The Benefits of Outsourcing Fulfillment
Is now the right time to outsource my fulfillment services? Will I be able to see savings and will the new relationship help my company grow? Can I trust a third party to manage my fulfillment operations?
For your business these core questions need to be carefully considered. To help evaluate some of the benefits of outsourcing fulfillment services, here are a few of the core reasons and underlying benefits of outsourcing fulfillment:
Your business volume has outgrown the pace of your in-house operations
High order volumes can be quite stressful for an organization and can effect quality, service levels and productivity. A professional fulfillment service is built to adapt to changes in volumes better so as your business grows, it expands with you.
Your investment in technology for order and warehouse management is too excessive for the business to absorb
There is a constant necessity to evolve your IT infrastructure. Warehouse Management Systems (WMS), order management systems including hardware, maintenance and support are quite expensive. By outsourcing the service to professionals the infrastructure in critical hardware and software is built into the costs for service on a per-order basis. This lowers the direct capital expenditure of operational resources and eliminates maintenance costs.
Your investment in warehousing leasing, including racking, shelves and material handling equipment are dragging down your bottom line
When you outsource your fulfillment service these costs are distributed by the fulfillment company at only a fraction of the true expenses based on what you use and when you use it. For instance you’ll generally pay only for the receiving time you use or for the space you occupy on a monthly basis. There is generally little waste like excess labor or space that you would pay for. In most cases a fulfillment service will begin saving you money, immediately.
You’re spending too much time managing the process of fulfillment and loosing focus on sales, product selection and marketing
The opportunity costs lost by time being deflected towards managing operations instead of managing other critical aspects of the business cannot be overstated. Although participation in the strategies of customer communication and the quality of the fulfillment to the customer is still part of your oversight, in an outsourced fulfillment relationship the management of the operational staffing, training, payroll, taxes and administrative time and effort is eliminated. You can now spend that time on marketing, merchandising and development.
You need to lower costs for managing your operations
Outsourcing fulfillment services can bring significant improvements in costs over in-house operations, increase cash by deflecting capital expenditures, eliminated the fixed costs of leases and equipment and improve you cash flow by paying for the labor and fulfillment expenses after they occur. Outsourced fulfillment can deliver both predicable cost per order and in most cases lower operational cost on a monthly basis.
You’ve outgrown your current space
When you begin pressing your available space, productivity will suffer. In some organizations we’ve seen products stored in the client’s isles and hallways. This lowers the profitability of the business and can cause packing errors and inventory control problems. A fulfillment service can give you the ability to grow very predictably, based on the footprint you are using every month. You shouldn’t worry about outgrowing your space if you pick the right fulfillment service.
Spikes in volume have created labor and production shortfalls that effect service to my customers
Fulfillment services should be built to scale and are more adept in tapping into labor markets for additional qualified labor. Because fulfillment companies are flexing staff more frequently, they tend to have better arrangements with temporary staffing agencies and know the local labor markets. Fulfillment companies should participate with staffing agencies with pre-qualification programs meant to help bring in the most capable help, as fast as possible. These types of programs are only viable for companies that are in the business of meeting spike volumes and it’s very difficult to recreate without scale.
You’re having issues with compliance on order management, like PCI compliance or taxation, fiscal reporting, or with shipping and storage compliance with the FDA or OSHA.
In the process of managing both order processing and warehousing and distribution certain requirements on security and safety must be met. A professional outsourcing company can meet requirements with credit card and personal security regulations. If distributing sensitive products like food or supplements, some fulfillment company meet FDA or state department of agriculture requirements. With the potential of your business not being compliant in safety and security standards, outsourcing fulfillment services can be a logical solution.
Lastly is the issue: Can I trust a third party to manage my fulfillment operations?
This is where vetting out your potential partner based on experience, capabilities, integrity and organization fit become paramount. Although you may be a good candidate for outsourcing, the company you choose can have a great deal of influence on your operations. There are many different types of service providers from giant behemoths in which you play by their rules, to small niche players and companies that have shallow service offerings. The field is quite diverse. Choose a company carefully by understanding the capabilities they have and most importantly the commitment they can demonstrate over time to be progressive and run your business effectively.
Tom Krueger is the Vice President of National Fulfillment Services, a full-service fulfillment services company managing B2B and B2C consumer call-center, order processing, and warehouse and distribution programs. He can be reached at email@example.com or (610) 532-4700 (610) 532-4700 x230.