How retailers and manufacturers can manage shipping and ‘fulfillment’
COURTESY / SHIPRIGHT
Todd Flaherty is executive vice president of ShipRight in South Portland.
It’s important to understand what fulfillment is, and know when the tipping point is reached to outsource that function. We’ve all heard stories of successful companies starting out in garages and boxing up products for a small customer base.
At some point the DIY model becomes untenable, hinders growth and risks the overall success of the enterprise.
Until small companies reach a certain volume — about 200-plus orders a week, or 1,500-plus a month — there may be no need to outsource the fulfillment process. It starts to make sense from a cost perspective once each outgoing shipment has a retail price point of at least $40, which would cover a minimum of $6 to $8 in freight and handling costs. Of course, those numbers vary with the weight of the product being shipped and distance, but it’s a good rule of thumb.
What is fulfillment?
- Importing the inventory into a warehouse
- Storing and managing the inventory
- Processing incoming orders
- Picking and packing the orders
- Exterior packaging, (think cardboard boxes and padding, not branded product packaging which is the manufacturer’s responsibility)
- Postage or carrier fees
- Customer contact and returns management when necessary
Ecommerce entrepreneurs should consider fundamental issues early on in their product’s lifecycle such as durability, packaging, weight and dimensions. If the product fits within standard shipping guidelines, it’s more cost effective. There’s a balancing act between innovation and adopting best distribution practices.
When online shopping, we’re all tempted with offers of “free shipping” and it’s important to remember this really means “subsidized shipping.” The cost is always embedded in the product markup. Free shipping has become increasingly popular because consumers consider it a real benefit and dislike added shipping charges. Marketers have a strategic decision to make, whether or not to offer free shipping, and must consider a highly competitive landscape versus profit margins.
During the pandemic, online shopping and shipping volume increased dramatically causing cardboard and other shipping materials to go up in price. While there are always variables in supply and demand, the past year has accelerated some of the changes in consumer retail habits already taking place.
The sooner a company can engage with an outsource fulfillment professional, the better equipped they’ll be to master the necessary requirements and refinements to become an efficient logistics manager for their products.
For example, some might think a white cardboard box would be a nice way to ship products. It sounds good, but it’s an added cost without benefit, as it will get dirty and marked up during shipping. Better to put money and design into direct product packaging, and choose a standard exterior box, as Amazon does for shipping.
Companies need to understand the journey their product is going to take to reach customers, and the challenges it faces along the way. While chocolate may be fine to ship within Maine during winter months, how will it do sitting on a porch in Georgia in August?
From a technology point of view, companies need to understand how e-commerce shopping carts work and connect with inventory management controls, and make the right choices early on to allow for seamless growth down the line.
It all sounds obvious but there are many questions an experienced fulfillment provider can help answer up front to save valuable time and money.
Here are the five main qualifying questions a company should be asking itself when determining whether it makes sense to outsource their shipping fulfillment process:
- How many shipments a week?
- Average weight per shipment?
- How many product SKUs?
- What e-commerce shopping cart are they using?
- How much product do they need in inventory?
Answering those key questions up front can make or break the success of a product in the marketplace.
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