November 3, 2011 by Andrew Minalto - 29 Comments

Fulfilment Houses: The Good, The Bad, The Ugly!

Hey Everyone!

After last week’s post about how to start from scratch, I’m back with a new and quite lengthy post about fulfilment houses – something every online shop owner should consider using (if it’s suitable for the business model of course).

Just what exactly are fulfilment houses?

Fulfilment houses such as Shipwire and Amazon Fulfilment Web Service are third party services that take care of fulfilling client orders on the business owner’s behalf. Fulfilment houses take charge of receiving the products from the supplier, housing the said inventory, receiving the orders from the business owner’s clients, and packaging and shipping said orders to the latter.

And depending upon the agreement between the business owner and the fulfilment house, the latter can very well take care of processing payments and the after-sale support such as handling customer complaints and accepting, even re-stocking, of undamaged return items as well.

The Good

Fulfilment houses certainly offer a lot of advantages for the small business owner:

1. Affords you the time to focus on core business concerns.

Needless to say, managing a business, no matter how small it is, is time consuming. You need to manage the inventory, take and record orders, pick the products from your storage, and pack and send these out every single day. But if you opt to enlist the services of a fulfilment house, these tedious tasks will no longer be your responsibility.

2. Maintaining a dedicated staff will no longer be necessary.

A staff solely designated to handle order fulfilment may just become redundant. So if you’ve been looking to cut down on operational expenses, then you might just be able to do so. If you go for the expertise of a fulfilment house, you will no longer have to handle payroll and take care of worker benefits hence saving you resources.

If you’re a one-man-band type of operation, this is even more crucial to you! You can actually expand and grow your business WITHOUT taking on any employees whatsoever!

3. Specialized storage facilities can be had if you so require.

If what you’re selling online are particularly fragile or perishable items, perhaps flowers or maybe even speciality food, then you have probably long been looking for ways to slash the exorbitant utilities costs you’ve been paying. You will definitely find it cheaper as maintaining a refrigerated storage facility will no longer be the required if you hire a fulfilment house.

4. Cheaper shipping costs could be made possible.

One way you can considerably slash your prices would be to take advantage of lower shipping rates, something which the right fulfilment house can provide you with. Fulfilment houses regularly ship items by the bulk so they are able to negotiate for discounted rates from courier services.

5. Significant savings on shipping materials can be obtained.

Packaging materials are another regular expense. And if you’re doing your business’ order fulfilment, then perhaps you’re buying the required packaging materials from neighbourhood stores. Needless to say, buying all those boxes, adhesive tapes, and bubble wraps is not only inconvenient, but you are also paying for them at much higher rates simply for purchasing them in retail.

If you go for the services of fulfilment houses, then the savings they obtain from procuring shipping paraphernalia by the truckload will be passed on to you in the form of cheaper prices of these materials.

Many fulfilment companies (Shipwire and others) include FREE packaging materials in the P&P cost (HUGE BONUS) – something you have to take into consideration when making your calculations. Even a regular Jiffy type bag can set you back at 20p each item you send out – over time, those are significant savings.

The Bad

Opting for fulfilment houses also has its share of drawbacks.

1. You will no longer have direct control over your merchandise.

Control over your products is something which you will of course need to relinquish. This is why you should learn to become an expert and patient negotiator before you even start working with a fulfilment house. This is crucial as you will need to communicate every single time how you want your merchandise handled, stored, packaged and shipped. Not communicating in clear and detailed instructions and there will be the risk of damaged items, lost merchandise, and even incomplete orders.

Luckily for us, most modern fulfilment houses offer robust admin panels where you can do all these tasks virtually – manage stock, locations etc. etc. You can even pay extra for services like stock inspection, returned item inspection, quality check (if you ship directly from a supplier to FH) and so on. Basically, with a good fulfilment house you have pretty good control over your stock, without even seeing or touching it.

2. Some after-sale client interface will have to be conducted by the fulfilment house.

After-sale client support is another tricky issue when working with fulfilment houses. Of course, you can always inform your clients to contact you in case there is a problem with the order. But what if the problem is something which is the fulfilment house’s responsibility?

Let me use delayed delivery as an example. Sure, this really isn’t the fulfilment house’s responsibility, not directly, at least, since in this case it is the courier’s. So your client calls to inform you of the matter. And whether you like it or not, you’ll have to turn your client over to the fulfilment house for news about the delivery status. Needless to say, not being able to provide concrete and definite answers to your clients who already happen to have paid for the product isn’t really a good business reputation boost, right?

Another big issue are returns – how to handle them effectively? Most fulfilment houses will happily accept returns BUT what if inspection is needed? You can’t simply re-stock an item with opened package or already un-packed t-shirt. So this is something you have to consider, especially if you’re working in a niche with high returns rate.

3. Product shrinkage, damage.

Product shrinkage is inevitable for perishables. But damage on other dry goods, say for example, jewellery or clothing, is something that’s preventable. Unfortunately, if you’ll be dealing with fulfilment houses, there is always the possibility that your products will be handled poorly resulting in shrinkage or damage.

Additional insurance is something you should consider using, especially if you’re selling highly valuable items, such as electronics or jewellery. Most companies will offer this for additional cost.

The Ugly

Now that we’ve discussed the good and the bad of fulfilment houses, you’re probably wondering if I’ll go right ahead and mention the ugly, or if ever there is one at all. Well, I think it mainly comes down to your business model and whatever fulfilment house model suits your business in first place.

If you sell small, very cheap products – with average orders consisting of many items (such as small craft supplies), fulfilment houses won’t be suitable as costs will be too high. If you work with ultra small margins – again, fulfilment fees will eat up your profit. If you’re working with shoes, clothing or similar items – again, it may not be the best way to go as organizing returns will be a nightmare.

But there are plenty of goods perfectly suitable for this warehousing model! I use Shipwire to distribute all of my information products – and I’m very happy with the service. After hundreds of orders processed, there haven’t been a single address or order picking mistake by them which is a good sign!

Will it work for you? I cannot answer that question – do your calculations and make a decision. But one thing is for sure – fulfilment house is the one single EASIEST way to free up your time from order processing so you can spend more energy on getting new customers and make more money at the end of the day!

If you have any story/experience about fulfiment houses, please share it in comments section!

Thanks,
Andrew

29 Comments
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  1. Hi Andrew,

    Do you know of a fulfilment house that has locations in the USA, UK and Australia?

  2. JACKIE AFFLECK

    Hi Andrew
    We are a growing small business facing fulfilment service challenges which urgently need to be solved. Our warehouse service provider is increasing costs and not providing the service they hoped they could offer us including no stock management control which is booming stressful. Having read your blog, I see that we probably fit into the category where you say:

    “If you sell small, very cheap products – with average orders consisting of many items (… fulfilment houses won’t be suitable as costs will be too high. If you work with ultra small margins – again, fulfilment fees will eat up your profit.”

    What would you suggest is the right way to tackle our picking, packing and distribution service requirements if we don’t use a fulfilment provider? We need to find a scalable solution at this point.

    Thank you

    1. Andrew Minalto

      Hi Jackie,

      Thanks for your comment.

      I would recommend just doing this in-house – from your own warehouse/facility.

      So you can keep 100% control on the whole process and keep costs down.

      You’ll want to investigate order processing software solutions that work with marketplaces you work with – like eBay/Amazon or your own online shop. Systems like Linnworks, Brightpearl and others.

      Thanks,
      Andrew

  3. Hi Andrew
    I reach out to you from utter frustration. We use Shipwire and our experience had been nothing short of a disaster.
    We are Australian based and Shipwire house our stock in U.K. for delivery in that market. Recently we sold ALL of the stock (+2000 units) to one customer. It’s proving impossible to get this order dispatched.
    There is no one to speak to in U.K. We have to deal with customer care in USA who do nothing but acknowledge the situation.
    My UK customer now threatens cancellation of their order with us along with serious fines.
    Do you know who we can deal with that is senior enough to be effective?
    Thanks if you can help
    Regards
    Kay Cohen CEO

    1. Andrew Minalto

      Hi Kay,

      Unfortunately I can’t help you with this as I don’t work with Shipwire.

      Andrew

  4. Thank you for the guideline. I’m looking into hiring a fulfillment company. You gave me a good idea of concerns and questions to have.

    1. Andrew Minalto

      You’re welcome Doriane!

  5. Hi Andrew,

    I wondered if you know of any companies that can accept goods from different suppliers, label and ship some stock to Amazon FBA and some stock to another fulfilment company in UK?

    Thanks in advance.

    Lola

    1. Sorry, I forgot to mention that the suppliers are in China and the company in question would be required in China.

    2. Andrew Minalto

      Sorry, no, I don’t know of such companies.

  6. Hi, Any one who knows the price of Shipwire and Amazon Fulfilment Web Services? thank you.
    Because recently I need ecommerce order fulfillment services. And I am now connecting with an order fulfillment company called http://www.chinadivision.com/, which can save me much time and cost. Mostly most of our products are sourcing from China, and they can provide free China Warehouse, when I have an order, they could help me to pick and pack and label the parcels. I knwo these services all can be done by Shipwire and Amazon FBA. So I would like to compare these three services. By the way, ChinaDivision.com could provide extra services such as printing logo on the shipping bag or place a card in the package. thank you

  7. Adrian Hallmark

    Another good fulfilment house is Mail Workshop in Nottingham http://www.mailworkshop.com as they do picking, packing, labelling, the whole lot.

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  12. James from Si is correct, any decent fulfilment house will provide you with online access to such information, the same information that their own customer service reps see.

    In our case, all of our clients have access to our system and can see order statuses, specific times and dates of status changes, carrier information including tracking numbers and live tracking status of the parcel. All their stock levels are live and they can see all deliveries as they happen. They can also set up alerts on each product to let them know when stock lebels reach a certain level so they can reorder stock. The client does not have to be sat in a big warehosue surrounded by boxes to be in control of their stock.

    WIth stock damages or losses, again James is correct, any reputable fulfilment house (including us) would take full responsibility for these and reimburse the client.

    1. Andrew Minalto

      Thanks Ian for your comments!

      I wish such small fulfilment companies would be known better as I’m sure you’re taking care of each customer, even small ones.

      With big companies you’re always just a number.

      Thanks again!

  13. Please be aware that Shipwire does not list all their fees on their website. They have additional fees that are only revealed later, once you start shipping. Also, Shipwire overcharges for shipping by shipping small items in large boxes. They claim on their website they have all standard size packaging material, but they do not. Shipwire charges a fee based on USPS shipping costs so the larger the USPS cost the larger Shipwire’s fee so suddenly the USPS fees double, even tripple……….Please be aware of this before you sign on with them. There are many, many small e-commerce owners out there who have been completely cheated by Shipwire. Shipwire treats small companies really badly, they overcharge, lie and refuse to even answer customer’s questions. Please make sure you know what you are getting into before signing on with shipwire. Do know that they DO NOT tell the whole truth on their website.

    We are many, many Shipwire customers who feel cheated and demeaned by Shipwire and it has cost us a lot of money and heartache.

    1. Andrew Minalto

      Thanks for your comments Anna.

      I have only used Shipwire UK and haven’t had any problems with wrong box sizes or additional fee.

      But thanks for sharing your experience!

    2. Omg I so wish I had read this comment about a year ago! I am suffering from all of the above as a small business owner. Shipwire overcharge, are dishonest on their website, and definitely do not deal with customer questions comprehensively or in a timely fashion.

      Most importantly, they DO NO tell the whole truth on their website.
      Cheated, heartache, wasted money…all that and a bag of chips 🙁

  14. “And whether you like it or not, you’ll have to turn your client over to the fulfilment house for news about the delivery status.”

    This assumes that you don’t get live access to such data from the fulfilment house. The newer better fulfilment houses do this as a matter of course – all our Clients for example have as much information as we do, shared with them online in real time over a cloud platform. That said, warehouses processing orders via email won’t offer the above.

    As for shrinkage and damage – any good provider should take full responsibility – we certainly pay out for this without question.

    1. Andrew Minalto

      Thanks James for your comments!

      I’m glad to hear that there are companies who really care about their customers, without asking to pay anything extra.

    2. Hi James,

      It’s interesting you should specifically call out taking full responsibility for damage, yet your contracts completely exhonerate you from any financial responsibility. This would be fine if the reality of it would be that you paid out on a discretionary basis where there has been clear negligence on the part of James and James, however this does not appear to be the case.

      I am currently in contact with your customer service team who have shipped out 106 of my products in the last 7 days completely un-packaged. I have been referred to the maximum liability clause in your contract limiting your liability here to £50.

      1. Hi Matthew,

        We operate at 99.999% average packing accuracy but know of course that mistakes can happen occasionally. For this reason we accept full responsibility where something has gone wrong.

        I understand that customer service are currently still discussing the incident with you and working with you to come to a solution, so I do hope this is resolved for you asap.

        Best wishes,

        Kelly – James and James

  15. Scott Ruxton

    Fulfilment houses are the way to go, not only do they offer considerable operational benefits they can also open up international market opportunities.

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