The Top 5 Things To Consider When Picking a Fulfillment Center
Choosing a fulfillment center is a bit like choosing who to bank with, it can be one of the most important business decisions a product based business can make. There may be costs associated with relocating inventory, and there will certainly be a significant amount of time put into setting up technology systems, which is all the more reason to ensure you have done your homework before choosing a fulfillment center to partner with. The right fulfillment partner will be your best asset, and will allow you business to grow within its framework.
#1 – Technology
Your best friend, or your worst nightmare. As you well know, being in e-commerce, technology is what drives the digital world. Having the right technology in place to monitor inventory, and track and place orders is the bare minimum a fulfillment center should offer. Ideally, you will be able to manage your e-commerce and fulfillment system from anywhere in the world, via a web interface. It’s not always the case that an abundance of technology is totally necessary to be a successful product based business, but the capabilities should be there for your convenience if need be. Here are a few tech-items to consider before making a decision:
- Online (web-based) inventory management
- Order tracking (web-based)
- Automated reporting and stock level notifications (web-based)
- Order cancellation and creation (web-based)
- API/EDI connectivity to major e-commerce systems
Each fulfillment center may have a set of e-commerce and shipping systems that it already has connections to, such as Shopify, Ship Station, Big-Commerce, Woo-Commerce, Magento, osCommerce, Square Space, Volusion, GoDaddy, 3D Cart, Google, and PayPal, to name a few. Some of the more tech savvy fulfillment centers may have the ability to develop API connections to any e-commerce platform, even if they do not have the connection already built.
You should be able to use the technology provided by your fulfillment partner to enhance your supply chain, and make better informed decisions based on the data they are able to provide. For instance, if you are able to see reports on order processing time, you can make decision on which kitting promotions are costing you more due to increased kitting time or packaging costs. On the same thought, you should be able to create the best promotions for your customers, based on purchasing behavior, while looking at what kits or co-packs are the most cost-efficient.
The bottom line is, there can never be too much technology in your fulfillment portion of your supply chain. Most fulfillment centers will also provide screen share, or in-person training to optimize reporting or metrics.
#2 – Price
As with most things in life, price is a factor, fulfillment center pricing included. There are a few different ways that fulfillment centers typically provide their pricing. The most common way to bill for fulfillment services is by three factors, storage, orders/items, and value added items. Of course, the fixed-variable here is the cost of shipping, which we address in point #3. We will break down each of these below:
Amazon fulfillment chooses a per cubic foot storage cost, as there fulfillment centers are setup to handle specifically fulfillment (individual items). Other fulfillment centers, such as 3PL’s (third-party logistics providers) may have a per pallet or per square foot pricing model for storage. Rates vary geographically for the most part. There are plenty of services out there to help validate storage costs, such as FLEXE (www.getflexe.com). Some fulfillment centers may have a minimum storage cost per month if your inventory falls below a certain level.
The handling cost of fulfillment is broken into two parts, the order, and the quantity of items per order. For example, if a customer orders three photo frames from your website, you would pay a base rate of $xx.xx for the order, and $xx.xx per item in the order. To delve further into the example, three pictures frames may cost you $3.00 for the order, and $0.25 per item after the first item, leaving your order total at $3.50, not including shipping. Fulfillment centers will also have a scale-able costs based on shipping box size. While the example above may be $3.50 total, an order of ski’s, boots, and ski-poles may be at a base price of $5.00 per order and $1.00 per additional item, due to the handling and packaging required.
Per the examples above, the packaging material and boxes are typically included in this price. Keep in mind that if you have custom packaging, your costs will likely increase.
Value added costs
We explain more about value added services in #4. Value added can include assembly, inspection, modification, kitting, co-packing, among other items, and are typically “in addition” to the storage and order costs. You can ask fulfillment centers to provide you with sample pricing for these services before signing up with them, in case you require value added services in the future (if you do not need them from the start).
#3 – Shipping
Simple, yet, not so simple. First, your fulfillment center should have negotiated rates in place with carriers…small package, and freight. This includes UPS, USPS, FedEx, and DHL. Now, not all fulfillment centers will have agreements with all carriers, but the carriers they do work with, they will have a better shipping rate in place than most businesses can get. Your fulfillment center should be able to provide you with better than commercial price list pricing. Your discounted shipping rate typically depends on your shipping volume. If you have a Google Store and sell 10 products per week, your discount will be less than if your fulfillment center is handling your omni-channel fulfillment and you are shipping 1,000 products per week.
The second part to looking into what your fulfillment center has to offer for shipping has to do with technology. Though we touched on it above in #1, the technology section, we share more detail here. There are a lot of shipping integration’s for e-commerce web sites. Your fulfillment partner should be able to integrate with any of them, or provide you with a shipping integration that will work with your existing website. If you are relying on your fulfillment center to handle omni-channel fulfillment, they will likely put in place their own shipping integration across all of your stores, or will direct you to a software that is designed to handle multiple stores. Please not that omni-channel means across multiple selling channels, ie your website, Google Store, Amazon Store, mobile app, and retail storefront(s). A good omni-channel shipping software that can integrate with a variety of websites is ShipStation (www.shipstation.com).
#4 – Value Added Services
Value added services are a great feature for your fulfillment center to offer. Let’s say you need inspection on a SKU or line of products because your manufacturer pointed out a flaw in the product, a fulfillment center with a good value added service would be able to handle this. Some fulfillment companies will even do assembly, modifications, or even simple-manufacturing. We touched on value added pricing above, in #2, but will go into greater detail here. There is no “one-size fits all” solution when it comes to fulfillment centers, but having a fulfillment partner that has a robust value added division, can surely be a game changer. Here is a list of value added services that are offered across the fulfillment industry:
- Shrink wrapping/heat shrink
- Printing, custom inserts/promotional/marketing literature
- Custom packaging
- Customs clearance
Value added services can be anything that pertains to modifying your products or orders, and though you may not see a specific use for it if you are just getting your business off the ground, it will be one of the most valuable tools a fulfillment partner can offer.
#5 – Flexibility
Flexibility and scalability are BIG. Especially for small to mid-sized businesses. You don’t want to get locked into heavy minimums or lengthy terms, you need a fulfillment partner that will scale with your business, and even your seasonality. That said, most fulfillment centers will have some minimums in place, but they will be nominal, and will significantly flex and scale with your business. As an example, if you are selling Christmas ornaments you may have a very seasonal business and only require services from September until January, with the bulk of orders being placed in November and December. A flexible solution will allow you to scale up your needs as the season nears, and scale down your needs in your off season. Some fulfillment centers may keep your fulfillment pricing the same throughout the year, even with extreme seasonality. Likewise, a small business that is getting off the ground may want to only rely on the fulfillment center for it website orders, but will need the storage space to ship full pallets to their own store.
Flexibility with pricing is something that should be taken into consideration when choosing a fulfillment partner. Most fulfillment centers will scale their pricing as your orders grow. The heavier your volume, the better pricing you get per piece, and on your shipping.
If you have detailed questions you would like to ask before choosing a fulfillment partner, you can contact e-Fill Source, and we will get you an answer.