Practical Ecommerce

5 Reasons to Consider Fulfillment Services

Accounting, purchasing, marketing, and operations are all areas that online and multi-channel merchants must manage. Fortunately there is a growing class of service companies that allows sellers to outsource product receiving, inventorying, packing, and shipping.

Fulfillment services act like a retailer’s warehouse and shipping operations, checking in products when they arrive from manufacturers or distributors; organizing and storing those products; and eventually fulfilling orders and ensuring that online shoppers get professional service.

Outsourcing these sorts of operations may not make sense for every business, but there are at least five good reasons to consider using a fulfillment service.

1. Seasonal Flexibility

At the time of writing, retailers large and small are entering the busiest part of the year. In fact, according to the National Retail Federation, nearly 20 percent of all annual retail sales take place between November 1 and December 31. This year, U.S. holiday sales are expected to reach $465.6 billion.

With so much seasonal shopping activity, merchants, even pure-play ecommerce merchants, often find that they need to bring on temporary workers or invest in new capital equipment to manage the rush.

Outsourcing order fulfillment allows retailers to avoid the need to hire and train temps or buy new scales, lifts, or the like. Instead, the retailer simply needs to ensure that the product is in the fulfillment service’s warehouse, and trust the service provider to worry about extra hands and tools. In this way, the merchant has complete seasonal flexibility. When holiday sales are rolling in, the fulfillment service manages the surge. When sales are slower in January, there is no idle equipment — or excess employees to let go.

2. Lower Shipping Costs

Free shipping is an extremely popular marketing tool, with companies like L.L. Bean and Zappos using free shipping or free shipping upgrades to great advantage. But the United States Postal Service, FedEx, and UPS don’t work for free.

Whether merchants are absorbing shipping and freight costs to offer free shipping or passing those costs on to consumers, it makes good sense to do everything possible to keep shipping costs down.

With this in mind, using a fulfillment service company with warehouses spread throughout the country can help to lower the shipping tally. Most package-shipping services offer prices based — at least in part — on how far the shipments travel. Sending a box from L.A. to New York is more costly than shipping one from Philadelphia to New York.

By placing inventory in several regional warehouses, retailers can lower costs, which in turn can become a competitive advantage.

3. Grow New Markets

According to Nate Gilmore, vice president of marketing and business development for fulfillment firm Shipwire, online retailers can also use fulfillment services to expand their businesses to new markets without having to invest in infrastructure or a lot of additional employees.

Although Gilmore, whose company is in the ecommerce order fulfillment business, certainly has something to gain by suggesting that merchants use services like Shipwire, the idea is very sound. In fact, during a recent Practical Ecommerce webinar, Harley Finkelstein, chief platform officer for Shopify, the hosted ecommerce platform, suggested just this tactic.

Imagine that a U.S.-based retailer is enjoying good success, but wants to start selling products to customers in the U.K. With the help of a fulfillment service, the merchant can place inventory in England, add a “.co.uk” version of the site, and begin selling to a completely new market with relative ease.

4. Convert Fixed Costs to Variable Costs

Unless a merchant deals only in software, music, or ebooks, physical inventory will need to be received, housed, and accounted for. Doing so requires physical space. For family startups, a garage might do for a while, but serious ecommerce operations will soon need serious facilities. These facilities — whether purchased or leased — have a fixed cost associated with them. So whether business is slow or roaring the rent stays the same.

Choosing a fulfillment service gives merchants the opportunity to covert some of their fixed costs, like rent, heating and cooling, and similar, into variable costs — expenses that go up and down in relationship to sales — which in turn can do very good things for cash flow.

5. Focus on What You Do Best

Often online entrepreneurs start businesses because they have a passion for the product or a passion for marketing, but, it is relatively less common that someone or some group starts a tee shirt business or an online hardware store because she feels especially gifted at stacking or packing boxes. To be sure, operations managers that can smoothly handle this part of the business are in high demand, but they tend not to be as common in small ecommerce start-ups.

Using a fulfillment service for many retailer business owners is an opportunity to outsource many unfamiliar tasks and focus on what one does best.

Summing Up

Ecommerce fulfillment services have a lot to offer small and middle-sized retailers in terms of seasonal flexibility, cost reductions, growth, and focus.

Armando Roggio

Armando Roggio

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  1. John Lindberg November 5, 2011 Reply

    As supporting detail for point #2 Lower Shipping Costs, not only do most fulfillment companies provide delivery discounts and access to lower delivery rates, but there are some significant DIY fulfillment fixed costs that are avoided too.

    For example, those that do their own fulfillment face a basic $20 a week UPS or FedEx service fee, the monthly endicia.com or stamps.com fee and the service fees for package processing software like ShipWorks.

    The typical average for these very basic costs adds up to over $3,000 annually which means, for a small volume shipper in the range of 1,000 orders per year, a fixed cost of $3.00 per order. For most fulfillment service providers, that savings would cover the pick and pack fees all by itself. And this doesn’t count the the other DIY fixed costs of facilities, equipment and labor.

    As for zone skip cost savings, there are actually two ways that fulfillment companies provide for this. One is multiple warehouses, which does have the disadvantage of increased inventory requirement, but the other is access to domestic and international parcel consolidator services like FedEx SmartPost. That solution provides zone skip based savings, but does not require extra inventory to support it.

    John Lindberg – President
    EFULFILLMENT SERVICE INC

  2. Mike Nelson June 14, 2013 Reply

    While order fulfillment costs and prices play a significant role in the decision making process, don’t let it be the only factor in your decision. Many times we’ve seen companies with a great product outsource their needs to a company that gave them the cheapest prices, but had less than stellar performance and/or service. We’ve even had companies come back to us because we left the door open.

  3. Alan Wong October 9, 2013 Reply

    As regards to the point number 2, as we are in UK, we fully know that UPS and FEDEX go by “volume metric weight” so you have to make sure what you paying is correct.

    Before we signed up with Fedex they said it will cost £10 ( example ) to USA, but when we had a bill we see a staggering £45. So you must make sure if there is any additional cost with the couriers.

    we are a warehouse fulfillment in UK and we always keep the prices the same to what we been quoted for by the courier services.

    I know some warehouses they make money from the postage which we think is not right.
    I have also been to other warehouses which they will set a postage price for you and then can be lowered when your volume increases

    In our experience the more the warehouse ships out the cheaper the postage will be. so say we got a quote for £5 per parcel if 10 client starts using our warehouse and dispatch 2000 orders per day in total, this postage price will be lowered to £2.50. which will benefit all the clients using our fulfillment.
    Whereas some warehouses charge you this £5 unless you yourself alone give 2000 orders per day to dispatch, which is very unreasonable.

    The £5 (example quote) will be given to you by the courier sales people, so in general if you can save postage of £2.50 ( example ) your pick and pack cost is covered and also your storage fees.

    if you like to know more about our services please contact me.

    Alan Wong — Marketing Manager
    GSFESELL.COM