Help for online retailers to understand what to look for when outsourcing order fulfillment

If you are an online retailer and are finding it difficult to keep up with your pick pack operation  and shipping customer orders, it may be time to think about finding a third party order fulfillment center. Similar to other difficult business decisions a growing company has to make, it is important to understand all the costs associated with outsourcing your fulfillment and shipping operation to an outside company.

The following is a breakdown of the general areas of cost a typical business will face when bringing on an order fulfillment service resource. Each company's needs and situation are different, but understanding these costs is vital to making the best business decision possible to position your company for maximum future growth.


Storage (a.k.a. "rent" for your products): Fulfillment centers will charge storage for the space an online retailer’s products take up in the warehouse. This is generally done on a per square foot  or per pallet basis.


Inventory Inspection and Receipt: Since most online retailers are having their suppliers ship the products directly to an order fulfillment warehouse, the online retailer is not able to inspect the shipments to make sure the products are the correct quantity and in good condition. A fulfillment center becomes that extra check to make sure the supplier is sending the right products and will report any discrepancies to the client.


Order Charges: Packing orders is the main part of the whole order fulfillment service, although not necessarily the largest cost. These are the labor costs for preparing and boxing up orders. The rates are generally based on a flat per order fee, plus a cost for each additional item included in the order. The more orders a retailer ships with a fulfillment company the lower the per order cost will be for the most part. The order cost is intended to cover the systems and time to receive the order, prep the pick ticket and other paperwork, as well as the time to physically build the carton, locate and pick the items on the order.


Material Costs: Simply stated, material costs include the cost of cartons and packing materials. Most fulfillment centers are buying boxes in bulk so this is one area a 3rd party fulfillment center can help reduce costs.


Shipping Costs: These costs will make up the majority of the expense of getting products to customers. Here's a link to reference useful information on calculating costs for shipping small packages. Many fulfillment operations will allow their customers to ship on their account numbers with FedEx and UPS, thus providing better shipping rates than most customers could negotiate on their own.


Returns: As some products are inevitably returned from a retailer’s customers, the fulfillment center can help inspect items and report to the retailer details on the returns.


Initial Move: There is often an initial inventory move of products from the online retailer to the fulfillment warehouse. This means there are potential costs for the shipping and receipt of the products as they are brought into the fulfillment center.


System Integration: The process for integrating an online retailer’s ecommerce shopping cart software may require some customized programming expense. How orders get communicated to the fulfillment warehouse can happen in a variety of ways (EDI, API, Email, or even fax).


Some fulfillment centers will offer bundled pricing that includes a certain amount of storage space and a certain number of orders shipped in a period of time. Or, the fulfillment charges may be calculated as a percentage of sales. There is nothing wrong with either method of pricing, just be certain the rates accurately reflect your true activity levels.

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 Preperation Charge	per Interntional Order
	per Freight Order (LTL shipment)
Pallet Preparation Charge	per pallet
Rush Order Surcharge	per order
Kitting/ Assembly	per item
	per hour
	per order

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Kenneth Kowal  ecommerce order fulfillment for online retailers.