberg, it’s DotCom’s location in New Jersey that provides the most significant shipping savings. “ Seventy per cent of the U. S. population is within easy reach of our facility. For many orders, this means that we stay within fewer shipping zones, and the transit time is shorter. Both of these translate into reduce shipping costs for our customers.”
Focus on core of business
The biggest benefit to third party fulfillment, many ecommerce operators believe, is that it frees them to focus on the core of their business, such as marketing, product selection and customer service. It’s the expertise in these areas, the owners frequently say, that will grow their business, and not shipping and fulfillment.
Paul King runs Cashmerevalley.com from his base in England. CashmereValley.com is an online retailer of cashmere clothing and accessories, and King uses MDS in Milwaukee to ship and fulfill its U. S. orders. “It has to be cheaper to hire MDS than to do it myself,” says King. “I’d have to provide an office, warehouse and staff in the U. S., and that would take time and effort. I prefer to focus on running my business, gaining new customers and improving my customers’ experiences on my site.”
Some ecommerce owners are reluctant to place another company, such as a fulfillment house, between themselves and their customers. Sternberg disagrees. “Each client should be able to manage their fulfillment exactly the same way, whether the client’s warehouse is down the hall or 3,000 miles away. It’s simply a function of managing the partnership with us, as opposed to internal employees.”
Moreover, many fulfillment houses provide their customers with real time Internet access to their inventory, shipping and usage information. For many ecommerce firms, this real-time access can provide them with more control, not less. And, for many firms, the improved accuracy and timeliness of the shipments can improve customer relations, not harm them.
Brad Felker, with MDS, agrees with this. “You’d be surprised how many nationally known companies use third party fulfillment services. Most all of us have received packages from these companies, and we usually assume the companies ship them themselves. Frequently, they don’t. For smaller operations, we can frequently make them look more professional by having the automated return labels included with professional looking packing/ order slips and labels.”
Due diligence is key
To be sure, an ecommerce owner must investigate any possible fulfillment partner, and confirm that the services offered by it fit within the ecommerce firm’s operations.
Barney Stone is President of Stoneedge.com, a software firm that sells order management software to ecommerce companies. He cautions, “You’ll want to make certain the fulfillment house is bonded. You don’t want to get stuck if they have a fire, flood or go out of business. You should ask about ‘shrinkage’ and breakage policies. And, make sure the fulfillment center doesn’t also work for one of your competitors. Finally, you might be able to answer urgent customer requests, returns and exchanges better in-house.”
Both Felker and Sternberg agree that due diligence is important. They both urge any potential customer to check references and, if possible, physically tour the fulfillment company’s operations and meet its personnel.
Says CashmereValley.com’s Paul King, “I went to Milwaukee from my home in England before I signed up with MDS. This was a necessary step for me.”
Services and costs
Most fulfillment houses offer more services than simply warehousing, packing and shipping. There’s television direct response, rebates, gift cards, catalog distribution and fulfillment, sales literature distribution, warranty replacement and more. And many of them can directly link to an online shopping cart and can provide call center support.
As for costs, most fulfillment companies price their services on a transaction basis. There’s typically: (a) a charge to receive products, (b) storage charges, (c) a “per order” charge, (d) “per item” pick charge, (e) a charge for shipping materials, and (f) the actual shipping expense. MDS Fulfillment can average these charges for its customers and offer a flat “per order” fee.
Having switched to outsourced fulfillment, Oral Fixation Mint’s Lybeck is pleased. “Everything is automated, and they allow us to carry many SKUs with no large warehouse and shipping minimums. They took the time to understand our operations. We can ship just a few orders per day. In the end, we pay MDS the same amount as we incurred ourselves, and it frees us to focus on the important aspects of our business.”