Opinions on outsourcing shipping using third party fulfillment co?

[Maximus1000]

I operate a ecommerce shop out of my home that has grown to the point that I am getting overwhelmed with orders, and I feel that I am spending most of my time just packing and shipping products. I am also planning on taking a two week vacation overseas in the spring time and worry about customers leaving me while I am gone. I talked to a local fulfillment center and am going to go and tour their facility. I thought it would be better to go with a local company just because of the proximity and sometimes it would be easier if I receive the product, sort them, and then drop them off at their warehouse.

They said they would charge anywhere from $2-$4 per order shipped, plus a storage fee of around $100 per pallet lot size month to store my inventory. I do around 500-600 orders per month currently, but see myself expanding this once I have a fulfillment center. I would also have to provide all packing materials, boxes, bubble wrap, tape, etc and cover shipping expenses. If they have to spend a lot of time sorting my inventory then they would charge me labor for that. They said they have insurance for the value of my items, but I am not entirely sure about how well that would cover me.

Here are my concerns about potentially outsourcing my fulfillment:

1. I have around $100,000 in inventory currently. Its a very scary proposition to take $100,000 of your money and give it to someone else to hold and handle. Is there any way that I can ensure that my assets will be safe at this fulfillment house? The worst case scenarios I have been thinking about are if they go out of business or get foreclosed upon putting my inventory in potential jeopardy. I am also worried about their employees stealing.

2. My other concern is regarding the quality of service. Currently I personally pack every order and include a few samples of products along with orders, sometimes based on peoples requests. The new place said they can do that too, but I am sure that the customization that I do for the clients will be lacking once the fulfillment center takes over shipping.

3. How do you think the cost is for this? If I end up doing closer to 1000 orders a month I am looking at probably around $3000 per month plus a few extra fees for storage. I calculated that if I rent a space and hire one full time employee I will easily spend $3000 per month. I think that a full time employee will probably max out at 1200 orders per month (40 a day). And then I have to deal with all of the issues that go along with hiring an employee (employee theft, coming in late, not doing things on time). I am also currently still in the startup phase of this (only a year into it) and have to really watch my costs.

Anyone else with any experience dealing with outsourcing their shipping please let me know your thoughts. If you were considering doing it but decided to keep everything in house please also let me know why you chose to do that. It is just very scary to trust someone else with all of your inventory, but this could potentially be just what I need to avoid leasing space and dealing with employee issues down the road.

[dpd1]

I can't give experience doing this, because I've never done it. Personally, I think the less people involved in your biz, the better off you are. I can't imagine anybody doing as good a job or caring as much as you do. Is there maybe a family member or friend that can help? Then you can skip the whole 'official employee' thing.

[Maximus1000]

I do not have any family members that can help (I wish I did!). Plus having family members involved in the business has not worked so well for me in the past (unrelated business) so I do not want to revisit that again. Either I will have to rent space and hire an employee or use the fulfillment company.

[WorkTogether]

Hi

We moved our business from our house to a small warehouse and haven't looked back. If you can - rent a warehouse - that way you have total control over customer service and order despatch. You care a lot more about YOUR customers than a furfilment house. You can bring people in as and when you need to. You can train them to do customer service etc... you can run offers and do all types of things as your business grows. Just my advice but I'd try and control it

Alan

[RhinoFish]

how about experimenting with some outsourced fulfillment, while keeping most of your volume in-house for now? just a suggestion to minimize risk and to learn the true overall costs of outsourcing.

check out folks like dotcomdist.com, infifthgear.com, dartentities.com and lynxfulfillment.com.

Amazon has FBA (fulfillment by amazon) - if your product can be sold on amazon, this might make tons of sense if you look at it's total costs (shipping by amazon means you'll sell more thru them, so it's not a straight 'what does their fulfillment' cost question, combine their FBA with the opportunity to have them bring you buyers via Amazon.com).

[gpilling]

I have experience running a warehouse, and doing minor fulfillment for others.

Answers to your questions:
1. If you are worried about the business going under, go with a public company like Amazon. As for the employees stealing, unless you are selling something fairly easy to resell (like ipods, laptops) then I wouldn't worry about it.
2. An order fulfillment company (and an employee) can only give great service and include the right giveaway if the process is documented in detail about how the decision of what to include or why to include it is made. At that point you could probably write a little code to automate the process. This sounds hard because it is - how do you expect a complete stranger to understand the nuance of your business like you?
3. I would expect you to pay $3000 for 1000 orders, seems about right. As far as packing speed goes, in the last busy operation I was running it took 5 minutes on average per order - tracked over a week. The bins were setup close to the packing table, supplies were at hand and some tools like an automated tape dispenser and digital scale linked to UPS worldship. At 5 minutes per order - 12 per hour, 6 hours productive a day, 22 days a month you would get 1584 orders per employee.

I hope that helps your decision process. You could always start with a 20 hour per week employee, and let them handle things when you are on vacation.

[DirigoDev]

I've used private fulfillment centers for years - moving > 1k units a day. They're a terrific way to go if you have a limited number of SKUs. The pallet fee that you quoted is a too high. The packing fee is within bounds for ~20 orders per day. Most of the cost of using a fulfillment center should be offset by shipping savings (e.g. discounts on shipping). Amortizing S&H costs for all of their clients into centralized accounts with major freight companies allow fulfillment centers to pass along significant shipping discounts. Go back and negotiate more. In the end, you'll free yourself to spend more time on marketing and content generation.

[Maximus1000]

I cannot go with Amazon because the suppliers explicitly do not want their products sold on Amazon due to minimum pricing concerns, so there is no way I can go with Amazon.

I am doing all shipping via Endicia, and am averaging $5.60 per order to ship (all USPS). I am thinking that if they can at least shave $1-$2 off of the shipping costs I may be able to justify their expense more.

I am still weighing the options.. My #1 concern is that the company be solid and I will not have to worry about them going under and potentially losing my inventory. Thats why I was thinking to go with a local company, however unfortunately I cant really think of anyway to verify that they are on solid footing. It seems like the more solid a company is, the farther away they are from me and out of driving distance.

I used to have an unrelated business and had around 10 employees working for me in different locations. I really hated employee management, filing payroll taxes, dealing with nonsense issues, etc. In this regard using a fulfillment company would be good in that I wont have to manage a whole cadre of employees.

Thank you all for your great comments and insights.

[Maximus1000]

Oh forgot to mention, I am thinking that I can maybe start by outsourcing just one brand that I sell to them. That way I can see how the costs are and see how they work things. If they do good then I can keep them. If they dont I can just go down and pick up my inventory.

[DirigoDev]

The majority of smaller fulfillment houses are owned by a single person or partners. These firms have lots of direct response clients. They’re usually well known with businesses that have call centers. Most regions don’t have many choices (we have 3 good picks within 40 miles of my location). Ask around enough and you’ll get a good profile on the fulfillment vendor. I’m in the Northeast and I’ve never seen a single fulfillment center close down or file for bankruptcy. They’re usually very stable businesses. The inventory is owned by you and you cannot lose it via bankruptcy. Your contract will spell all this out. Negotiate an iron clad 3-5 year contract so that you know your pricing and don’t have to worry about a sales or change of ownership. The only big risk is loss of inventory via fire or some other disaster. This is because it is not practical for small shippers to have multiple fulfillment locations. The risk is the same if you have your own shipping facility. Mitigate inventory loss with business interruption insurance.

[RhinoFish]

"I cannot go with Amazon because the suppliers explicitly do not want their products sold on Amazon due to minimum pricing concerns, so there is no way I can go with Amazon."

Amazon does offer fulfillment where you don't sell on Amazon, just fulfillment. Doubt they'd go out of business on you. :-)

[digitalv]

Personally I always recommend EVERYONE outsource their fulfillment no matter how much or little they're doing. Unless you have the physical space and equipment required to streamline it, you'll never be as efficient at it as a company that was designed to do it.

I've used Versatile Packagers in Tampa for a number of client sites, I think it was $150 a month storage for up to 15 palates and $1 or $2 per order to pack and ship. Pretty reasonable.

[jwolthuis]

Personally I always recommend EVERYONE outsource their fulfillment no matter how much or little they're doing.

That's crazy-talk. Our business has 3000 SKU's, the majority of which do not have UPC codes (they are not meant for Best Buy's shelves), and many of them are child SKU's involving custom cuts.

We sell fragile items along with bulky, heavy-weight items, which only we would know the proper way to package them without one destroying the other during shipment.

Outsourcing our fulfillment would be a disaster.

[digitalv]

Do you really think no one else could possibly know how to package fragile or heavy items? Fulfillment centers do all kinds of products, all day long, that's their whole business. Plus they're insured.

Although yeah, if you're creating custom products or don't have UPC's, that kind of rules it out as an option. For most businesses that are just selling a product that comes in a box, there is no good reason not to do it.

[votrechien]

We use a fulfillment company for all of our shipping (mainly because we’re a Canadian company and need to ship our products from the U.S.). Some comments:

1. $2-4 per parcel seems to be about average.

2. That per pallet fee is way too high. $30-40 is average, or about $1 per square foot. I’ve never seen anything as high as $100.

3. Generally, any quoted fees are extremely flexible, especially based on your volume.

4. Theft shouldn’t be much of an issue. The best fulfillment houses keep track of your inventory, so any discrepancy should be their responsibility. Fire/flooding/etc. generally should have inventory insurance to protect against it.

5. We’ve had some ‘quality’ issues. Not with packaging, but occasionally with packages not being sent out for a day or two. This is completely unacceptable in my eyes, and the reputable fulfillment houses shouldn’t have this issue. However, keep in mind these companies sole purpose in business is to ship packages- there’s something wrong if you do it better than them.

6. Consider UPS discounts et al. Most fulfilment houses get great rates, better than you’ll ever get, and will share some of this discount with you (inquire about this).

7. I’m a big believer with some of the other posts that logistics should be something you should seriously consider outsourcing when possible. Unless logistics is an intended competitive advantage of your company (and I personally don’t believe it ever should be until youre shipping thousands of packages a month) I don’t see a point in doing it in house, unless your cost savings are that significant.

Feel free to email me if you have any other questions, I’m always eager to talk with fellow business eretail owners 

[Maximus1000]

Thank you all for your great comments regarding this. I looked at Amazon fulfillment again, and noticed that they have a option where you do not have to list on their site. I was all ready to go with them until I saw that they have the amazon logo on all of their boxes. If they sent in a plain box instead I would go with them, but unfortunately having their logo on all of the shipments would definitely confuse customers and lessen my brand.

Anyone have any recommendations for fulfillment houses in the Dayton Ohio area?

[RhinoFish]

well that logo thing definitely blows for those just wanting fulfillment. sorry to recommend researching them, i wasn't aware of that.

[digitalv]

Lessen your brand? I think it would strengthen it... everyone knows Amazon. If your business looks like its affiliated with them, I would think that would make you look better, not worse.

[votrechien]

Except with the Amazon logo it looks like you're simply drop-shipping and it may give the consumer the suggestion "Hey, I can just buy this from amazon next time".

[digitalv]

Yeah I guess you're right not everyone even knows that Amazon offers fulfillment services so a lot of people probably wouldn't understand the arrangement. Good call.

[RhinoFish]

i wasn't saying the sticker was good or bad, i really think it depends, but merchants should have a choice. if amazon assigns the sticker value, fine, offer lower fulfillment rates to those who opt in.

in any fulfillment house does this, with no opting out... as an independent minded business owner, i'd look elsewhere.

[Maximus1000]

Ok so I got some firm pricing and wanted to see if this is a reasonable deal:

1-2 items shipped - $3
3-4 items -$4
4-6 items - $5
7 items+ - $6
I will pay all s/h charges and I will have to buy all packing supplies such as boxes and bubble wrap

Storage is $11 per month per pallet position 4' by 4'

I will have to pay storage fees on the packing supplies. There is also a fe hundred dollars in setup costs. What do u guys think about this?

[Maximus1000]

By the way my average items per order is 2.5.

[raijen]

The storage cost is good but the fulfillment cost seems pretty high to me especially if you have to buy your own packing supplies. It's way more than we're paying and we don't have to buy any boxes. Are you selling really bulky or awkward items that would make the cost higher?

[Maximus1000]

Well the items we sell are a bit fragile, and are also temperature sensitive. They are keeping most of our inventory in a temperature controlled area (with A/C and heating). Another thing is that they are not charging me to receive inventory, and I also have samples that I like to send to customers - they are putting a few samples in free with the orders which other fulfillment companies would charge me a as a line item for. They said that I would average out to $3.50 per order judging by my order quantity.

[raijen]

If your product is fragile and needs a lot of bubble wrap or something I can see why that might be more expensive. We're in climate control, too (we sell software), and get 1 to 9 items, plus up to two marketing extras, for $2.40, which includes box and packaging. Your storage cost is better than ours, though ($25 per pallet for us).

Does sending out samples/marketing items work well for you? We've never taken advantage of that service, but I'm thinking it wouldn't be a bad idea to make up some demo discs to have sent out with each order.