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Buyers Guide to Order Fulfillment

1. Introduction
2. Fulfillment Terms and Definitions
3. 10 Things to Know about Fulfillment Services
4. Questions to Ask Fulfillment Companies
5. How to Choose a Fulfillment Provider

According to a recent survey by MultiChannel Merchant, a fulfillment service provider, just over half
(51%) of businesses surveyed reported making a profit on shipping and handling costs. How do these
businesses manage to turn a common expense into a profit center? The answer is simple: outsourcing
fulfillment services. Fulfillment services are commonly thought to be processes like warehousing,
storage, packing, and shipping, but can also involve order processing, returns, and product
assembly. Fulfillment services are a valuable tool for web- or home-based businesses without the
storage space or employee capability to store, package, and ship goods themselves.

How does it work?

Most fulfillment companies will accept merchandise on your behalf directly from your suppliers, store it
at their facility, and package and ship orders to customers as they are placed. Typically, you’ll sign a
contract with a fulfillment service provider that specifies the services required (inbound calls, order
receipts, expedited shipping, storage timelines, and other options) ship it for you upon demand. Most
fulfillment services calculate costs per service: you’ll pay a storage fee, a per-unit fee, and often an
account maintenance fee or “management fee” of up to several hundred dollars a month. While
management or account costs are fixed, storage and per unit costs will vary depending on your sales
volume. Storage costs are assessed “per pallet” or per month based on the amount of warehouse
space you require. Unit or “SKU” costs are charged for each different product type- usually a few
dollars per item. Shipment costs are also variable, and will depend on whether you offer standard
shipment, expedited, or premium options, such as next-day delivery.
Fulfillment Terms and Definitions

Term Definition
Lift gate An attachment to a delivery truck that lowers and
raises shipments to and from the ground.
Transaction fee The percentage of the total sale a credit card
processor takes for managing the transaction.
Credit card dispute When a customer disagrees with a charge in
whole or in part. Anyone can challenge a credit
card charge. Paperwork must be given to the
credit card company to decide who is correct.
Less-than-truckload (LTL) This term refers to shipments which are larger
than a mail carrier can handle and less than an
entire truck load.
Termination clause The part of a contract which allows one or both
parties to cancel the contract if an action occurs or
doesn't occur.
10 Things to Know about Fulfillment Services

1. You "can" outsource everything. Fulfillment services can warehouse your products, manage
your inventory, take your orders, process payments, package and mail your products, and even
communicate with customers throughout the process. You can choose to outsource everything,
keep some tasks internal, or have a virtual assistant handle the process.

2. Shipping. Shipping can be very expensive if it's not optimized. Fulfillment centers ship in
large quantities, so they are likely to have pre-negotiated discounts. Find out where fulfillment
and shipping centers will be located to see if they are close to your customers. Ask what
shipping rates they can get for you and then try to negotiate your own deal. Shipping can be
negotiated at high volumes and you never know who can get a better price.

3. Turn around times. Understand the process for fulfilling an order from start to finish. Many
companies will charge more for faster turn around times, or will provide the customer an option
to pay more for a faster turn around.

4. Communication and customer service. More pro-active communication with customers will
typically lead to less time and money spent answering customer questions. Build automated
customer communication and order tracking services into your process to keep customers
informed. Talk to each company's references to test the quality of their work. Are they on time?
How many complaints do they receive each month? How easy are they to communicate with?
Set metrics to measure their performance and hold them to those standards.

5. Warehouses. Assume that weather can be very hot or very cold and likely humid. If you have
a product that needs climate control, ask for options. Shipping is also important. Will you need a
lift gate to lower pallets, do you have oversized products? Make sure to communicate your
delivery sizes and walk through the loading and unloading process.

6. Fees. Expect to have a contract with multiple types of fees built in. Set-up fees, processing
fees, return fees, storage fees, credit card processing fees, assembly fees, etc. Fulfillment
centers will want to be compensated based on their costs, so expect any service that costs
them money, to cost you money. Make sure to receive detailed estimates before you start, so
everyone's expectations are in line.

7. Contract terms. Most companies will want to lock you into a longer term contract. This is not
bad if everything works out, but you may want to include a termination clause if they are not
performing up to the standards you agree to.

8. Insurance. Discuss and document who is responsible if something happens to your product
while they are managing it. Ideally, you want them to be responsible, AND you probably want
your insurance to cover it as well.

9. Cash Flow. You will want to pay your fulfillment company after you get paid, while they will
likely want to be paid sooner. If you can't negotiate ideal payment terms in the beginning, it is
reasonable to build in a structure with more favorable terms over a period of time, once a credit
history has been established.

10. Credit card processing. Ask how long it takes the funds to be put in your account after a
credit card is authorized. This can range from 1-30+ days which can have a huge impact on
your cash flow. There are different rates depending on your type of business. E.g. A retail
business with signatures will have lower rates than a phone order, because there is less risk of
a dispute. If you are a newer company or have lower credit, a company may set a maximum
monthly charge to reduce their risk of a high dispute rate. You can get past this by placing a
bond with the company.
Questions to Ask Fulfillment Companies

Below are some questions you'll want to ask fulfillment companies when you compare. After you review
the responses, you can prioritize which company best fits your needs.

1) What type of fulfillment services do you specialize in?

2) Where are you located? Headquarters and other facilities?
3) Which locations would you recommend using for my company?
4) What is your average turn around time for a product like mine?
5) What is an average shipping time for a product like mine?
6) Do you offer guarantees for your turn around time?
7) What is your policy if my product is damaged while you are handling it?
8) What if it is damaged during the shipping process?
9) Who will be my main contact if I become a customer? Where are they located?
10) What does a typical fee structure look like?
11) What is your minimum contract length?
12) What type of insurance do you carry and what does it cover in relation to my products?
13) What are your standard payment terms?
14) Who do you recommend shipping with?
15) What type of shipping discounts do you receive?
16) Do I pay your company for shipping or do I pay the shipping company directly?
17) What do you think is the most efficient way to package my product?
How to Choose a Fulfillment Provider

The MFSA (Mailing and Fulfillment Service Association) lists thousands of providers in the continental
U.S. alone. How does a business go about choosing the best provider?

 Location: Shipping costs will be lower if you choose a provider that is geographically situated
close to your customer base. Also take into account the provider’s distance from your suppliers-
saving on shipping costs on both ends is possible if you choose the location of your provider
strategically.
 Services Provided: Make sure the provider is able to track and record shipments and manage
your inventory in a manner you find acceptable. Some providers offer additional services, such
as credit card and order processing, which can be especially convenient for internet-based
businesses with large sales volume.
 Customer Service: Get written estimates before routing shipments to a provider’s
warehouse. Ask if you’ll have a dedicated “rep” or point of contact- a responsive provider is
generally a safe choice.
 Check References: Check the MFSA website, Dun & Bradstreet, the BBB, and your local
Chamber of Commerce for references. The USPS or logistics companies like FedEx, UPS,
DHL are also a good source of local recommendations. Ask if the company is ISO 9000
certified, a certification that means they follow certain standard management procedures. Ask
about the shrinkage rate, or number that describes the percentage of inventory that is lost,
damaged, or stolen- it should not exceed about 2-3%.