Drone delivery, anyone? We're not completely there yet, but while we wait for products to fall from the sky, businesses need to maintain a competitive edge by outsourcing fulfillment to the right provider.
Despite being both parodied (make sure to watch Netflix's Drone to Home video) and parroted (in February, the FAA clipped a brewery's attempt to deliver beer by drone to Minnesota fishermen), Amazon insists unmanned aerial delivery vehicles will soon be as common as mail trucks.
In the meantime, for those of us who have to use traditional means to get our products from point A to point B, Amazon's shadow is likely to play a role in any decision to outsource fulfillment. Again, the company has set the standard and revolutionized the retail part of the game with free two-day shipping for Prime members. Even without the help of futuristic octocopters, it likely won't be long before same-day delivery is realized.
“The reality is that Amazon is so big that they are now mandating what the customer satisfaction requirements are for everyone, even if you don't think that you compete with Amazon,” Jim Tompkins, president of Tompkins International, told Modern Materials Handling in 2012.
Internet forums abound with stories of the pros of outsourcing fulfillment. One attempt to discredit outsourcing as too costly, too risky, and riddled with breakage issues and erroneous orders was largely shot down in the comment section.
“My book business has outgrown my storage space,” one proponent of outsourcing wrote. “Fulfillment by Amazon allows me to increase stock without renting a storage unit or the like. Much cheaper to 'rent' space at an Amazon warehouse than do it on my own.”
The commenter makes some good points. Taking the warehouse woes of equipment purchases and employee costs out the business equation make sense for some. If you are spending too much time and money on filling orders, if the size of your warehouse is keeping your company from growing, or if you would rather spend your expertise on developing and marketing your products, you may want to take a good look at fulfillment business partners.
As a first step, make sure you know your exact fulfillment cost per order before you start gathering quotes from fulfillment companies.
Locating your fulfillment as close to your customers as possible is crucial, not only to reduce shipping costs but also to achieve that necessary speed of delivery. Once again, Amazon has taken the lead by investing untold amounts in building distribution centers near major metropolitan areas. “In 2004, 38% of Amazon's fulfillment capacity was less than 200 miles from a major metropolitan area,” Tompkins told Modern Materials Handling. “If you look at what Amazon is building today, 79% of its DCs are within 200 miles of a major metropolitan area.”
Scalability is important, as well. Can the third-party distribution center grow with your business and absorb the seasonal peaks and valleys of ordering?
In a 2013 whitepaper, Integrated Distribution Services discusses some other questions you should ask:
- Is the fulfillment center financially sound? Inquire about debt and ask for bank references.
- What is its reputation? Check how long the company has been in business and its credibility in the industry.
- What kind of technology does it use? The systems in place will tell you about the service that you can expect.
- How effectively does it communicate? Great communication is key when dealing with back orders, returned items, and cancellations.
For those whose product offerings target individual consumers, Amazon (again) offers almost unbeatable value. In a 2013 survey, Amazon said on its website, 74% of Fulfillment by Amazon sellers “reported that their Unit sales increased on Amazon.com more than 20%, since joining FBA.”
In any event, it will be a while before we'll see our products fall from the sky. What is your take on Amazon's impact on fulfillment outsourcing?