Category Archives: Warehousing and Fulfillment Resources

Information about warehousing and fulfillment for those new to warehousing and fulfillment.

How Do E-Commerce Companies Pull Off Free Shipping Perks?

How e-commerce companies offer free shippingI’m sure you’ve heard about the importance of offering free shipping in e-commerce. Perhaps you’ve even seen some of the latest stats, where it’s being reported that upwards of 74% of online shoppers drop out of their cart due to high or unexpected shipping charges. It certainly makes sense that people don’t want to pay a lot for shipping, and especially due to the presence of companies like Amazon that offer all sorts of shipping perks, free shipping has become more the norm than the exception. But have you ever taken a moment to think about how companies are able to offer free shipping to online shoppers without dipping too far into profits? We’ve done some research and below are some of the findings.

Your Shipping Rates Play a Big Role

Most business-to-consumer shipping is done via small parcel shipping, though larger products may use other methods such as less-than-truckload (LTL). We’ll focus on small parcel shipping in this article but the same general rules apply for larger freight. If you’re an existing company with regular order volume, you no doubt have your own rates that you’ve negotiated with the carriers such as USPS, UPS, and FedEx. The shipping companies provide you volume discounted rates based upon how many orders you ship and other volume characteristics, such as percentage of residential shipments, average dimensions and weight, among others.

In order to provide any free shipping offers to your customers, the first step is to make sure that the rates you obtain from the carriers are as good as possible. If you haven’t had a discussion with your freight carrier of choice, be sure to reach out to them periodically (at least yearly but more frequently if you have events that may help justify a rate decrease) – and don’t be afraid to shop with another carrier that you aren’t using. Shopping your freight rates with multiple carriers increases the competition and can result in better pricing.

Assuming you do have the best rates possible based upon your own volume characteristics, there is still one other option to improve upon your shipping rates – using a fulfillment service. Fulfillment companies store and ship orders on behalf of companies. You may have heard of them before or perhaps you use one now. If you don’t use one now, using one may offer significant savings in freight costs. Like your e-commerce company, they also obtain freight rates from the various shipping carriers, and because they ship products for multiple companies, their rates may be significantly better than yours. By using a fulfillment service, you can “piggy back” off of their rates. This will help ensure you have the lowest rates possible so that you can employ some of the free shipping strategies. According to Joseph Palisano at Lincoln Warehousing, “we work with multiple carriers to ensure our customers get the best rates and services for their e-commerce fulfillment shipping needs.” If you are using a fulfillment service, be sure that you check with them every so often as well to make sure that you’re taking advantage of their best rates.

Identify Ways to Improve Other Warehousing and Shipping Costs

Improving shipping costs isn’t the only way to create additional margin to justify free shipping. Be sure to take a look at some of the other warehousing and shipping related costs of your business to see if there’s any wiggle room for improvement. For example, some of the major shipping carriers have “free box” programs. This is a way to decrease some of the packaging costs of your business. While you may not get some of the benefit of custom packaging, it allows you to cut down on part of your shipping expenses. Another alternative is to utilize recycled boxes or re-use boxes from returns. Every dollar counts when trying to help compete with other free shipping programs of competitors.

Sometimes, it makes sense to change some of your procedures to reduce fulfillment and shipping costs. For example, minimizing some returns can help lower overall costs. In this case, you’ll have to weigh the pros and cons and do a thorough analysis, but taking a creative look at your processes and procedures may open the door for other cost saving methods.

Finally, there may also be other shipping services that you can use to lower costs. For example, FedEX has its smart post option where their drivers deliver to a certain stage and then “inject” the package into USPS systems. Because of this, they’re able to offer the service at a slightly lower cost. These types of programs are worth looking into to make sure you’re as competitive as possible.

What is Your Competition Doing?

Before we provide a listing of some of the free shipping options at your disposal, it’s worth mentioning that you should always take a look at the free shipping competitive landscape in your niche before jumping in with both feet. Pay close attention to what others are doing. Are they offering free shipping? What types of free shipping offers do they employ on their site? By doing your own research, you can see how to best position yourself versus your competitors.

What Free Shipping Options Should You Use

Especially if you need to be conservative with your free shipping offers, it pays to know what available options are out there so that you can choose the most effective strategy. In rare cases, companies offer free shipping across the board – this is usually a very calculated decision and certainly isn’t for everyone. Also, some companies have the luxury of having a very high priced product, so they can lose some money on shipping due to their high margins to begin with. If you don’t have as much margin to pay with, here are some ideas to use:

  • Set a minimum order amount. You’ll have to determine the best minimum level, but this at least forces the consumer to spend over a threshold.
  • Offer free shipping for select items – e.g. only higher priced items. This helps you maintain control to offer free shipping on your highest margin items.
  • Offer a promotion for a certain period of time. This will allow you to minimize the free shipping losses to a certain period of time.
  • Only offer economy shipping, such as USPS ground. When you do offer free shipping, there’s nothing wrong with ensuring that it goes the cheapest method.
  • Use member and loyalty programs. Take a page out of Amazon’s book and require membership.
  • Put shipping costs into the product price. This is a bit riskier and will be dictated by your competitors’ prices.
  • Use selective free shipping options, such as “only if they abandon their cart” or in exchange for placing a review on social media.

Free shipping is by no means an easy thing to figure out. You’ll want to spend a good amount of time coming up with the best strategy. By taking a look at your costs, areas for cost improvements, investigating what your competitors are doing, and choosing between the free shipping options, you’ll put your company in the best position for success.

Medical & Health Care Product Regulations & Warehouse Requirements

Medical and Healthcare Warehousing Many medical and health care products are regulated by the Food and Drug Administration (FDA) and other agencies. Both business owners and warehouse companies need to understand how to handle, store, pack, ship, and track medical and health care products using procedures that comply with government standards.

How do you determine whether or not these regulations apply to you? Below are some common examples to guide you through this complex topic.

Non-regulated products

Cosmetics, vitamins and supplements, other beauty/health-related products may benefit from special handling, but they may not require that a warehouse to maintain the same certifications that are needed for drugs and sterile medical supplies. Specific items like nail polish, perfumes, and skin cleansers or moisturizers are subject to FDA regulations, as are some additives for color that are sometimes ingredients in makeup. Because of these detailed distinctions, it’s best to check the FDA directly about their current requirements for health care goods like cosmetics and beauty products. 

FDA-regulated products

Institutions such as health care organizations, pharmaceutical companies, scientific groups, and research facilities are likely regulated by the FDA, because they produce and sell items that can are obviously categorized as drugs, medical/surgical devices, or diagnostic tools. Some of these products need to be kept at a specific temperature, labeled discreetly for security reasons, or kept perfectly sterile (free from bacteria). Others need to be carefully tracked throughout the fulfillment process.

Medical devices

The FDA defines a medical device as any item that is designed and intended for human use in the diagnosis or treatment of a disease, or an apparatus that can modify the anatomy or a physiological process.  The range of products that fit these criteria is quite large; a medical device can be anything from an adhesive bandage to a neuromuscular implant.

Medical devices are grouped into one of three distinct classes, depending on the level of regulation needed to mitigate potential risks[i]:

  • Class I medical devices are subject to the fewest controls, because they don’t pose a great threat to others if mishandled. The FDA’s “general controls” on these devices include provisions relating to misbranding, device registration, and good manufacturing processes. Examples of Class I medical devices include tongue depressors, sunglasses, gloves, or an IV stand.
  • Class II devices must meet the requirements of Class I regulations (“general controls”) plus comply with “special controls” such as labeling standards, tracking requirements, design guidelines, mandatory performance standards, and post-market monitoring rules. Items such as surgical masks, powered wheelchairs, or syringes fall into this category.
  • Class III items are extremely specialized and present a high risk of illness/injury, therefore their controls are the most stringent. These are life-sustaining products like implants (heart valves, pacemakers, etc.) that require scientific review and approval in addition to the requirements for Classes I and II.

Although the FDA doesn’t require or recognize the ISO (International Organization for Standardization), almost all manufacturers of medical devices want their critical vendors to be ISO 13485 certified showing they have significant control and risk mitigation processes in place that document and show evidence of consistency in every key function they perform including detailed tracking of lot and serial number.  “This certification level gives stand-out credibility to warehousing companies seeking customers in the rapidly growing medical device industry in both forward and reverse logistics” says Steve Storr, President of Mendtronix Inc., a combination logistical and technical specialty company servicing medical device and other vertical markets.

  • ISO 9001[ii] is a quality management system that helps certified businesses ensure that their customers consistently receive high quality products and services.
  • ISO 13485[iii] sets forth quality controls and regulations specific to medical devices and their associated services. These standards apply to every aspect of the life cycle of a product and to any organization involved in the development, distribution, or implementation of that medical device.

Pharmaceutical products

As you might expect, there are several governing entities for the pharmaceutical industry. The main goal of these agencies is to ensure the overall safety of consumers, but their efforts also reduce of fraud and drug abuse, enhance health care provider operations, and aim to improve the quality of health care overall. The processes that manufacturers must develop and implement to comply with these regulatory groups are frequently complex and detailed.

  • Current Good Manufacturing Practices (CGMP) is the main regulatory standard for ensuring the quality of human pharmaceuticals as enforced by the FDA. The CGMPs provide systems for manufacturers to use to ensure that their products are as safe and pure as possible, and that their operations are fully equipped to maintain a high level of quality control. These standards apply mainly to the drug companies, but the storage, handling, and shipment of their products may fall under these regulations.[iv]
  • The Drug Enforcement Administration (DEA) is a government agency that combats the smuggling and use of illegal drugs in the United States. It would be the responsibility of the fulfillment company to ensure the highest level of security for drugs they handle for their pharmaceutical companies, and to comply in all other ways with the regulations put forth by the DEA.
  • The Drug Supply Chain Security Act (DSCSA) provides a system of tracking certain drugs through the supply chain to help the FDA ensure that consumers are not exposed to harmful products. As it relates to distributors: “The DSCSA requires wholesale distributors and third-party logistics providers to report licensure and other information annually to FDA. Additionally, to further enhance the security of the drug supply chain, manufacturers, repackagers, wholesale distributors, and dispensers are required to notify FDA and other trading partners within 24 hours after determining a product is illegitimate. See frequently asked questions for more information about filling out Form FDA 3911 for a drug notification.”[v]

Other potential regulations

This list is not exhaustive; there might be other requirements that apply to warehousing operations depending on the products they are handling. For instance, international shipments might be governed by the Customs-Trade Partnership Against Terrorism (C-TPAT)[vi] if the business owner has elected to participate in this voluntary partnership. This agreement between the government and the company adds a level of security certification to the business activities of this company and assists with border control processes by streamlining inspections.

General warehouse preparedness

Obviously, with so many details and laws to keep track of, you must be extremely careful when choosing a fulfillment partner for your medical/healthcare products.  A select few companies, such as Mendtronix, provide specialized services in the health and medical industries. While the regulations described above will dictate specific requirements for warehousing companies as needed, the basic characteristics of a fulfillment company that can handle all kinds of medical and health care products are as follows:

  • At a minimum, a warehouse that plans to handle medical or health care products should be clean and well-maintained overall.
  • The facility should have robust security systems in place; certain drugs and controlled substances are highly sought after and need to be protected from theft.
  • Fulfillment centers must be climate-controlled and have appropriate redundancy/backup power supply in the event of power loss. An increase in temperature can permanently damage fragile and perishable health care items and even jeopardize heat-sensitive medical devices.
  • Most pharmaceuticals and some types of equipment and require special attention to inventory called expiration date tracking. A warehousing company should be familiar with three common methods of this tracking:
    • FIFO – “first in, first out” means that goods are sold in the order they were received at the warehouse
    • LIFO – “last in, first out” means that the items that were most recently added to the inventory are the next in line to go out
    • FEFO – “first expired, first out” means that products that will be expiring first are prioritized for sale
  • A fulfillment center that is ready to process medical products and health care items should also have the capability to provide customized and specific packaging solutions, such as:
    • Inconspicuous labeling for certain drugs or devices, to prevent theft
    • Cold packs or insulation for highly temperature-sensitive products
    • Special handling to ensure the integrity of sterile items

The FDA provides helpful guides to help you categorize products on their web site.

[i] FDA Classification Overview (PDF) https://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/SmallBusinessAssistance/UCM466473.pdf

[ii] ISO 9001:2015 https://www.iso.org/iso-9001-quality-management.html

[iii] ISO 13485 https://www.iso.org/standard/59752.html

[iv] Facts About the Current Good Manufacturing Practices (CGMPs) https://www.fda.gov/drugs/developmentapprovalprocess/manufacturing/ucm169105.htm

[v] Drug Supply Chain Security Act (DSCSA)

https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm

[vi] C-TPAT: Customs-Trade Partnership Against Terrorism https://www.cbp.gov/border-security/ports-entry/cargo-security/ctpat

Helpful Tips for Startups Looking for a Fulfillment Company

Fulfillment for start upsFor an increasing number of small business and startup owners, the challenge with running a profitable company is not necessarily branding or drumming up interest in products. Instead, it’s getting the products to the customers who purchase them.

This is part and parcel of the global economy fostered by the rise of the Internet, and is one reason that Amazon Prime (powered by FBA) has become such a juggernaut. However, it’s often a difficult tightrope to walk, particularly if you choose to go the in-house fulfillment route. Many companies choose to perform in-house fulfillment operations, only later deciding to outsource due to a number of complications that can arise.

Why Opt Out of DIY Fulfillment?

Why would a small but growing company opt out of DIY fulfillment? Really, it takes just a bit of experience to see why. Sure, it might seem cheaper at the outset, but once you dig into the situation, you realize that it’s incredibly costly in terms of time and effort, even if the owner is doing the work without being paid. Eventually, these companies will grow to the point that they have to pay an employee to do nothing but shipping. That money might be better spent with a fulfillment company. However, it may not be that simple.

Many Fulfillment Companies Shy Away from Startups

Although working with a fulfillment company might be the best way to spend your money while ensuring better customer satisfaction, time savings, and other benefits, you may learn—to your chagrin—that it’s not as simple as choosing a partner and inking a deal. In fact, most fulfillment companies find it challenging working with startups. One of our partner firms, Sweetwater Logistics, who works largely with start-up and growing companies, says that they find that in most cases, the new business has failed within just two years. The challenge becomes filling the pipeline – perpetually finding new businesses to work with because many of them won’t be in existence within a few years.

Additionally, quite a few fulfillment companies will not work with startup businesses or have very serious reservations about such a partnership. These reservations generally focus on the fact that startups usually take up the most time of all potential clients. This applies to the amount of time needed to get the company set up because of their lack of track record and limited information, as well as the amount of time needed to answer questions and hold hands during the setup process.

Further complicating the situation is the fact that most startups don’t have much in the way of funding, because they have few or even no orders at the moment. This means that the fulfillment center isn’t going to make much (or any) profit on the account. Fulfillment is a high-volume, low-profit business, and fulfillment companies need to make smart decisions when it comes to the clients they take on to ensure that they 1) have a product that is in demand current, 2) have the finances to be a valuable partner, and 3) can sell in the volume needed to help the fulfillment company maintain profitability.

There’s Still Hope

With all of that being said, working with a fulfilment center is still an excellent option for startups and smaller businesses. It gives you the ability to outsource all of your fulfillment needs to a company with the expertise, experience, and knowhow necessary to ensure timely delivery, accurate inventory counts, and more.

By working with a fulfillment company, you’re able to reduce the burden on your own company. It allows you to focus on what you do best—growing your business. That’s a win-win for both your firm and the fulfillment company. Plus, there are specific companies out there that focus on serving the needs of startups and that can offer more competitive prices and better suited services.

How Do You Find the Right Fulfillment Company?

Finding the right company starts with having as much information as possible. Remember that the fulfillment company will be screening you just as rigorously as you are screening them. You want to find a fit that works for both partners. The fulfillment company needs a partner that’s financially stable, has products that are in-demand, and will be around for longer than a couple of years. You need a partner that offers flexible solutions tailored to the sometimes-chaotic needs of small businesses and startups, and that is able to offer better pricing than what a general fulfillment company might be able to provide.

When you start discussing partnerships with potential companies, you’ll need to make sure that you can provide them with the things they’ll need to see. These include the fact that you are a business entity with a company name, office phone, business email address, and at least a basic website to your credit (this is especially true if you’re an ecommerce company). They will also want an idea of the volume you’ll be sending in terms of product/inventory, as well as when it will arrive.

Finally, you need to be clear about any requirements your products might have, including temperature control, fragility/specialty packaging, and more. If possible, share your formal business plan with the company you’re partnering with, as this can prove that you’ve not only done your research, but you are also committed to long-term success.

In regards to the fulfillment company, you should look for a single-location provider in most instances, as multi-location providers are usually more expensive. You should also look for firms that say they’re “startup friendly” and have low or no minimum requirements. Of course, you’ll want to see competitive pricing and flexibility in terms of how unique you can make fulfillment using your own logo, packaging, and the like. It might also be beneficial to partner with a firm that provides you with a dedicated service representative to answer your questions, as well as a company founded with an entrepreneurial spirit that can help with building your own business.

Ultimately, working with a fulfillment company is not only possible, but it’s an excellent idea for small business and startup owners looking for better efficiency, time savings, and the benefits that come from partnering with an expert capable of handling all of their fulfillment needs.

Warehousing and Fulfillment 2017 Warehouse Costs and Pricing Survey

2017 WNF Warehose SurveyIn August, we conducted our annual warehouse costs and pricing survey. This year, we had more participation that ever, and we’d like to thank everyone that took the time to fill out the confidential survey.

Before we launch into the results, it’s important to point out some of our assumptions. First, we did not record which answer was associated with a particular warehouse. This was done to allow vendors to confidentially answer questions without fear of providing key information about their specific company. Second, if we found any of the survey answers to fall far outside of the extremes, we did not include the results in the averages outlined below. For example, if someone indicated that they paid $75 per square foot per year for warehouse space and the next highest amount was $18, we did not include the result. Unreasonably high or low answers to our survey questions could have been a result of misunderstandings related to the question. Third, we did not segregate the results by geography. We acknowledge that this definitely has a tendency of skewing some of the results, as we do have vendors that operate in the United States, Canada and Europe. Fourth, in cases where results were given in various formats for a single question, we made our best attempt to compute averages based upon the most common answer type given. As an example, some respondents answered that they pay a warehouse management employee a salary, while others indicated that they paid an hourly salary. Similarly, some respondents provided answers to how much they charge for pick and pack per order as a flat order fee, while others responded that they charge a per order plus a per item fee. Finally, if there were any responses that warranted further explanation, we elaborated on those responses in our discussion below, so that readers of the results can understand the various responses received.

Below are the results – we hope that they help you to gauge your costs and pricing versus the average out there in the industry.

In order to make the results easier to digest, we’ve segmented them into the following categories:

  • Performance Data
  • Agreement Terms
  • Warehousing Costs
  • Pricing and Discounts

Performance Data

For performance data, our main objective was to see how many fulfillment providers use performance data to gauge the quality of their work. We asked the following questions:

  1. Do you measure performance?
  2. What is your picking accuracy?
  3. What is your inventory shrinkage rate?
  4. What percentage of customers do you retain each year?

In the survey, we found that 87.18% of companies polled measure their performance in some way. The average picking accuracy for order fulfillment companies was 99.51%, and the average inventory shrinkage was .65%. Respondents, on average, retained 97.82% of their clients.

Agreement Terms

We get a number of questions, both from warehouses as well as prospects, about the standard terms of agreement that fulfillment houses employ. In our survey, we asked:

  1. What terms do you offer on your agreements? (month to month, annual, multi-year, or no term) This question allowed warehouses to respond with multiple agreement types, since many firms are flexible and offer different terms to different customers.
  2. Do you increase your pricing on a regular basis?
  3. If you do increase your pricing, what percentage do you increase pricing?

In the survey, we found that 56.41% offer month-to-month agreements, 38.46% offer annual agreements, 25.64% offer multi-year agreements, and 10.26% don’t require an agreement in all cases. Month-to-month agreements have risen in popularity, as is evidenced by the results. Furthermore, 53.85% of all respondents said they do increase pricing yearly, and the average increase in rates per year was 2.37%.

Warehousing Costs

It’s helpful for warehousing companies to see what others are paying to maintain their warehouse. In the survey, we asked:

  1. What is your yearly cost per square foot of your warehouse space?
  2. What is your starting hourly rate of your warehouse staff?
  3. What is your annual pay for a warehouse management employee?
  4. What is your corporate profit?

The average cost per square foot of warehouse space was $6.53. The average starting hourly rate of warehouse staff was $11.44, and the average annual pay for a warehouse management staff was $47,478. The average corporate profit came in at 8.83%.

Pricing and Discounts

In order to get a feel for the going rates of fulfillment companies, we polled warehouses and asked them questions relating to their pricing and discounts that they offer. For pick and pack fees, we asked:

For order fulfillment pricing, we asked:

  1. What is your average pick and pack price for a single item direct to consumer order?
  2. What is your average pick and pack price for a business to business order?
  3. Do you offer discounted pick and pack rates?
  4. If you do offer discounted pick and pack rates, what is the break with which you offer the discount and how much of a discount do you offer?

The average pick and pack fee for a single item B2C order was $2.64, whereas the average fee for a B2B order was $3.74. A whopping 74.36% said that they do offer discounted pick and pack fees based upon volume of orders, and the average discount was applied at 1,800 orders per month (with the highest frequency of responses in the 1,000 to 2,000 and 5,000 orders per month range. Discounts ranged from 3% up to 10%.

For storage pricing, we asked:

  1. How do you charge your customers for storage?
  2. What is your average price for storage?
  3. Do you offer discounted storage fees?
  4. If you offer discounted storage fees, at what breaks do you offer discounts and what discount is offered?

The most common way of charging for storage was pallet storage (79%), followed by cubic footage (35.9%), per bin (30.77%) and lastly per square foot (23.08%). These percentages reflect that companies, in many cases, offer more than just one storage pricing. The average pallet storage fee came in at $13.02, the average cubic footage charge was $.54, the average cost per bin was $2.14, and the average cost per square foot was $.88. A full 56.41% of respondents offered discounted storage solutions (mostly at pallet levels), and the average discount was 14.17% given at roughly 250 pallets.

Finally, we asked warehouses about their shipping pricing and discounts. Questions included:

  1. How do you charge for shipping?
  2. If you offer shipping discounts, what discount do you give for ground, express, and LTL shipping?

With regard to shipping pricing, again we found that many companies offered a number of approaches. The most common approach (41.03%) was to offer a discount off of published rates. Not far behind, however, was the option of allowing customers to use their own freight account (38.46%). About a third of the respondents (30.77%) offer cost plus pricing, and just over 10% (10.26%) responded that they don’t apply a discount at all. When discounts were offered, the average shipping discount for ground was 24%, for express was 31% and for LTL was 44%.

Why Is Long and Complicated Fulfillment Pricing the Norm?

Understanding Warehousing and Fulfillment PricingFulfillment pricing has historically consisted of a summary of all of the services that the warehouse performs for the month, broken out into a long invoice with descriptions of each of the fees. The list of fees can be extremely long – set up fees, administrative fees, minimum fees, receiving fees, storage fees, pick and pack fees, integration fees, returns fees, among many other potentials. In this blog post, we’re going to look at why fulfillment warehouses charge using this methodology, what problems this form of pricing can cause, and the other methodologies that businesses within the industry use as an alternative.

Why Do Fulfillment Companies Charge This Way?

The main reason fulfillment companies charge using an activity basis is that the industry on the whole is extremely low margin and high volume oriented, meaning that even the slightest differences between projected and actual costs can result in catastrophic outcomes. If a 3PL warehouse is even a few percentage points short on what they charge customers, the business can incur a sizeable loss and has even been known to result in bankruptcy.

Because margins are so slim and can cause sizeable loss if not monitored appropriately, fulfillment companies usually charge based upon the services that they perform for a client so that they can adequately track and cover all of their costs. Most 3PL professionals would argue that the only way to truly know how much to charge a customer is to fully track all of the labor, supplies, space, and other resources used for each client and then charge a fee for each of these resources. In doing so, the actual amount of resources being used is being accounted for, rather than an estimate or projection, which can be faulty or change over time. For example, even when using an activity based pricing method, more resources can be used than expected, but wouldn’t necessarily be ‘caught’ or accounted for appropriately using a simpler or alternative method, such as when warehouse staff notices that it’s taking more time to receive items into inventory due to a change in how product arrives. By tracking every cost and charging a fair rate per utilized resource, fulfillment warehouses can rely upon their systems to track these costs, monitor their effectiveness and ultimately cover all costs and profit appropriately.

Furthermore, the uniqueness of each customer and their storage and shipping profiles can impact the style of pricing implemented. There are so many different shapes and sizes of customers, and this makes it difficult to charge a flat fee for service or utilize another methodology outside of activity based pricing without the use of sophisticated projections. As an example, one company may require a great deal of storage of larger products, but not utilize as much order processing services due to slower moving orders. Another company may take up a very small amount of space, but utilize a much greater amount of order processing services due to an enormous volume of orders. Similarly, receiving may take one company a very short period of time in that it comes in a few SKUs, nicely in their own box. Whereas another company may have a large volume of SKUs with mixed pallets on arrival and take considerably longer per item to receive.

Ultimately, when implementing a single price factor, for example, such as price per order, it becomes extremely difficult to judge an appropriate rate without a lot of customer information up front, and because there are divergent factors that impact the pricing model. Relying on one or a few factors alone can produce significant differences between projected estimates and reality.

Finally, information given in quotes by prospective customers may vary from actual volumes and projected resource needs. These differenced, if not adequately tracked using all company resources, can result in profitability challenges. Sure, a warehouse can change their costs after contract phase based upon actual results and this can be laid out within the agreement via volume based pricing and discounts, but the fewer pricing factors used could lead to more pronounced profit concerns. Also, there could be all sorts of other resources used by customers once on board with the fulfillment company that weren’t anticipated previously.  As an example, adding a printed insert, using a different box, allowing their customers to change orders after receipt, among many others can add additional costs to the 3PL that weren’t anticipated. If the 3PL isn’t careful, they can quickly become unprofitable.

What Problems Are There with The Industry Standard?

Even though this is the most popular way for fulfillment companies to charge their customers, it doesn’t make it without flaw, nor does it make it the best way. In fact, there are a number of problems with this type of pricing. This first problem with this pricing methodology is that the appearance to prospective clients is that they are getting ‘nickel and dimed’ to death. Many fulfillment invoices span multiple pages, with a laundry list of charges. This can seem overly taxing to customers, especially if they don’t have a proper perspective of the pitfalls of this low margin industry. Second, long and complicated pricing can be especially difficult to understand, especially for a fulfillment novice. Understanding each fee can take some time. Third, long winded pricing proposals making projecting costs difficult for prospective clients, especially new businesses or businesses that are expanding into new region or implementing a new product launch. With so many factors to consider, it takes a great deal more time for businesses in these situations to complete their business plan with a high degree of accuracy. Fourth, with so many potential fees, comparing multiple fulfillment firms becomes a painstakingly difficult process, compounded by the fact that each company charges differently. Fifth, because there are so many potential fees, it makes auditing them by the customer more difficult. In our experience with helping companies with fulfillment matching services, we’ve heard of many situations where companies were looking to switch providers because they found out that their current provider was abusing the system and overcharging them. Finally, the standard methodology is even difficult for the fulfillment firm itself, usually requiring the use of sophisticated accounting segments within their warehouse management system to track time, space usage, supplies usage, and other resource usage within the warehouse.

Are There Other Companies Doing Anything Differently?

While the vast majority of fulfillment companies utilize an activity based costing method, there are a couple of other versions that a few companies have implemented. Some companies have used a basis of the percentage of sale, charging an agreed upon percentage of each sale that is made. This type of structure is quite rare, and tends to help the customer more than the 3PL warehouse in many cases since there are some costs the warehouse incurs even without an order being processed, such as the utilization of warehouse space to store the goods. Nonetheless, if items are fast moving and sales take place at a brisk enough space, it can be a more mutually beneficial arrangement. Additionally, we’ve seen some fulfillment companies introducing a highly-simplified pricing model, which seems to be making a very favorable impact with prospective clients. In this highly-simplified pricing, the fulfillment warehouse will charge only one or two fees, such as an order fee for each order without any other fees or a pallet fee for the space utilized without any further fees. For example, one pioneering fulfilment firm, ESTCO Enterprises, Inc, offers its 3Pl and fulfillment clients no fees other than an agreed upon order fee, an agreed upon return fee, and a highly-discounted shipping fee. In doing so, they’ve eliminated a great deal of pain associated with the pricing which has impressed their customers greatly. By taking multiple factors into account in order to determine the actual fulfillment and return fee, the company has been able to avoid profit issues.

The Future of Pricing Within the Fulfillment Industry

So what will we see going forward? More of the same or some sort of pricing evolution? Only time will tell. However, technology utilized within the industry is becoming more robust and prospective clients are increasingly demanding more pricing reforms, so in the least it seems as though some creative approaches may be seen more frequently than in the past.

eBay Fulfillment Tips

It does not matter if you are a high-volume seller or have just a few dozen weekly sales from your eBay activities, eBay is a fantastic sales channel and essential to your overall ecommerce success. Though the site offers sellers a number of tools that help to ensure success, where fulfillment is concerned, there are some further steps that will help you to grow your business. While some companies choose to implement the standard eBay sales model (in which the seller handles storage, packing and shipping), there are many benefits to utilize a fulfillment company instead.  In this article, we are going explore the many benefits that come from using a fulfillment company and how implementing this strategy can improve your overall sales.

In terms of fulfillment of orders placed on your eBay store, there are options that include eBay’s own fulfillment center as well as other private services, such as One Label Fulfillment. The latter are often called third party fulfillment, and many of them focus in on helping fulfill e-commerce orders. A fulfillment company is just as it sounds – a company that manages your inventory, packages it for shipping, and gets it to the buyer. And while it might seem that handing over control of so much of the actual business is unwise, it actually works in the opposite direction – giving you time to focus on growing the business and really leveraging what eBay business you already have.

It would look like this: You have your products shipped to the fulfillment center’s warehouse or storage facilities. They handle inventory management and tracking, accept orders as they are received through your eBay (and other ecommerce) accounts, pick and package the products accordingly (and per your preferences, which can mean inserting specific documentation, sales materials, and so on), and ship it promptly.

Naturally, there are greater benefits to be gained by using fulfillment services as part of your eBay ecommerce business as opposed to self-fulfillment. They include:

  • Improved seller ratings – Firstly, you may enjoy such affordable shipping costs that you can integrate free shipping into your business model. If you do, your seller ratings automatically increase per eBay’s policies. As they say, “If you offer free shipping in your listing—and we can confirm the buyer did not pay for shipping—you’ll automatically receive a 5-star rating on your shipping and handling charges detailed seller rating.” Even without free shipping, the detailed seller ratings allow buyers to rank you highly for shipping charges, speed and quality. Never get a bad rating for slow shipping, poorly packaged goods, damages, and the rest if you have experts handle it.
  • Better shipping – Because a fulfillment center focuses entirely on shipping, you get better packaging materials, more knowledgeable workers handling the products, and a far more professional looking package. It is much less likely that you will receive any negative feedback associated with the speed, quality and appearance of the packages sent.
  • Speed and price – It is just common sense to recognize the savings potential in a fulfillment service. They have long-standing and pre-existing relationships with major shipping services and can offer you the reduced prices they negotiate. Because of this, you are more likely to see your customers’ orders arriving faster and for less.
  • Tracking – A fulfillment center can greatly improve your eBay business by serving as a point of contact for a buyer. They input tracking data and respond promptly to any inquiries from buyers.
  • Returns – Because fulfillment services tend to have much lower return rates due to damaged goods, it is automatically a benefit. When returns are needed, they offer an incredibly professional face to clients who need to make a return of any kind. They keep you almost entirely out of the “loop” and handle the legwork.
  • Customer service – The best fulfillment services offer optimal customer service to your buyers. They are able to resolve issues promptly and you don’t have to stand in the middle, trying to get and then convey answers to an unhappy eBay buyer.

While there are far more pros than cons to using a fulfillment service (and we never even mentioned the overhead costs you can save by working with them for storage and shipping of your merchandise), there are still a few cons to consider. One is cutoff times. Because eBay works all day and night, it can be challenging to keep ahead of customer issues. For example, if a customer re-enters the eBay system to change something related to the purchase after it was initially submitted, how will the fulfillment center respond? Usually, it means creating a policy for cutoff times and ensuring your buyers are aware. There are also some questions you must not leave unanswered in regards to tracking details being provided to buyers and who will be in charge of customer questions directed to you through the eBay portal. All of this can be addressed and worked out with a professional fulfilment service.

While there are a few technicalities to consider, they are not substantial enough to make a partnership with a fulfillment service unwelcome. It is going to greatly improve your eBay operations and boost your credentials with the site while also improving your ranking and profitability.

The Remarkable Diversity of Warehousing and Fulfillment Companies

Diversity of Fulfillment Companies
Diversity of Fulfillment Companies

Ask experts like Entrepreneur Magazine, and you might think that fulfillment services do nothing more than handle “the process of receiving, packaging and shipping orders for goods”. Yet, fulfillment services are much broader than that. In this article, we are going to look at the ways that modern fulfillment services have branched out, and in some instances, how they transitioned entirely from another form of business into a fulfillment service.

We are also going to consider the creative ways that some fulfillment services have met the challenges of being a low margin, high volume service with a lot of seasonality. This is quite important. After all, a low margin business means one in which the product or service sells for close to the price it costs to produce. They are typically required to be high volume to generate good profits, yet many fulfillment services experience a constant flux of seasonal business.

Because “necessity is the mother of invention”, many fulfillment services find ways to create more stability.

This is not to say that fulfillment services are not a good business to enter. In fact, many firms don’t even set out to work as fulfillment service providers. Instead, they begin by simply making and/or selling their products. They enjoy a bloom of success and realize that they cannot find a company to handle their needs. This is also a moment when necessity fosters growth and such businesses then turn their attention to fulfillment in addition to sales and/or production.

Investing in Fulfillment

Firms that invest in the technologies, space and staffing essential to quality fulfillment may also branch out and become a third-party fulfillment provider for other firms. Filling a need they also experienced could be a fantastic way to grow a business. For instance, a company that manufactures or sells products and handles its own fulfillment may also offer “third party” fulfillment that integrates with its own. This can offset the risks of fully dedicated fulfillment services with their seasonal ups and downs.

Keep in mind that working in fulfillment can also illuminate some niche markets or needs not being met by other providers. For example, one fulfillment company in our network in Texas, Warehouse Pro, began as a soap making firm. They also warehoused their own goods, storing as well as handling all of their soap shipments to customers. This same firm then invested in third party fulfillment because they had ample warehouse space available and had mastered the technologies used in the industry.

This same firm also expanded their offerings into manufacturing and fabricating, including some welding and fabricating and even making custom sails for boats and other vessels. They have also provided specialized services for credit card companies!

What we want to emphasize here is that fulfillment companies have much more than basic services for a website retailer. They are one of the most creative groups, finding many ways to monetize and leverage their capabilities. Should you require such things as large scale storage, customized services or even bulk shipping, they may be your ideal solution.

The Services You Might Find

Without putting on our “creative thinking caps” and getting too crazy with ideas about services that fulfillment providers might offer, let’s just do a basic run down of what you might find with one:

  • Warehouse and Distribution services – They may handle your storage and do your customized shipping for your firm. Usually, it means an entirely customized approach that includes your specialty packaging, the inclusion of additional materials, and more. Typically, you can request them to handle things in very specific ways and even offer shipping in a large number of channels.
  • Custom Packaging – Their relationships with packaging suppliers often means they can provide clients with a lot of support in finding customized packaging solutions for almost any sort of good or product.
  • Climate Controlled Warehousing – Not all items can exist happily in the sweltering heat, high humidity or freezing cold of a standard warehouse. A fulfillment provider often has a warehouse that remains comfortable and optimal for any number of product categories or types. You may not even use them as a shipping service but merely as your ideal storage space.
  • Inventory Storage – There are so many instances of a project or group requiring large quantities of inventory. They get the best rates if it is purchased at once and in bulk. Then, the problem with where to keep it as the project or business proceeds, arises. This is when creative fulfillment services can step in and offer a good solution that allows them to monetize unused warehouse space.
  • Logistics and Transportation – As groups with tremendous experience in the use of major shippers, a fulfillment service is one of the best candidates for help with the transportation and logistics relating to any number of businesses or items.
  • Manual Integration – Anyone making a move from traditional inventory management and warehousing to online sales has a lot of data to enter. A lot of fulfillment services have begun to offer this precise service. Helping you to inventory your existing materials, make sure you have SKUs for every possible item, combination or kit, and then integrating this information across your online sales platform and the warehouse or fulfillment service’s system.
  • Manufacturing – It is amazing to look at the ways that fulfillment services also integrate smaller scale manufacturing into their options. They may make displays, packaging, and so much more.

Fulfillment services are a must for those with online business eager to hand over the management of order processing, shipping and returns. They can save tremendous amounts of money, and offer a diversity of effective solutions. Don’t overlook them when you need everything from climate controlled, bulk storage to setting up an online business and shipping large amounts of goods. As a business full of fluctuations, they adapt well and have a lot of answers for many kinds of businesses.

Steps to Successful E-Commerce Fulfillment Launch on a Tight Deadline

Successful E-commerce Fulfillment Set up
Successful E-commerce Fulfillment Set up

As an online seller (or someone beginning a business focusing on online sales), you have a lot on your plate. It could be the main reason behind the decision to make a fast switch and outsource your order fulfillment. While it means handing over control to another business, it also means sparing you added costs and hassles (such as staff, warehousing expenses and more).

Unfortunately, it can also mean that you may inadvertently put the success or failure of your business into the hands of others.

How? After all, you have done due diligence about products and offer good customer service, how can e-commerce fulfillment have any negative impact? Wrong items, shoddy packing or handling, lengthy delays in sending orders…these are but a few of the glitches that can affect your bottom line.

Fortunately, we offer these simple steps to ensure you can setup up your e-commerce fulfillment segment effectively, and quickly, and without a lot of issues that could cost you some of your first customers.

The Basic Steps

Before you start sending your inventory to an e-commerce fulfillment provider and preparing to link your shopping cart to their warehouses, take a moment to review the basic steps involved with a rapid switch to new fulfillment provider:

  • Account Setup
  • Integrating Shopping Carts
  • Sending Inventory to the Fulfillment Provider
  • Ensuring They Understand Your Preferences for Sending Orders to Customers, Handling Orders and Completing Orders
  • Handling Returns

If you understand that your e-commerce order fulfillment provider is in charge of that many steps of your sales (and returns), as well as inventory management, you begin to see why you shouldn’t rush the process too much. While you can easily setup operations in a matter of days – take the time to review the steps noted, and be sure all of those proverbial ducks are in a row. Let’s spend time looking at each point in a bit more detail:

Account Setup

You are going to need to create or review the contract that will exist between your firm and your fulfillment provider. This is going to outline all of the key details and protocols. The contract should specify all of the issues that follow (below) and include any contingencies in the event of a breach of contract or other issues.

Some of the points you want to emphasize in the contract or account setup include issues like shipping/order cutoff times each day (as this can allow you to provide faster shipping times) and how you prefer communications to occur.

Your account setup also has to include specifics about communication. How and who will communicate with the warehouse and fulfillment provider? What about billing procedures, reviews and major points of contact?

Finally, a key part of setting up your account must be a proper testing period. Test ordering, test order changes and test returns. Test communications, inventory controls and all of those crucial details before launching.

Integrating Shopping Carts

Your e-commerce fulfillment provider may already have some proprietary software that could be used in your online store and which will also deal with everything from packing slips and customer communication to returns. It should also relay details to your end, letting you or your team know when items are sold, what’s going on in terms of inventory and more. Keep in mind that some of the best providers can integrate with popular platforms and shopping carts already in use.

Be sure that any previous order information can be securely transferred as this eliminates the need for clients to create new credentials. Also, you want to be sure that you can always find out where any order might be at any given moment in time. The best systems allow shoppers to make changes and updates (including cancellations) right up to the moment the item is tagged for shipping – this is something to double check if it is important to your customers.

Sending Inventory

As one of the most substantial steps in getting your new e-commerce fulfillment provider up and running quickly, we are going to dedicate a bit more attention to this part of the process.

At your end, it begins with you doing a thorough inventory and creating a master list of all of your product numbers (SKUs) and all product details. This will even include items out of stock or temporarily unavailable. Be sure you give your fulfillment provider every bit of data – even variations, sizes, colors, kits, combinations and more.

It is going to be your responsibility to coordinate the shipping of your materials to the fulfillment provider’s warehouse, and to be sure that comprehensive inventory data is included. You are also going to be tasked with coordinating and/or arranging the shipment.

Once it arrives at the destination, your new fulfillment team will have to re-inventory and then properly store the product. They are more than likely going to need the time to enter data into their system.

If you have products that require a lot of attention during selection, packing or even during returns, it may be in your best interest to arrange some sort of product training. If the fulfillment center is at a great distance, a manual may be best. However, if you feel it would benefit all involved to do in-person training, it could be a key to success. This is true in shipping, as well, and you may want to be sure the items are packaged in the way you require. If you want specific wrappings, tags and labels inside of packages, be sure this is detailed in your contract and as you setup the fulfillment process. If there are to be additional inserts or special packaging – make sure you are clear about how this will arrive, be ordered, maintained, and so on.

Sending Orders, Handling Orders, and Completing Orders

It is going to be in your hands to let your fulfillment provider know which shipping methods you prefer. Before you begin the process or transition, be sure that your chosen provider is able to handle the kinds of shipments you desire. If they are unfamiliar with international packing and labeling, this can become a serious problem. Also, be sure you are guaranteed the kinds of shipping terms you need – orders out at a specific time each day, changes made before orders are shipped, and so on.

Also, pose the question of what happens in the event of an error. What if the wrong items are shipped? What if the wrong method of shipping is used? What if inventory tracking is not done properly and an item sold is not available?

Planning for contingencies and knowing how you want specific issues handled before you begin is another key to success. You can often avoid such issues by acknowledging that they can occur and proactively troubleshooting.

Handling Returns

Will your provider handle returns? If so, what is the process they must follow? How are they to communicate issues about returns to you? This is crucial because you need to understand what is returned, why and how to overcome this costly issue. You also need to be sure customers are getting premium service where returns are concerned.

Yes, this is a lot, but if you work with a reputable firm that has experience in the process, and you use these steps, you can be up and running quickly.

The future of distribution is promising for emerging markets

Future DeliveryWe’re at a turning point in the history of distribution—think advances like sci-fi-esque drone delivery. Getting to this point took not only great infrastructure, but also some pretty big technological advances. Plus, it took us a while to get here in the first place.

In a previous article, we explored what the future of distribution has to offer. However, the future of distribution for us, in developed nations, is different than that of emerging markets.

While the major cities of developing countries generally have sufficient (and sometimes equivalent) infrastructure, electrification, distribution networks, retail outlets, and supply chains, the rural areas don’t. So the question our friends at Red Stag Fulfilment got us thinking about was: How will the future of distribution for emerging markets look as a whole?

In this article, we’ll explore the future of distribution in emerging markets, and how it just might surpass our own here in the first world.

How are emerging markets different?

Any effective and efficient distribution system allows customers to buy what they want when they want it, without unreasonable markups. However, when it comes to emerging markets, this may prove difficult given the lack of infrastructure. The quick change of pace, though, is an advantage.

First you have to look at modern cities in developing countries. Surprising to some, these newly built cities often rival our own transportation, communication, and financial systems. Here, modern-day distribution activities chug along and will surely advance as ours do.

However, in rural and remote regions of emerging markets, these systems are far less advanced and sometimes nonexistent. In some places, there’s no internet access, no banks, and no roads. So, how are these people going to become buyers in the market? And how are businesses supposed to reach them? Currently, it’s difficult and sometimes impossible. However, we may see them “leapfrog,” as Red Stag puts it, into the future.

Before any assessments on the future, though, it’s important to examine the position emerging markets are currently in.

3 challenges facing distribution in emerging markets

  1. Transportation 

    In developing countries, there often isn’t enough modern distribution for a wide variety of products. The big cities might rival those in developed nations—and even surpass it in some ways—but the rural regions often have poor roads, not enough delivery trucks and no local wholesalers.Even if the local distribution system is scraping by, it’s probably increasing the cost for the customer because everything takes more time and effort. To reach modern standards, emerging markets need to invest in not only roads, but airports and delivery point too.

  2. Marketing and communicationsLaunching a product in a developed nation is based on a formula of research. To find out the best way to market your product, you simply, and methodically, examine the people—i.e. by age, earnings, education, work history, interest, etc. In a developing nation, this is problematic, mainly because this information often doesn’t exist.

    In emerging markets, statistical data is often incomplete, inaccessible, or has just never been done. So, companies who want to break into a market have to start from the ground up.

  3. PaymentComputer and mobile payments rely on debit and credit cards, but the people out in rural areas of developing countries often don’t have access to banks. That means that even if people are given internet access or a mobile device, if they don’t have a bank account or credit card, integrated and internet sales are impossible.

    Today, our modern distribution network is all about filling ordersand fast. The fastest way to do so is by electronic payments, so if that’s not an option, fulfillment will be slow.

3 advantages emerging markets have in the future of distribution

  1. Rapid changeEmerging markets are doing just that: emerging and unfolding before us. Thanks to modern technology, the building up of their cities and infrastructure is taking a lot less time than it did for us in the developed world.

    On that note…

  2. They have the chance to establish efficient, high-tech distribution networksBecause there was no previous infrastructure in these new cities and rural areas before, establishing efficient distribution networks is actually simpler in some ways. If the new technologies of today prove to be workable, they can quickly grow, spread, and be implemented across developing nations. Emerging markets won’t have to displace, replace, or disrupt modern distribution technologies that are currently in place in developed nations.
  3. They’re mobile-connectedWhile developed countries tinkered away at landlines, the developing world often couldn’t scrape together the time, effort, and funds that it took to get that infrastructure in place. So, instead of cutting the cord and moving to mobile like we did in developed nations, emerging markets simply skipped that advancement all together and went straight to cell phones. In fact, today it’s emerging markets that are dominating mobile growth and even cell phone internet usage.

The future of distribution in emerging markets

To get insight into how distribution in emerging markets will adapt to the latest technology, we can actually look to the event above when many developing countries skipped landlines and went straight to cellphones.

This “leapfrog” event proved to be beneficial for the developing world. In the modern American home, the landline is almost obsolete, and increasingly people are shopping on their mobile devices instead of their computers. So as the developed world adapts to mobility, the developing world just builds upon it.

Essentially, this leapfrog effect could play out in distribution systems too, giving emerging markets the upper hand. For example, it might not matter that rural areas don’t have roads to be accessed by trucks. If drone delivery really pans out, these packages can be delivered regardless, since they travel by air.

In fact, it could even be better. Long distance drone deliveries would cut back on the time needed to fly, warehouse and ship out to customers, like the existing, modern infrastructures in place now.

Red Stag looks at this leapfrog effect and the major payment issue to come up with a colorful example of what an order, fulfilment, and delivery could look like in a future emerging market.

“A doctor in a small village looks at his old mobile phone and realizes that he needs a new one. He goes to the distributor website and examines the various models. He decides on a sedate black model, but with the highest amount of memory, and places his order. A window opens with instructions for an encrypted text message transferring the money for the purchase. Immediately after he sends the text, he receives a confirmation text message, and the website confirms the order and a scheduled delivery date the next day at 2:00 pm by drone.

In the warehouse, the order is received and converted to a specific black phone with the required memory. The corresponding phone RFID tag is assigned to the order, and an automated process picks the correct phone from the shelves and brings it to the loading dock. A drone arrives back from a delivery and picks up the item and the corresponding delivery address. It loads the phone and several other items and leaves.

At the scheduled time, the doctor is at the hospital, but on the way home he drops by the local store to pick up his package which the drone dropped off there. He is pleased with his purchase and visits the distributor website to give a good rating and a positive review. Despite being in a developing country, he has received his delivery more quickly than his rural counterpart in a developed country and he has paid lower transaction fees than the 3% to 5% common for online purchases with credit cards.”

In the end, the future of distribution for developing countries is promising, as long as the future technologies we’re talking about actually prove to work. Even if one of these countries is facing tough infrastructure challenges and development issues, the technology we predict for the future can surpass them.

Real-Time Inventory: What it Means and Why It’s Important

Real-time Inventory Management

No doubt you’ve seen plenty of analysis in the business world about real-time technologies and how it’s bringing more immediate results to companies. Whether it’s real-time metrics, marketing, or communications – bringing more immediacy to customers and business associates helps companies make smarter decisions for the future in our fast-paced world.

Similarly, real-time information is critical in your supply chain as well. At the heart of this is properly managing your inventory so your company can effectively re-order product and effectively stock product so that both excess inventory and stock-outs are avoided. The best way to get a handle on inventory is to use software that gives you real-time inventory management capabilities.

Just What is Real-Time Inventory Management?

Real-time inventory management is the process of recording sales and purchases of inventory immediately through the use of a software so that your company gains a complete picture of what’s occurring with inventory, enabling your organization to react quicker to supply chain needs. Rather than periodically updating inventory at pre-determined intervals (usually through the use of inventory counts), real-time systems record every transaction (both purchases of new stock as well as outbound orders and all of the associated costs) in real-time.

The inventory management system serves as the backbone for recording overall receipts and sales of product. For companies that work in a brick-and-mortar environment, point of sale systems provide the technology that enables real-time updates for product sales, whereas companies that sell online will be required to integrate their online sales channels with their inventory system in order to record sales. There are some enterprise level systems that bring all of these functions under one “software platform roof”. Furthermore, companies will oftentimes supplement these systems with other tools, such as RFID (radio frequency Identification) technologies or bar code systems in order to more quickly and effectively record new receipts and sales.

Benefits of Real-Time Inventory

Adding new software and/or supporting technologies to move towards a real-time inventory environment can be a significant expense for companies, so understanding the benefits of moving in this direction is critical for your fulfillment center services. As mentioned previously, the first benefit is that it allows your company to avoid stock outs and excess inventory more quickly than a periodic inventory management scenario. By updating all receipts and sales in real-time, you can tap into up-to-the-minute data, which will enable you to more effectively budget supply and demand of your product. Physically counting inventory on a periodic basis takes more time, and those delays, especially in our age of same day delivery expectations can significantly impact buyer satisfaction.

Which brings us to the second benefit of real-time inventory: enhancing the customer experience. One of the worst-case scenarios is to have a ready, able and willing buyer, only to lose them because you don’t have adequate stock for them to purchase your product in store or online. Not only does this impact your immediate sales potential with that customer, it may also have a negative impact on future sales – not only with that particular customer but potentially with others within their sphere of influence if they decide to share their disdain with others on outlets such as social media.

Third, implementing a real-time inventory system will likely bring some physical benefits to your warehouse as well. First and foremost, this method of inventory management will likely require your warehouse to become more organized. Furthermore, it will also more than likely result in less overall recounts of inventory if diligently managed.

Fourth, real-time inventory is a wonderful asset to your accounting and finance team as well. Knowing exactly how much inventory you need at the right times (and what’s left over) gives you a more accurate picture for the accounting department. Just estimating what your inventory stands at could pose a major rick to the profit reporting you do each quarter. Real-time metrics work to help catch errors immediately so you don’t experience extra downtime scoping out a problem.

Remember – Real-Time Inventory Doesn’t Guarantee Success

Just because you implement a real-time inventory system doesn’t mean that there won’t be mistakes, so knowing the potential risks will better help you avoid any potential pitfalls. For example, theft of product, mis-pick errors, damage to product and recording errors (at the receiving or picking/shipping level) can throw your inventory levels out of balance. Strict adherence to processes and procedures is critical to the success of this type of system. In particular, pay close attention to controls over the receiving process, since an error in this department will only compound problems further on down the sales process. Furthermore, a scheduled quantity of cycle counting will help assist you in more proactively catching inventory discrepancies.

A lot of times, taking the giant leap forward into real-time inventory is daunting for growing companies. Outsourcing fulfillment is a way to tap into the real-time environment without having to make the commitment to purchasing new technologies and management of the additional requirements. Professional third party fulfilment companies specialize in all aspects of warehousing and distribution and will have the necessary software to bring your company from periodic to real-time.