Wednesday, October 6, 2010

Ecommerce Order Fulfillment Explained

What are the different service and cost components of packing and shipping with a 3rd party fulfillment operation?

If you are an online retailer thinking about partnering with a 3rd party ecommerce order fulfillment warehouse to handle your pack and ship operation you should understand the different categories of service a typical fulfillment house will provide.

Receiving and Storing Product: This includes the process of receiving your goods into their warehouse. It begins with a thorough inspection of the product as it arrives to ensure there is no damage and the exact products and quantities match what is expected based on your direction and the Bill of Lading. On an ongoing basis it is important for the provider to maintain and report accurate inventory numbers. Storage requirements depend on the product but can include the facility maintaining a temperature controlled environment, custom racking, or on-shelf storage. Receiving and Storage rates are generally billed as either a per pallet cost, or a per package cost depending on the product.

Order Pick Charges: An integral part of the fulfillment process is how orders get transmitted from you to the facility. This can happen as part of an integration with your shopping cart software, EDI, flat file, or even a fax. As the orders are received, they are assembled or “picked”. Order Pick charges are generally based on a flat per order fee that includes the first item, and then a small additional charge for each additional item in the order. So, as an example, if your typical order is for three items, you could expect to pay $4.50 per order plus an additional $.50 for each additional item, making the total $5.50 to have the order packed.

Administrative Support: Fulfillment providers will often charge a monthly service fee for things like reporting or fielding customer calls. These charges can varying by a large extent and depend on the requirements you put in place.

Packing Materials: This would include the cost of the carton the order is shipped in, any dunnage (packing material to protect the product in the box), as well as the labor to assemble the box. These costs may or may not be included in the Order Charges detailed above. Remember, the majority of costs for a fulfillment operation are labor, so each small action (assembling a box, printing a label, placing an item in a box, etc.) each take time. It may feel like you are being “nickeled and dimed” but it is really about charging for the exact time spent for your specific needs. Fulfillment is not a one size fits all service in any sense.

Shipping Costs: The handling costs associated preparing an order to be shipped (printing the shipping label, palletizing boxes, etc.) are generally covered by the Order Charges. But obviously one big remaining cost is for shipping (FedEx, UPS, USPS, etc. assuming you are shipping boxes, not pallets at a time). If you have one, it is often best to use your company’s own account number and most fulfillment providers will allow you to do that. They may, however have a better contract with one of those carriers and be able to pass on some of that savings.

More info on Ecommerce Order Fulfillment and Frozen Food Fulfillment.