Forum Moderators: buckworks
To make a long story short...after many years of the headaches and hassles of dealing with production employees that have poor work ethics and low productivity. A couple of years I decided to outsource all production outside the United States. Since then we have never lacked for inventory and our unit costs are way lower.
I kept in-house order fulfillment, ie; packaging, shipping, customer service, etc. A very important point here is that I have had the same problems all along in this department as I did production, but I thought if I downsized our operation by outsourcing production...I could solve the problems in order fulfillment. I have fired so many people for failing drug test, never coming into work on time or not showing up at all, even embezzlement (the person is in prison now)...the list could go on forever. On top of all this the government bleeds me dry with worker's comp insurance, unemployment and other taxes that I am having to pay on this sorry lot of a labor pool in my area.
Now I am to the point of considering outsourcing order fulfillment. I know Amazon is venturing into this area and have heard of a few other companies. Outsourcing product production has been an alternative for years, so I did not expect few if any problems to arise. So far, it has been a smashing success. I am a bit wary of outsourcing order fulfillment as this is a new concept as far as I know.
When we produced our products in-house our employment varied from 50 to 60 employees...order fulfillment requires around 16 people. If we go with outsourcing order fulfillment all that will be left is a minimal office staff.
So, if anyone has had experience in this area I would sincerely appreciate any and all feedback as to the pros and cons.
All this makes me wonder how long the US will continue to be a consumer nation...it seems in the near future all that will be left working will be government bureaucrats, hamburger flippers and fry cooks, and webmasters.
The concept has been around for some years now. Every time you see a commercial online about a widget you can only buy from the phone number on the screen, it is a fulfillment service. Any time you see 4 to 6 weeks for processing, its a fulfillment house.
You'd have to do the math yourself to see if you'd save by outsourcing versus paying for labor and related expenses yourself. Also, how much will the cost of integrating your system with theirs cost? Where is the fulfillment house located? What's the overhead for shipping your products to their warehouse? Will their shipping location reduce or raise your shipping costs?
If fulfillment and production aren't your core business then I don't see the point in handling them yourself. Fulfillment companies send in such volume and work so closely with carriers that they can often work out discounts on shipping that you may not be able to negotiate. They deal with the HR aspects too which can sometimes be a big drain on your money and time.
The biggest hurdle I've seen is that you'll have to work hard to make sure communication with the fulfillment company is good, both between your people and your systems.
If before your office staff could just walk into the warehouse and communicate to the shippers (and vice versa) they're now going to have to use phone, fax and email. There's a greater chance of miscommunication (or not communicating at all due to laziness or time constraints) compared with talking to someone face to face.
Then there's the ordering systems. You'd want to make sure that orders are sent to the fulfillment company at the time of order and that there are "checks and balances" in place to make sure stuff doesn't fall through the cracks. How you deal with out of stock issues and backordering is something to think about too.
None of these problems are insurmountable, and I think compared with the alternative of doing it yourself I would always recommend outsourcing fulfillment and production unless they are part of your core business.
Any time you see 4 to 6 weeks for processing, its a fulfillment house.
Hmmm...4 to 6 weeks delivery will not get me any orders. I was thinking in terms of firms that warehouse our packaged product and ship on a quick time frame like we do now.
This type of pattern employee problem is almost always really a management issue. Probably low wages with pressure for increased productivity was part of the problem. You have to go in and research whats really going on in the factory to fix things. I'm getting a little philosophical here but if it was just to pass the ball on the employee management then the original problem will eventually surface in other ways. You can watch for it somewhere down the line. It could rear it's head in the relationships you have with the new manufacturers or some other area where you are addressing problems from a surface standpoint rather then analyzing why they are occurring. You can bandaid this by switching employees often as you used to do, or perhaps in the future by paying more (ofset by a different exchange rate) but eventually evaluation is the way to go.
I guess it is just a matter of finding the right fulfillment company.
This type of pattern employee problem is almost always really a management issue. Probably low wages with pressure for increased productivity
Definitely not a management issue or low wages. Production is pretty much automated. The problem is that I am located in a small rural community, less than 10,000 people in the whole county. Production wages were way above the average for this area ($18 to $22 per hour). I outsourced production because there is not much of an available labor pool here.
Background info...
I relocated the company from a larger city to here 5 years ago. Never had problems then because of the availability of workers with good work ethics. Moved here because I own a good deal of land here and wanted settle here and retire in a few years.
Right now my employees in order fulfillment make a base wage of $15 per hour plus they split a production bonus...the bonus is $1.00 for each order shipped. Bear in mind we ship an average of 400 or so orders per day. So the pay is not an issue.
I have thought that I pay too much. If they didn't make so much money they would have it on things they shouldn't which turns them into walking zombies.
I feel that I am a good manager (have MBA) and because this was not an issue before relocating here.
Do most fulfillment houses require that orders be called in or faxed....or do they implement a more "high tech" means such an online feed?
Really.
You may want to determine why people are quiting and not showing up to work. See what rumors the ex-employees are spreading around your small town. Something is wrong.
I remember I had a job once and it was very common not to have everybody show up everyday. I overheard a manager say that "we must pay these guys too much if they do not want to come to work". When in fact it was that nobody could stand to be there because of the conditions. I would drag myself into work every day and hated most every minute I was there. They still have a turnover problem to this day and the employees still do everything they can to rip off the employer.
Nope...not that. Only had one employee to quit since here and it was because her husband got a job out of town and they moved. My "turnover" results from employees being fired. We get a break on worker comp since we do pre-employment drug screening, then random test should use be expected. When they start habitually coming in late or not showing up, I ask them to do a drug test. In these cases the test always comes back positive.
The facility environment has perks...air-conditioned, flat screen plasma tv on the wall and carpeted floor in the packing and shipping area, in new building that is really nice.
Again, the problem is that we have a bad drug problem in this small community...it's just not my business, but every owner and manager of other businesses I have talked to about this has the very same problem. With a total population of 10,000 and the State estimate of the total labor force is less than 3000, I don't have much to choose from.
Fax or phone orders usually have a surcharge since someone has to type the order in. Fax and phone orders are open to errors which will lead poor customer experience occassionally. Submitting orders via e-mail is better, but ideally an XML feed or a file via FTP would lead to fewer communication issues between you and the fulfillment house.
Where are your customers located? Can you find a fulfillment house that can ship more quickly to your customers than where you are currently? If you take NewEgg as an example, they have two warehouses where they can deliver an order to any customer in the 48 United States states within 3 days.
You electronically transmit the orders and pick-lists to them daily/hourly and they take care of the rest.
We are just about to start working with an east coast fulfillment house. We're keeping the majority of our fulfillment in-house but they will ship about 1000 very time sensitive packages per month that come from an east coast manufacturer (the 5 days transit time from the east coast is killing us on these specific shipments).
If you want some leads on companies to contact, send me a PM. If you go that route, I would be interested in hearing about your experience.
sun818...about 80% is shipped within the US nationwide. Ranges from individuals, professionals, big and small retail chains. 20% outside the US. An XML feed would be the way to go for me.
You guys (as always) have been a great help to me. Many thanks to all.
Be very careful about who you choose. We went with a newer fulfillment company and are paying dearly for it at the moment. Lots of errors, delays, and poor communication. They came highly recommended and with references. The only difference between them and the other ones mentioned here is that there was no addt'l fee for each item (important for us as we ship 5-7 small items per package). So we pay a flat $1.50 per order. There's no contract, but between setup, training, and learning curve, its about a 2-4 week process when orders are NOT shipping out. So, not exactly easy to change and we're stuck riding it out through the holidays.
anyway, best of luck
