Whether you are an entrepreneur, growing business or mature company, the goal in today’s business world is to be bigger and better than our closest competitor. We want to be seen as the ‘leader’ of our industry. One of the primary ways we achieve this goal is through our sales and customer satisfaction … by having top-notch processes.
Those ‘processes’ manifest themselves in our ordering, fulfillment and shipping life cycle. Today, you may be fulfilling your orders out of your garage, but tomorrow you may have too many orders to ship by yourself. The time will come when you need to either expand or outsource your fulfillment process. You will be surprised how quickly that time will come.
Industry surveys show approximately 49% of e-commerce retailers rank fulfillment operations as the number one factor in operational success with order accuracy, rapid fulfillment and controlling shipping costs being one, two and three in order of importance. Ironically, Digital360 conducted a survey of fulfillment providers, and the respondents gave themselves an overall 73% on overall fulfillment operations.
E-commerce retailers are projected to increase outsourcing of fulfillment operations over the next five years from approximately 12% to 18% based on 2019 studies.
Placing your inventory in someone else’s hands can be the difference between reducing order to delivery times, which increases revenue, or complete business failure. In the same study, 77% of the e-retailers that responded changed fulfillment strategies to reduce costs. Meeting customer demands was second, scalability was third, and operational consistency was fourth. Technology comes in a surprising fifth with only 24% considering technology in their fulfillment strategy changes.
The #1 Fulfillment Provider Issue
My past experience shows that larger fulfillment providers (in warehouse square footage), inventory control is the most difficult to manage. Often lost, misplaced or damaged inventory is the most common issue. Order accuracy is the second most common.
When you compare lost inventory issues against the survey we mentioned earlier where 77% of e-retailers outsourced to reduce costs, you see the gap. You outsource to save money, yet you lose inventory. You might as well be burning your cash.
How NOT to Make Your Decision
When looking for the right fulfillment partner, be careful not to judge the provider’s capability solely on these four areas of criteria:
- The size of their facility
- The number of shipments they make in a day
- The shiny automated equipment they show you when you tour the facility
- The promise of a customer service representative at the wait for your phone call (often a rehearsed show)
How to Make Your Decision
Go into your selection process knowing the questions to ask and look for: “What is behind the curtains?” The fulfillment business is a game of numbers. The more larger companies a fulfillment company partners with (higher number of shipments), the less they will focus on their smaller clients.
When evaluating a prospective fulfillment partner, demand to see proof of their …
- Service-level performance
- On-time shipments
- Inventory accuracy via cycle counts
And ask these questions:
- How often are physical inventories performed?
- What data reporting do they provide and how often?
- How do they manage their labor productivity?
All of the above questions rely on one thing … DATA! If they can’t provide real-time or near real-time data, that is a red flag. If they can’t give it to you, then they can’t manage the addition of your shipments. Often times, the larger the organization becomes, the harder it is to create and manage data.
Do not get caught up in the glitz and glamour of the size of the facility, machines and conveyor belts. If you are starting out as an e-retailer or maturing in the small- to mid-size market, you need to pick a partner that knows your business, can manage your inventory and answer your phone calls.
I am not saying that all large providers cannot handle smaller clients. Just verify they have proof of performance handling smaller customers first.
A Look Inside a Large Fulfillment Provider
For a fulfillment provider, it is often easier to receive, track, pick, pack and ship 500,000 units on 1,000 pallets than it is to ship 500 single unit orders through the postal service. Large facilities are better equipped to handle larger volume moreso than smaller ones.
The smaller the customer, the higher the probability they will mishandle each order. This does not necessarily mean the inventory is ‘lost’ … it is often misplaced. When this happens, it is often like looking for a needle in a haystack, and the large fulfillment providers will write off the inventory rather than spend the time looking for it.
Are Smaller Fulfillment Centers the Answer?
So you ask yourself … if not a mega fulfillment center, then what? How do I plan to scale with a small provider? How do I protect against high shipping costs with a small provider? Do I have to change providers when I grow my business?
I am not saying that all large fulfillment houses are bad or can’t support smaller clients. Just be cautioned if you have small quantities of inventory or shipments, especially if you need special handling of orders. If this is the case, then you will want to look at smaller, more focused facilities.
Note that “smaller partners” don’t always mean they can’t grow with you or have multiple locations throughout the country. It just means they can still provide that boutique type service and remain focused on customer service to protect your brand.
Businesses outsource their fulfillment so that they can focus on what they do best: create the best product they know how, sell it and grow brand recognition. Leave the fulfillment, shipping and logistics to the experts. Do yourself and your customers a favor, be careful in evaluating and selecting the right shipping expert for your business.
Need Outsourcing Help?
Today you may be fulfilling your orders out of your garage and realize you can’t keep up and need help. Strategic Choice Partners is here to help. Please feel free to contact us to discuss your current and future business growth needs.
About Doug Finnie
Doug has over thirty years of management experience in the Technology, Direct Sales and Banking industries holding roles in direct sales organizations such as Origami Owl and Gold Canyon Candles and in other industries such as software development and fulfillment and logistics. As an accomplished CIO his specialties include working with business leaders in defining technology strategies, technical contract and due diligence assessments, project management and systems implementation and migrations. Doug has previously served on the DSA Technology Advisory Council.