Fulfillment Companies Ease the Shipping Burden for Ecommerce Companies

Until 2006, Glynn Gallagher's life was "really, really hectic to say the least.". She started work every morning at 8 am, printing out her previous day's orders from her website LockPickShop.com, along with a picklist, and trudged out to the makeshift warehouse building in her backyard. The rest of the day was spent answering customer service calls, packing orders for shipment, and handling returns. She skipped breakfast and allotted herself a 20-minute lunch break. After repeating the process in the afternoon for all the morning orders, she loaded all the boxes in her car and drove to the post office, waited for them to process her orders, and then drove to the UPS Store and did the same thing. She came home and dealt with emails and her website until midnight each night.

Finally, she started to wonder why she was working for herself when life was this hectic. So she started researching the possibility of moving to a fulfillment company.

A fulfillment company offers basic services such as inventory storage, picking of items and packing them for shipping, and transfer of data to and from the retailer. Some fulfillment companies may offer additional services, such as assembly or kitting, and call center phone support for the end customer. Costs are determined from a number of factors, which may include the number of individual product skus, the volume of product being stored, the order volume, and the cost of extra services such as kitting.

Fulfillment companies that cater to online retailers typically have excellent technological resources that facilitate communication between the fulfillment house and the retailer. Retailers utilize two-way data exchange, where orders are submitted from the retailer to the fulfillment company, and shipment status and tracking information is later transmitted back to the retailer. "This data exchange capability enables us to perform as if we are in the room adjacent to our client's office instead of some distance from them (In some cases, our client is half way around the globe)," says Kevin Kelly of Alternative Logistics, Inc., a fulfillment company in Nashau, New Hampshire, and which is the same company that Gallagher uses for her company's fulfillment needs.

Outsourcing the fulfillment process is not for everyone. Some merchants may prefer the control and personal touch of being able to pack shipments in-house. However, for many retailers, the benefit of using a fulfillment company is that it frees up the retailer's time and resources to focus on product development and sourcing, marketing, and customer service. Kelly lists a few other criteria: "The higher the order value, the easier it will be to support the costs associated with storing, fulfilling, and shipping orders." He also states that the product itself may dictate the suitability of fulfillment services; items that are hazardous, particularly fragile, or that require refrigeration need special handling that a fulfillment company may not be able to offer.

Gallagher credits her decision to use a fulfillment company with restoring her quality of life, and allowing her to return to what she does best - managing her business, not a warehouse. However, Dale Carlson of Mad Cat Toys had a much different experience. When he first opened his doors, he used EFulfillment Service. "EFulfillment serves small businesses which made it a good provider for Mad Cat. Most fulfillment services are interested only in much larger accounts. But EFulfillment needs to keep its best and largest customers happy, so Mad Cat Toys often suffered from shipping delays and other service problems while it served its largest customers. Issues like this were especially a problem during the holiday season. Mad Cat Toys offers items that are delicate or require special packaging, and this type of custom service was expensive and difficult to control at EFulfillment."

The factor that led Carlson to finally end his use of a fulfillment service was the monthly costs for storage. His site serves a small niche of high-end toy collectors, and his storage fees exceeded the actual costs for shipping orders. He began looking for a new fulfillment company, and was about to sign up with iFulfill when the company failed (see Blogging as You Go Belly Up at BusinessWeek.com). It was at that point that Carlson decided it would be in his company's best interests to move order fulfillment in-house.

Carlson lists some advantages and disadvantages to using a fulfillment company based on his experiences. The disadvantages he notes are:

• Mad Cat Toys' shipping location moved from Michigan to Seattle, so the average cost to ship an order increased
• He lost the time that had previous been saved by delegating fulfillment to an outside company
• The internal inventory-control system is not as accurate as the fulfillment house's system
• The cost of shipping boxes is much higher as the fulfillment house benefits from buying huge quantities

However he also notes some important benefits to packing orders himself:

• Special items can be packed carefully
• It is now possible to provide customer service relating to individual orders and shipments
• He gained better control of shipping schedule — we can assure most orders ship same-day and we know when they have been shipped

If you are considering a move to a fulfillment company, it helps to do your homework - thoroughly. Carlson suggests being very clear in your understanding of fulfillment and storage costs, and to find out about the time between order receipt and shipping. He also recommends previewing the fulfillment company's online account administration interface, to make sure you are comfortable with its use, and that your systems can properly interact with the fulfillment companies systems.

Bonus! Download our Fulfillment Company Questionnaire and Checklist Worksheet