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