We've been considering using a fulfillment warehouse.

For anyone who doesn't know what it is it would allow us to ship all of our current stock and future stock to them. They then check and inventory all your stock, maintain a current realtime inventory, obviously "house" your inventory, and then pick, pack and ship your orders. You just send them the order information and charge the customer. They generally charge per order and per item plus x per month to hold the inventory.

Does anyone here have any comments regarding this type of service? We've been considering using one as we are currently limited to space right now and it would cut down on the work load of receiving, housing & maintaining inventory, picking, packing and shipping which would allow more time for increasing sales & providing quicker customer service.

Responses are greatly appreciated.

I think it is an excellent model if you have the volumes and the margins to sustain it.

What model are you looking to persue... a flat fee per order shipped or a percentage of the value of goods shipped?

I would like to hear more about your findings... contemplate the physical and opportunity cost of maintaining the shipping in-house, calcuate margins and related fees... and you should have a solid path to persue.

Right now I'm still checking what type of services are available. I'm hoping that a client may already use one of these services and can give me a little more info regarding thier experiences. If I can't find anyone I'll probably just jump on it myself and give one a try. I'll be sure to let you guys know what I find out... hey maybe I can write an article about it

So... if anyone currently uses a thirdparty company to ship thier products please let me know of your experiences.

I actually used to work for a company that did fulfillment similar to what you guys are looking for. We used to charge our clients a flat 2.00 fee per order shipped. Depending on what industry, and your area, charges can be all over the place. We were dealing mainly with shirts.

Now something like that wouldn't be too bad. All the ones I've seen want a per order and per item in the order charge plus storage fees. I don't mind the per order and storage fees - but per item can hurt on low priced items!

Many team members at MC own online stores. We are thinking of possibly opening a fullfillment center to centralize distribution for the stores to maximize economies of scale.

Would anyone be interested in having MC ship their goods if we launched an operation similiar to this?

Ryan I would be all over this in a second! As long as the pricing was good, especially for MC ecommerce clients. I would even be able to open multiple stores with different merchandise and not have to worry about storage space and my time receiving, inventoring, picking, packing, shipping and could focus on expansion and new stores. I think this would be a big plus for you guys. Also, since you'd be both a ecommerce provider and fulfillment solution you could obviously integrate them together. Either automatically send orders to fulfillment or allow store owners to click a "Send to Fulfillment" button. Do it! do it! do it! You guys rock!

Captain,
I think that you guys are on to something here. What a great tool for you to use for expanding your services. If you are interested, I have about 12,000 s.f. of wharehouse space that is going to waste right now. I sell body jewelry, so all of my inventory takes up less that 1000 S.F. and my office is only about 800s.f. I have 13,900 total. If you are interested, contact me and we can further the discussion.
Grant

Order fulfillment is something that our company offers. Right now we are providing services to 5 seperate companies. No, we do not use the "per" item fee. We basically have 2 fee schedules but we operate on "flexible" rates. What I mean by this is that we talk about what you have in terms of inventory, quantity of products, average anticipated volumes, etc.

On an average, each of our existing clients ship about 80 - 100 orders per day. Each order has an average of 6 items and each company has an average of 73 products.

We ship daily via UPS, FedEx, Airborne/DHL and USPS. International shipping is available through UPS only.

If you have any questions, please feel free to PM me.

I actually found a company to go thru. Nice low per order/per item and no maint fees. Only a low per pallet fee for excess stock. They provide all packing materials, boxes and labels in the per order fee. I'm planning my migration to them for the last week of Dec/first week of Jan.

Crossing my fingers

I'm PM you the specifics but it really is a great deal.

I'm in the process of looking for someone to do 3rd party fulfillment. I found this old thread from last year. Are any of you original posters still around, or does anyone new have recommendations for a fulfillment service provider, one appropriate for a very small startup?

Thanks!

Matt

I've heard the $2.00 per transaction figure quoted for this but I'm sure there are many formulas.

I would be interested in a fulfillment service and think the idea of MC doing it would be great. My only caveat would be that they include "no compete" and confidentiality provisions in their merchant agreements. Maybe I'm paranoid, but if a single company holds all your data, services your customers, gets to know your suppliers and does all the fulfillment what the heck do they need you for? They are going to figure out pretty quickly which businesses are profitable and could at some point decide to "go Amazon" on you or sell your business model to someone else (not saying MC would do this, but it is always a risk). Of course, I imagine they wouldn't last long once word got around.

Again, maybe this is just paranoia, but it's something I'd be concerned about without some written guarantees.

Matt & Jim,

I agree that a fulfillment service would be a good service addition for (having an established base of a couple thousand cart customers). From a cart-competitive offering standpoint, it certainly would be a differentiator and would be another revenue stream.

I also agree "non-compete" only makes sense.

However, I know the distribution/logistics world and the only way for them to get into fulfillment profitably (and economically for customers) is to be operationally excellent. From what little I know of the folks, they have a lot of technical skills and web business smarts, but I'd be VERY surprised if any of them have the required experience, knowledge and competencies to run a 3PL that can scale.

Running your own fulfillment effectively is a COMPLETELY different thing than doing so for a couple dozen small e-tailers (let alone any large scale operation). There are major issues of process, product, systems, e-tailer size and personnel compatibility. In short, Third Party Logistics is a whole profession unto itself...and not something you can just "get into" successfully.

So I could be wrong, but my advice is that if you're looking to outsource, check into other options out there in the market. I don't think will be offering a reliable, quality fulfillment service at a good price anytime soon.

Frankly, I think a better "play" for might be to quantify demand among their cart customers and then contract with a firm that is already successfully in the 3PL business, playing the role of deal broker (demand aggregator). That would save the 3PL the trouble of finding and selling a bunch of little sales and maybe get them to a volume that made it worthwhile. It would also save the capital outlay, ramp up problems and operational headaches of actually being in 3PL biz...and they'd still get a cut (commission if you will).

Anyway, that's my two cents.
Ed

I use a third party fulfillment house and I must say this:

Companies that want to sell retail sell retail. Companies that provide fulfillment are in the fulfillment business and want to be in the 3PL business, or else they would have gone retail a long time ago. Realistically, they don't need you or any other merchant to give them the itching to go retail, they most likely have far larger clients with far greater revenues that might have enticed them long ago. You could use the same logic and say that , holding all the data they have, might decide to copy your business/business model.

I just think that's the least of your concerns. 3PL companies are wise enough to know that suppliers + product + fulfillment does not equal a successful business model. There are other strengths to be acquired to be successful at it.

Good article on this at http://www.etailersdigest.com/archives/0287.html

Hello Matt,
I run an E-Commerce fulfillment operation out of the greater Boston area.
If you would like to talk outsourcing, please give me a shout.
Dan Cence
Sprocket Express
dan@sprocketexpress.com
508-695-3780

We just hooked up with a fulfillment house hoping that our sales would be out of hand -- thus far they have not and I have discovered that the fees charged "per item" (this appears to be counted as a "single" even if the item is packed in a packet of 10 and we sell them this way) is 0.12. Does not seem all that bad until you start adding the math (for 100 bracelets that sell for $1.00 each). Even though they are in packs of 10, imagine being charged .12 per bracelet + $2.50 + shipping. Imagine trying to add that on to a customer order for only $100.00. THEY WOULD SHOOT ME!!!

We also pay the flat 2.50 handling, monthly software maintenance, pallet position fees/warehousing ... you can do the math in this model and quickly see that shipping 500 items (silicone bracelets packed in baggies of 10) that they are charging .12 per bracelet. How on EARTH could I pass along a $62.50 handling fee for an item that is $1.00! How about $600+ for a 5K order? I'm going crazy running the numbers because these are ridiculous! With a deluge of single orders -- a fulfillment house pays off .... wholesale to retailers ... it seems like robbery!

Crazy!!!!!

I think the value in this is if you are dealing with a flood of individual orders (not the wholesale orders). Otherwise shipping 5000 (they are silicone bracelets) would cost $600.00+ .... ludicrous!

Be careful and negotiate, negotiate, negotiate! We may be bringing the shipping back in house (using a couple of storage units) unless I can get "item" refefined.

Believe me, no one was more thrilled than I to have this off my hands -- but given the potentials for cost (and the facts that some of the sales of these items has slowed down a lot) I am in a quandry.

YIKES -- good Lord, get me a drink!

We worked out the pricing -- and it really is not bad at all Thankfully, there was a mistake in their system. Upon fixing -- the prices are reasonable and the services convenient.

Now, to sell more stuff!

I would agree that those prices are outrageous! As the owner of a fulfillment house, I constantly wrestle with the issue of pricing. When you attempt to set a formula for pricing, invariably, a customer comes along with a distribution pattern that is out of kilter with the intent of the pricing policy. A certain flat fee for an order is necessary to cover the processing, labelling, and general attention to shipping a unit out the door. It often makes sense to charge for additional units in the order if extra labor is required to locate the unit and put it in a box. It's a little hard to see the justification in charging for units that are already in a package since only one pick operation was involved. It's also hard to justify charging additional for multiple pick units of a single SKU when the picker is at the location (there is some cost involved, but not as much as a separate SKU. While I do publish prices, I do try to analyze the business and adjust to reality. Everybody needs to make a profit or we're all out of business.
Regards,
Dan Cence
Sprocketexpress.com

Dan: the pricing has really fallen into place now. Example pricing for some typical orders is as follows:

Shipping Handling Total
5.3 3.65 8.95
6.73 2.45 9.18
13.3 3.65 16.95
1.06 1.37 2.43
1.98 1.61 3.59
1.06 1.37 2.43
1.35 1.49 2.84

It has definitely worked out a lot better for us. And there is a cap of 15.00 handling fees on any 1 order (thank Goodness!) Without this cap, and with the glitch in their system the pricing looked crazy. My items (silicone bracelets at the moment, a small totebag shortly) are easy packers.

As a web merchant, I'd value your opinion of my fulfillment pricing policy. I'm settling on a 4 point pricing model.
1:) A base charge per shipment/return to cover the costs of operation - labor, equipment, insurance, phones etc.)
2:) A per item charge to reflect orders that are more complex than one item shipments (still a little fuzzy about charges per the same SKU vs. different SKU's)
3:) A space charge to keep a lid on slow moving inventory (otherwise I run the risk of managing a storage facility with no room to do business)
4: A per hour charge for "all other services" like assembly, kitting, bagging import clearance etc.
Any thoughts?
Regards,
Dan Cence
Sprocketexpress.com

Hi Dan:

The company I deal with does a similar deal -- they just call them slightly different things I think.

1) the base charge per shipment (yes), cost per item on top of that
2) monthly software maintenance fee (the fulfillment system is very web-based with a dashboard, reports capability, real-time inventory checks, etc).
3) per pallet space charge per month (so it does have a bit of a warehousing feel). I am unaware of any charges for slow moving stock but do know my contract runs for a year.
4) Return fees

Instead of a per hour charge for kitting, the company I use charges "per touch" The cost is .12 per "touch". Putting a slider card in a clamshell case and placing the products there may be 2-3 touches. This is added to the handling fee. I think the "touch" model is a good way to go because the customer is going to be paying for the real work done (whether it takes 2 minutes or 2 hours). I like the idea of touches over a "per hour charge".

That's my main opinion about your model. Otherwise, I think it looks good. It must be quite a challenge to run a fulfillment service. Kudos to you!

If you have any specific questions, let me know!

I agree. I have many employees, and they all move at different speeds. If I were paying by the hour, I'd probably picture my slowest employee doing the job and get scared off by an hourly fee. With the "per touch" model, a slow employee is your problem, not mine.

You said it perfectly

I've done work with some of the big boys (Exel, Ryder, etc.) and a couple mid-sized 3PLs. I can tell you that to the extent there is a pricing model standard in the 3PL (Fulfillment house) industry, the touch model (plus space and distro setup/maint.) has been it forever.

As you point out, the trouble has always been fairly delineating the difference between "simple" and "very complex" order operations...and the whole "effectively managing/working with the partner" aspect. If you're looking for other insights (from customer and 3PL points of view), you can pull them out a piece at a time from sources like Operations & Fulfillment Magazine (the magazine website is part of a larger tradepress group that offers some interesting perspectives as well.

Hope that's useful.
Ed

Gkygrl,
Thanks so much for the insights. The per-touch model for kitting/assembly has been getting a lot of support. To clarify the part about storage, I orgiginally thought about charging for excess storage, but the formula got so complex that nobody understood it. I now just charge a flat rate per month on storage at a per square foot rate. My reason for doing this is to protect myself from people who have a lot of slow moving material and use the warehouse as a free storage facility. My charge is basically what I pay for space.
It's interesting that you mention that people charge a systems maintenance fee. I've been offering reporting and web access free of charge. I guess I've placed the majority of my cost recovery model into the transactional part of the business. Can you give me an example of how you are nbeing charges for that service?
One final note. You mentione that you sign an annual contract. How do you feel about that?
Thanks,
Dan
Dan@Sprocketexpress.com

Hi Ed,
Thanks for the reply.
When you mention the touch model, were you referring to kitting/assembly/packaging only, or did that also cover the pick/pack process?
Thanks for the Ops/Fulfillment sugestion. I have discovered them. I've been struggling with finding good sources of "Standard" work units. Guess I'll just have to cave in and join one of the industry associations!
By distro/setup/maint, are you referring to master file maintenance and system configuration?
Thanks,
Dan
Dan@sprocketexpress.com

Hi Bookmark,
You raise a good point.
I can understand fixing the rate to production.
I also have many situations where the customer just asks for stuff that is not really measurable. One customer has asked that I negotiate import customs clearance and transportation. Happy to do this, but since it's not really production work, I just charge for my time.
Do you know how others might charge for more management related activities?
Thanks,
Dan
Dan@sprocketexpress.com

I was referring to all touches (kitting/assembly/packaging and returns, being more complex operations, often at a different touch rate).

Yeah, you'll have to join one of the Assn. or maybe one of the benchmark firm/universities (I can't remember for sure but it may be one of the Mississippi schools that has the 3PL project ongoing). Keep an eye on the CSCMP annual conference agenda. You'll probably find several 3PL-related sessions and can either go or hopefully those will be sessions they record for sale on cassette or CD.

Yes primarily, although it can also encompass other services like negotiating freight rates, routing/rating loads, freight bill audit, dev for any special reporting requirements, etc. for them.

Hope that helps.
Ed

Hi Folks,
Thanks for all the helpful comments! Best of luck to everyone!
Happy hunting!
Dan@Sprocketexpress

Hello,

I'm wondering how things are going with your fulfillment company? I'm looking for one for my business. If it is working out for you, could you please post the name of the company. If that isn't appropriate for this message board, could you please email me at bvigorda@yahoo.com

Thank you very much,
Gail

My wife and I run a small 3PL company if you could call it that right out of our house. We only ship for one medium size internet company. We charge a flat monthly rate and then invoice him on top of that for any additional fees that may incurr for the month. His sales are pretty level through the year but the months where he has the spikes he will usually give us a bonus. If anyone has any questions drop me a note.

SurfCell

By chance could you provide me with the name of the Fulfillment Warehouse you used to work for that delt mainly with shirts.

we currently our happy with our fulfillment warehouse but would like to have another one in our back pocket if they ever start slipping.