Three Tips For Negotiating Ocean Contracts

If you've ever been involved in negotiating a contract with an ocean carrier, you know how complicated it can be.

You're bombarded with hundreds of surcharges, and each carrier uses their own system, structure, and rates.

These contracts are comprehensive because they have to cover every possible contingency. But that doesn't make negotiating them any easier.

So how do you make sure that you're not chained to an unfavorable contract for years?

Take a look at what to do BEFORE you negotiate any ocean contract for the best results.

First - Find Out What You Actually Need

Do you only ship freight during certain seasons? How much capacity do you need? Do you need extensive customer service or do you just want barebones freight?

These are questions you need to ask yourself before you begin negotiating. Carriers assume certain things when you're getting a quote. If you don't go in knowing exactly what you'll need you'll be slammed with charges and fees for services that are completely irrelevant to your business.

Know the level of service, security, and price that you're willing to accept and you're already halfway to a favorable outcome.

Second - Take Current Market Conditions Into Account

The key to getting what you want in a contract negotiation is being able to anticipate the responses of the other party. How are the rates looking in today's market? Are they likely to try to lock you in to a yearly contract? Will they be trying to push more services on you than you need?

The more you study, the more likely you'll know what they're going to offer before you even begin to talk with them! This will let you lead the conversation in the direction you want, and most importantly, to the price you want.

It'll also let you avoid any surprises when they start naming numbers.

The last few years have been terrible for ocean carriers, and they've raised rates tremendously to combat that. Experts suggest that you always look for short-term contracts in today's climate, simply because the pricing is so volatile. Certain carriers have been dropping prices quite drastically to attract more business.

Short term contracts will also let you slip out of any agreements if the conditions on the ground change suddenly (as they have recently).

Third - Don't Just Focus On Price

Whoever you're trusting with your freight is going to be responsible for a major segment of your business. Any problems on their end will mean problems on yours.

Therefore, don't just look at price when you're looking for a carrier.

Are they reliable? What level of product security and insurance do they offer? Would they be able to accommodate your needs in terms of capacity during peak seasons?

There's nothing worse than having tons of willing customers who want to buy your product - and not being able to get your product to them.

All these tips share a common factor if you want the best results from ocean contracts...

Do your homework.

Proper research and planning before a contract negotiation will ensure that you come out ahead.

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Manage your ocean rates and contracts more efficiently. Work faster, quote smarter with QMS and QMSlite from Catapult International - www.gocatapult.com.

Freight Forwarders: Here's the #1 strategy for bidding on RFPs

It's no surprise that most major shippers utilize formal RFPs to negotiate shipping rates.

After all, it lets them compare proposals with the same information - making comparison between forwarders that much easier. It lets them state exactly what they need, and get pricing for that particular part of their business. And once word gets out an RFP often makes forwarders come to them, which can increase competition.

All in all, it's a win-win for shippers.

But for the freight forwarder like you, it's less ideal. You have to adapt your bid to suit their needs, rather than focusing on the strengths of your business. Usually this means simply providing a price by which your whole bid may be judged. But more importantly, it becomes difficult to stand out outside of price when you're competing with so many other bids.

So how do make sure you're maximizing the return on every bid you make?

Here's the secret strategy experienced freight forwarders have learned about RFPs that might come as a shock:

It's not about winning the bid.

Wait a minute, you're saying. If I don't win the bid, what would be the point?

Here's the thing.

You're not always going to be able to offer your services at a price lower than your competitors. 

In fact, you probably won't be able to in most cases. And the undeniable fact is that shippers using RFPs are going to give priority to the cheapest bids.

So in those scenarios where you KNOW you will be undercut on price by a substantial margin, you should bid anyway.

Even if you are certain you will lose.

The reason is that your lower-priced competitors probably cannot offer the same level of service you can. Often, they've underestimated how much the contract will cost them in operating costs, and realize they are losing money, or just not making enough for it to be worth it.

In these situations, it's not unusual for the shipper to drop the forwarder due to bad service, or for the forwarder to drop the contract.

If you make a good impression in your bid, even with your higher prices, you will be in a strong position to pick up certain lanes if anything should happen.

So your goal going into these losing scenarios should be to create a relationship with the shipper - giving you the possibility for business together down the road.

Alternatively, you can aim for only winning some of the bid, while letting others go to competitors.

Whatever your decision, you should choose whether you want to win the bid, win only part of the bid, or lose (but make a strong impression) before you actually bid.

In this way, every bid you make is a potential business investment that may bear fruit in the future. So you'll never feel like you've wasted time on an RFP.

Here are three other tips:

Always describe what your company offers that makes you different from your competitors.

Don't forget to take seasonality into account when bidding.

And, feel free to add supporting material to enhance your bid within the framework of the RFP.

Once you adapt the spirit of "losing to win," you'll find that RFPs offer an entirely new opportunity for business.

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Springboard by Catapult International provides easy to use software that helps forwarders and NVOCCs quickly and accurately respond to complicated RFPs - learn more.

Freight Forwarders: Here Are 3 Keys To Attracting More Business

It's rough sailing in the seas of logistics right now, especially if you're a freight forwarder.

With carriers raising their rates, it become less profitable to import or export products. That makes it harder than ever for you to get new business. And if you're like most freight forwarders, you might not be taking full advantage of what you have to attract new clients.

There are several incredibly easy methods of making sure you are maximizing your lead generation and client list.

Here are three of them:

Secret # 1: Don't Just Focus On Price

Now, you know that many of your prospects come to you because you can get them the best rates on shipping.

And that's important.

But you offer something much greater than being able to save them money: Your expert experience from years of handling freight.

You know just how valuable that is when it comes to making sure everything goes smoothly.

• Whether it's getting shipments through customs in days instead of weeks...
• Whether it's making sure that freight going across the water is totally secure and insured from the worst threats, without breaking the bank...
• Whether it's negotiating with carriers to save your clients time and money they didn't even know was on the table...

That experience matters. And you NEED to sell THAT to your prospects.

So next time you're talking about your services, explain exactly how you can help your clients outside of just getting them the best rates. In fact, you should put a price on your expertise whenever you can. You can even market that that initial conversation with a prospect as a free consultation.

You'll be surprised at the difference it makes.

Secret #2: Communicate. Communicate. Communicate.

How many times have you gotten business simply because you happened to talk to the right person at the right time?

Freight is seasonal. And a client who needs something moved today might have another job for you in a few months. But only if you talk to them about it.

So communicate.

DON'T ASSUME that if your past clients and prospects need freight moved, they'll automatically think of you. You need to remind them. Constantly. And it doesn't need to be a hard-sell.

Send them holiday cards or e-mails. When you read a particular article online or in the newspaper that relates to them, mention it to them. Keep track of what they're doing on LinkedIn and congratulate them on milestones.

If you keep it up, we guarantee that you will hear that sentence: "Great to hear from you, do you happen to handle...."

Secret #3: Get More Leads With Automatic Online Quotes

In the modern day, your website is the face of your business. So it's not surprising that most freight forwarders today get a vast majority of their business through their online presence.

Now, most websites have something like a "contact us" page. The prospect fills out their information and sends it. Then you reply with a quote and engage with the prospect.

But there's a problem with this method: They just want a quote. And they don't want to wait hours or days for it.

One method of drastically increasing the number of inquiries you receive is to use an online form that will automatically quote rates. Your customer can then book the shipment right there, on the spot. There is no delay from extra phone calls and waiting for someone to get back to them. 

Rate management software like Catapult International's QMS and QMSlite products are cost effective tools that enable you to offer real time quoting from your website. 

Growing sales is often a matter of eliminating friction from the selling process - and the "back and forth" of quoting creates a lot of that friction. Aside from the other benefits of a rate management solution, online quoting maybe the best way to improve sales for your business.

It enables you to capture all those people who are reluctant to talk to someone just to get a quote. More importantly, it's a feature that your competitors most likely won't have.

A recent survey of forwarders shows that less than 25% of your competition has this capability.

The question was posed to a group of forwarders about their process for how they get quotes to customers. The goal was to find out how many companies were taking advantage of the available technology. The four responses included:

Customer calls you on the phone: 22%

Customer send you an email and you email back: 44%

Form on your site and you email back: 11%

Instant quote on your site - no waiting: 23%

This may be the competitive edge your business is looking for.

There are hundreds of other methods of getting leads.

But there is a saying that comes to mind:

"Choose just three ways of getting clients, and do them well," said a great marketer. "You will have all the business you can handle."

What is a GRI (General Rate Increase)?

It's a term that only people in select industries become familiar with.

Maybe whoever handles your freight recently raised their fees. Or perhaps your freight manager just told you that it's going to cost a lot more to get those products in from Asia.

They tell you this is the fault of something called a General Rate Increase, or GRI.

Here's an explanation of what that is, in plain English:

A GRI is when ocean carriers raise their fees for ocean freight.

That means if it's going over water, they will charge you more for getting things where they need to go. 

Correspondingly, freight forwarders, importers, and exporters have no choice but to raise THEIR rates to offset that increase.

GRIs are terrible news for anybody who relies on international freight. And there were hundreds of GRIs and Surcharges implemented by ocean carriers in 2013 alone.

So you might ask the question:

What's going on with the industry, and more importantly, why does it keep costing you more and more money to do business?

Why A General Rate Increase?

It's been a rough few years for shipping and freight, and it's also the reason why there have been so many GRIs.

Ocean freight carriers are losing money.

In fact, some are only saved from complete collapse by government assistance.

There are many reasons, but the main one being something all of us can sympathize with - high gas prices.

The cost of fueling a 60,000 ton cargo ship making a journey halfway across the world is astronomical. 

Accordingly, even a small increase in fuel costs can have a huge impact on the operating costs of freight carriers.

Fuel costs have remained stubbornly high since 2011, so it's no coincidence that there have been a large number of rate increases since then.

But it gets worse.

Overcapacity. Competition amongst services. Declining demand due to high rates.

It is a vicious circle that is detrimental to both the carriers and anyone seeking to move freight.

How To Minimize The Effects Of General Rate Increases

Freight carriers have continued to remain unprofitable even in 2013.

Which means you shouldn't expect the rate of GRIs to slow down anytime soon.

Depending on the ocean carrier, the price of a GRI can vary dramatically. In fact, competition among carriers sometimes causes certain carriers to forgo rate increases!

If you are planning to move large volumes of freight this year, we suggest the following:

1) Do It Early:

You can expect more rate increases this year, no matter what carrier you're using. If you can, try to get your product shipped as soon as possible to avoid the price increases BEFORE they happen.

2) Compare Rates Before You Commit:

Different ocean carriers will have drastically different prices. The carrier that is the most affordable today might not be two months from now. There has been extreme fluctuations in pricing, especially during these last few years. For this reason, we suggest you carefully pay attention to CURRENT rates and how they change. You can easily do so by using software that makes it easier to compare rates automatically.

A General Rate Increase is detrimental to everybody it affects.

But with some planning, you can minimize the effects of any GRI and avoid rate increases before they occur.

Outsourcing Ecommerce Order Fulfillment for Online Shippers

1 - This eBook was written to give online retailers everything they need to evaluate and make a decision regarding outsourcing the order fulfillment of their customer orders.

Making the decision to outsource is an important one for any online business. The benefits and risks are great so the better you are prepared going into the process, the better the result will be.

2 - To Outsource or Not?

Any fulfillment company’s website is bound to offer you a free downloadable whitepaper on the “Top 10 Reasons to Outsource Your Order Fulfillment” – so I will spare you the top 10 list here.

That said there are many legitimate reasons to outsource – the most common being that in all likelihood a quality 3^rd party can do it cheaper than you on a per order basis. If you can avoid the headaches of staffing and running a fulfillment operation you should. Doing fulfillment well is all about processes, systems, and scale – three things a business built to do nothing but fulfillment ought to be able to do better than a small or medium size online retail business can.

The first step in evaluating the options for outsourcing should start with getting a handle on the costs of doing the work in-house. Rent, labor, supplies, systems and other overhead costs, the aggravation, etc. are “costs” you should be weighing. From that, the soft benefits of faster turnaround time on orders or lower negotiated costs for shipping and materials should also be considered. Before jumping to the conclusion however, we’ll review what happens during the order fulfillment process, the costs, and what to consider when evaluating 3^rd party fulfillment centers.

3 - What to Look for When Outsourcing Your Order Fulfillment

This is another fertile topic for whitepapers, but it comes down to common sense.  Here are 4 questions you should get answered from a third party fulfillment company right away:

-          The #1 Question is of course - based on their rates, will working with them reduce your costs? (remember to include the soft costs or time and aggravation)

-          Does the company have experience with products similar to mine?

-          Do their references check out?

-          Do you feel their reporting capabilities and account support staff are adequate?

Far and away the biggest issue I see when a company decides to outsource order fulfillment when they have done it themselves in the past is getting that the fulfillment centers are built to handle lots of products for lots of customers. This means that just because you know when an item is ordered and sku#123 is out of stock that sku#234 can be shipped instead does not mean that the fulfillment center will know to do that. In fact, any work around or manual steps an online retailer pushes a fulfillment center to implement WILL create an issue at some point down the road. So, when you outsource, understand and accept that the fulfillment center cannot and will never know your products as well you. For the process to work you need to help them work within their processes. They are pros at it and will do a good job – don’t get in their way (unless they are really messing up, which can happen too…).

4 - Startup? When to Outsource

A big decision for any start up business, whether it is related to order fulfillment or any other function, is deciding when to stop doing something yourself and to outsource.

A general rule of thumb for online retail start ups is to look to outsource when order volume reaches 15-20 orders per day. To be frank, it will be tough to get a fulfillment company to take you seriously as a startup so it is good to have some sales history or at least a solid business and go to market plan. The reason is fulfillment companies make their money on having a high volume of orders, and not by billing for storage. Most fulfillment companies will actually discourage customers from keeping “dead” storage in their warehouse because they want inventory spaces that turn over and generate more revenue that just $10-15 for storage per month.

The other thing fulfillment centers know is that start ups take as much if not more time to implement and service than established online retailers. That coupled with low order volume make starts ups not appealing to most fulfillment companies. That’s why I recommend coming armed with your business plan to get taken seriously. Every fulfillment company has experience with countless new businesses that plan to be big but that seldom actually happens quickly.

5 - How to Compare Pricing

One of the challenges of evaluating the options for outsourcing your order fulfillment is making a true apples to apples comparison of rates from multiple fulfillment companies. Each company will likely present pricing in a way that represents how they prefer to bill for services and it will also likely be unlike any other quotes you have received. In the end, typically the best way to deal with that is to work the various rates and charges into a per order cost.

When it comes down to it, order fulfillment costs are a function of labor, rent, and systems. At a high level, there are 3 general areas of cost involved with outsourcing order fulfillment.

-          Order Fulfillment Labor: the time and cost involved in picking and packing the items on an order, as well as related receiving and administrative time spent on services your program

-          Storage: the amount of space your products take up in the fulfillment center

-          Materials: the cartons and other packaging material used to prepare an order for shipment

Some fulfillment companies will charge based on a cost as a percentage of sales, but most charge through a combination of per order costs plus storage and other variable costs for things like receiving, account management, cycling counting, etc.

A VERY general rule of thumb an online retailer could use would be to figure order fulfillment costs will run 3-5% of sales, with shipping costing an additional 5-7%.

To start the process of outsourcing, you should get quotes from multiple fulfillment vendors.

6 - Fulfillment Center Location

The closer your fulfillment center is to your customers the better. Clearly your shipping costs and delivery times will be minimized if this is the case. In theory then, why not store and ship product from points all over the country? The problem is maintaining duplicate or triplicate inventory is very expensive, so the real answer to whether or not it makes sense to operate out of multiple fulfillment locations is as much of a function of how many products you stock and the volume of orders you ship.

There are lots of studies on this available in supply chain magazines, but for a normal national distribution of orders here are 3 scenarios that describe the optimal network of shipping points.

For 1 location – Mid-Atlantic is the optimal location for a national program

For 2 locations – Mid-Atlantic and West (Reno, NV)

For 3 locations – Mid Atlantic, Memphis or Chicago, and West

Many fulfillment centers operate out of multiple locations and can provide a network to give you a presence around the country. It will really depend on the characteristics of your program to determine if it makes sense.

7 - Shipping Options for Online Retailers

There actually may be more carrier options for shipping your customer orders than you realize. The good news is many options can lower shipping costs without sacrificing on service. The only bad news is it can be a little messy doing the analysis to figure out the options and make a true assessment to come up with the optimal service/ cost balance.

Of course, the main players are FedEx, UPS, and the Post Office. Each of those carriers have several service options that, although they have different names, are generally all variations on the same service levels – Next Day, 2^nd Day, Ground, etc.

A common question that does not have a simple answer is “What the cheapest way to ship my customer orders.” Given the options and complexity of how rates are calculated that is complicated. HOWEVER – here are some very general generalizations that are at least a starting point for an analysis you’d want to go through.

- If you are less concerned about trackability and super reliable service, the USPS will likely be your best option for residential deliveries at lower weights. If you have 3-4 lbs or less size shipments are often less the UPS/ FedEx Ground. This is especially true for under a lb. shipments.

- People tend to remember their bad experiences, but FedEx and UPS largely offer the EXACT same service. They are both incredibly well run companies, even when their customer service may be horrible some times. The quality of your local service center can also affect your particular experience with either carrier, but the reality is it makes sense to go with the carrier who gives you the best price. It’s time to let go of the package that you remember UPS losing back in 2001. It was over 10 years ago and it was 1 of 1000’s you’ve sent. Besides, you may have “mis-remembered” and it was really FedEx.

If you decide to outsource order fulfillment your options may be a little more limited. Fulfillment centers will likely have a preferred carrier that you may or may not be required to use for shipping your packages. This typically means that they have better rates with one carrier and happen to favor the local UPS sales rep over the local FedEx sale rep, or vice versa. Most facilities however will allow you to ship on your own account whether it is UPS or FedEx, and in all likelihood have pickups and deliveries from both carriers every day, in addition of course to the USPS. If a fulfillment center requires you to use a certain carrier it likely is an indication they are making a margin on your shipping volume. Which, if it is a net savings to you then its not really a problem. Just like the costs for packing orders or storage or anything else, the costs of outsourcing order fulfillment need to be looked at in aggregate. See How to Compare Pricing above…

Adding complexity to shipping rates are the many surcharges that carriers will charge: Fuel Surcharges, Residential Delivery Surcharge, Extended Area Surcharge, HazMat Charges… it goes on and on. Make sure you know what you are shipping and any potential accessorial costs that you might incur.

A new trend in online retail is also shipping services like Amazon Prime and Shoprunner. With these services you basically pay a flat amount per year and you are able to get free or low cost upgraded shipping when you buy off of certain websites. The trend is creating a lot of pressure on online retailers to offer low cost or free shipping to be able to complete with the likes of Amazon.

8 - State Sales Tax

This is a complex issue that may take years from now to get straightened out. As it stands every state has its own laws on whether or not to collect sales tax.

Another consideration for an online retailer looking to outsource their order fulfillment is to make sure using a 3^rd party for order fulfillment does not create nexus. I am NOT a tax attorney but this relates to whether or not you’d need to pay taxes in the state where your fulfillment is managed. Amazon is taking on this fight with a vengeance as I type so the best thing to do at this point is to make sure you understand the tax rules in the state(s) you operate in currently, and see how things shake out because the situation is very fluid right now.

My opinion is that this issue will have a greater impact on small and medium size online retailers than is understood. This is an issue you should be paying close attention to if you are an online retailer in any state.

9 - Shopping Cart Integration

A vital part of any order fulfillment process is getting the order data from your online store and shopping cart program to your pick pack area so your operations team can accurately assemble orders– whether you outsource fulfillment or not.

There are A LOT of ecommerce platforms out there, way too many to list here. But, it seems apparent that several have started to separate themselves from the masses over the last year or so. I will leave it to you to pick the best but gone are the days when a company needs to build a proprietary ecommerce platform on its own. Between Magento, Shopify, Volusion, or 3DCart you should be able to find a suitable, scalable shopping cart program for your online store.

When it comes to integrating the shopping cart program with a 3^rd party fulfillment center, most established ecommerce order fulfillment operations will have pre-built integrations that make connecting your cart to their systems pretty seamless.

10 - Inventory Management

Perhaps the most important part of outsourcing any fulfillment operation is getting the Initial Move done correctly. When the products are brought into the fulfillment warehouse for the first time it is obviously very important that the products are identified and put into inventory accurately. I can promise that if you are having a large number of inventory discrepancies during your initial roll out, then those will be greatly magnified down the road. Make sure the initial inventory transfer is done right no matter how long it takes.

Once a program is up and running obviously there will be additional inventory added regularly – see the next section on Receiving.

In terms of ongoing inventory management there are a few things you should expect.

1-     97% to 98% inventory accuracy (on total piece count in inventory) is normal and most fulfillment centers will guarantee a certain level of accuracy.

2-     Physical Counts/ Cycle Counts done on an agreed upon schedule and with certain guidelines.  A cycle count is a physical count done on certain items in inventory, typically the most active SKU’s.

3-     The ability of your fulfillment center to send you low inventory alerts for each SKU, so if item #123 gets below 5 items in stock you will be notified and can order more product.

Many fulfillment operations will utilize bar code scanning to facilitate product inbounding, as well as order picking. Pick to light and pick to sound processes are additional ways technology is used to minimum human error in the order fulfillment process.

11 - Sending Product to a Fulfillment Center

If you have outsourced order fulfillment then you are likely leaving the responsibility for making sure the products you are getting from your suppliers are the right quantity and in good condition. The receiving department in a sense becomes your eyes and ears to make sure your suppliers are producing and delivering what you expect.

Most warehousing and fulfillment facilities will have some type of ASN (Advanced Shipment Notification) process that help give their receiving department a heads up that your product is on the way. The better you can prep the receiving team at your fulfillment center about incoming product the faster it will get received into inventory, and the more accurate they will be with their inventory counts. Discrepancies will also be identified sooner, which will lead to faster notification to you.

It’s normal for a facility to commit to do a visual inspection for damages and then a physical count on 10 to 15% of the items to verify the quantity. In circumstances when a carton comes in and contains only 1 SKU, receiving will likely use the quantity marked on the outside of the box as validation of the count. When a carton contains mixed SKU’s, it would be expected that the each piece would be counted in the box for each SKU.

Fees for how the cost of receiving is covered can vary depending on the fulfillment center. Some companies may cover the cost of receiving as a per SKU fee, or as part of a program management fee, but most will charge for receiving time as a per hour charge. The reason this method is most common is because the timer required to do receiving depends on a lot of factors not under the control of the fulfillment center. That said, in certain circumstances, a per pallet or per carton charge may used when the product mix is limited or very consistent.

12 - Packaging

One of the immediate advantages of working with a 3^rd party fulfillment operation is the likelihood that they’ll be able buy cartons and packing material less expensively than you could on your own (this applies to shipping costs as well).  One of the downside of outsourcing however is the lost sense of control over the customer experience and how you products will look when they show up at your customer’s doorstep. Forgetting for a moment the UPS or FedEx package handler crushing your box and its contents to make a little more room on a truck (I’ve had employees tell me they do it!)., how your product shows up shapes your customer’s perception of your business.

13 - SKU Counts

SKU Counts refers to the number of unique SKU’s an online retailers maintains in inventory. Having a large number of SKU’s obviously make order fulfillment, and inventory management more complicated. Many 3^rd party fulfillment centers will charge a monthly per SKU fee based on how many unique SKU’s you keep in inventory. Others will factor the SKU count into their per order costs. In either event, having a lot of SKU’s will increase the complexity of your fulfillment program.

This might come as a surprise but most order fulfillment companies are not interested in getting you to store as much product as possible at their facility. Of course they’ll take and bill at a rate to make a small margin, but the goal of a fulfillment operation is to being in customers that ship a lot of orders, and as a result turn over a lot of inventory. Dead storage is bad, high order volume is good for an ORDER FULFILLMENT CENTER. There are plenty of public warehouses for storing products that will never sell.

Okay, now that we are clear on that, there are a few different ways a fulfillment center will charge for storage. A cost per pallet is common – a standard pallet is generally defined as having dimensions of 4’ x 4’ and 4’ tall, which equals 64 cubic feet. Per square foot, per shelf, and per cubic foot as also possible. In the end, each unit of measure is attempting to quantity the amount of space you product is using in a facility. You are simply paying rent on that space.

14 - Inbound Freight

One over looked area to save money for online retailers is to do a better job managing the inbound movement of their products to their fulfillment operation. A big percentage of online retailers do not have the relationships or volume contracts with shipping companies that the fulfillment warehouse likely has. Whether it is bringing in a container of product from China or shipping a pallet of product across the country to a retailer’s distribution center, it is worth seeing if your fulfillment center can get you a better rate.

15 - Call Center Services

There are really two schools of thought on fulfillment centers offering call center services. It’s my experience that running an order fulfillment operation and a call center operation are two very different animals. The skill set of employees to be good on the phone and run an efficient warehouse are not similar at all, nor is the technology. I understand the appeal to an online retailer to have the functions as closely tied together as possible, but the ease in which systems can be integrated and accessed remotely there is no reason the two functions need to be in the same building. That said, some fulfillment companies do both well, but I would just not make it a deal breaker either way if this is concern for you when evaluating possible vendors.

16 - Fulfillment Process

So what exactly happens during the fulfillment process, from the moment an order is released to the floor of a fulfillment operation?

Let me back up and explain “released” first… Just sending an order to the fulfillment center doesn’t mean its going to ship. The fulfillment center’s warehouse management system (WMS) will check each item on the order to make sure the items are in stock, and once that is confirmed the orders will be released to the pick pack operation to be fulfilled.

The first step is a pick ticket is printed out. An employee in the fulfillment center, the “picker”, will take the printed pick ticket and locate the item(s) on the ticket and place them in a bin or carton. That seems simple enough, right? Order fulfillment is just picking an order. Well that is the easy part, but the challenge is that 100 other things have to happen just right to allow the picker to do their job right. It’s the receiving and inventory management and systems and lots of other things that happen leading up to the moment the picker walks up to the shelf location and find the right SKU in the right place in the right quantity. It can be a beautiful thing (to some people anyway).

Then, in most instances, another person will perform at least one quality control (QC) check to make sure the right items were selected.

Before the box of picked items is sealed up, a packing list is added to the contents. The packing list is intended to document the contents of the box for the recipient. Some 3^rd party facilities may use the pick ticket ticket as the packing list and include it in the shipment. Others may print a separate “packing slip” to go in the shipping carton. In either event most fulfillment providers will allow some level of customization to the packing list such as allowing you to add your logo to the document and maybe some language on returns or product instructions.

The sealed boxes will then likely move through the facilities shipping station/ logistics software where the shipping label is printed and applied to the carton (check out the Shipping section for more info on that).

With a 3^rd party fulfillment operation, the fees for packing orders typically can be structured in a few ways. Many facilities will charge a flat per order amount, which may include an additional per piece fee – this seems to be the most common method. Other companies charge a per box fee (which is different than per order), while others even charge as a percentage of sales.

Here is a chart that details the general areas of cost and method in which a fulfillment company will potentially bill for.

One-Time Charges	Possible Units of Measure
Account Set Up	one time charge
Software Integration	one time charge
Monthly Charges	Possible Units of Measure
Monthly Software Charge	fixed charge per month
Account Management	fixed charge per month
Activity Based Charges	Possible Units of Measure
Order Processing	per box charge
	per order charge
	addt'l charge per  piece
Packing Materials	per carton
	per envelope
	box assembly charge
Receiving	per piece
	per SKU
	per carton
	per pallet
	per hour
Storage	per cubic foot
	per shelf
	per pallet
Shipping	per order handling fee
	surcharge to use your own account
SKU Fee	per SKU
Returns	per order
	per hour
Paperwork Preparation Charge	per International Order
	per Freight Order (LTL shipment)
Pallet Preparation Charge	per pallet
Rush Order Surcharge	per order
Kitting/ Assembly	per item
	per hour
	per order

17 - Returns

For better or worse, Returns are some almost every online retailer has to deal with. A common question when you are looking to outsource order fulfillment is “What’s your policy on returns?” Usually the answer is they can handle returns however you need them too. Most customers have unique needs so this is something that is hard to do the same way for everyone. For instance, some items cannot be resold, some need to be inspected before they can be returned to inventory, some are perishable, etc.

UPS and FedEx offer a few different options for making the returns process easier for customers. For example, you can add a return label to shipment before it goes so the customer can just place the label on the box and send it back. BUT, do you really want to make returns that easy? Everyone loves Zappos but it is very expensive to operate like they do, and are actually not that profitable for the amount of revenue and great PR they get. So, don’t try to act like Zappos.