Fulfillment

Re: [spiers] Fulfillment

Howdy Mary,

First let's define terms; a fulfillment house is the same as a public warehouse
or a pick and pack operation... all essentially private contractors who do the
specialized work of filling orders from your customers for your products.
Different industries use different names.

The primary reason for outsourcing the warehouse is efficiency, these people are
better at it than you will ever be, and they can make money arbitraging what it
costs them to do the work and what it would cost you.

Second, since they do this for many others, they can take the aggregate weight
of the outbound freight and negotiate spectacular discounts from the freight
companies... 50% off UPS rates, 65% off Viking Trucking rates. this can make a
difference as to whether a potential customer on the other coast decides to buy
from you or not, given with these discounts you can guarantee your customer will
not be hammered by freight charges.

Finally, under the UCC, the sale takes place where the merchandise is loaded on
the common carrier, so... at least on the west coast, it is advantageous to have
a public warehouse in Nevada, where there are no taxes on such business, as
opposed to Washington, where there is.

Now recall we get the catalogs and price lists of our competitors? One thing we
will see in those is terms and conditions of sale, and specifically "FOB
Sometown". this means the prices quoted are based on being put on the common
carrier at the mentioned town, and the customer will be paying the freight
thence forward. A dead giveaway of where YOU should warehouse is to see where
some if not all of your competitors warehouse. It is not uncommon for east
coast importers of asian wares to warehouse on the west coast. For some reason,
I recollect vaguely the name of Cherry Hill NJ as a common FOB point for east
coast gift importers. And I think Franfurt KY (near the FEDEX airport) is a
central USA one, although Ross Perot tried to make DFW the placed to be. His
hate for Geo. Bush and politics derailed that ambition. But I digress.

The costs are whatever the going rate is in the given area, so just survey the
going rates from the various warehouse companies, get references, the normal
drill.

You are likely to be quoted something like "5% of invoice value, plus packing
materials at cost" or "13 cents a square foot plus $20 per hour labor and
packing materials at cost."

Now, don't make the mistake of saying "$20 an hour!!! I can do that myself!!!"
because that would not be true... What the pros get done in an hour for $20
would take you 10 hours to do, and the pros would get it done right the first
time, whereas you would have failed to follow the routing guide from the
customer and get a chargeback.

"Man, these costs are high!" You might muse... but recall we do not compete on
price... we add up all of the costs, assuming worst case scenarios, fix the
price, and see if we can get enough orders against samples to cover the
supplier's minimum production run requirement profitably in a workable amount of
time.

Another thing, in these warehouses that see very many businesses come and go,
they know who is going to make it and who is not. Those who appear to be long
term get the best service. Work into your conversations with the warehouses,
indeed everyone, that "see if we can get enough orders against samples to cover
the supplier's minimum production run requirement profitably in a workable
amount of time" and those who know will put you in the "will succeed" category
of their mind. Everyone loves a winner.

John

John,
I am curious about fulfillment warehouses...how do I find a good one for a
small business and what are the average rates? I assume it should be local
(Miami for me)? I know in your book you said they take x% (I forget) of the
order
for fulfillment services, do they also charge for storage fees? What does this
% include? How does this all work?

Many Thanks!
Mary

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