If there’s one thing that will make you quickly lose a customer, it’s failing to deliver what you promise or when you promise it. On the flip side, good inventory management will help you build trust with your customers and increase your level of business. Building up this kind of professional supply chain can be a complex and time-consuming task. That’s why many distributors turn to a fulfillment house to handle inventory for them.
But what exactly does a fulfillment house do and how do you find the good ones? After several inquiries, we decided to find out. We reached out to Chris Manfredini, president of Mavich Branding Group (PPAI 607750), to get his insights as owner of a fulfillment house. Manfredini shares the basics of what a fulfillment house does, how to know when you need one and tips to choose the right one for you.
What is a fulfillment house?
A fulfillment house serves as a centralized location for inventoried product. Promotional products distributors partner with the fulfillment house to receive, process and deliver orders to end buyers. Additionally, a fulfillment house can provide value-added services such as custom kitting, packaging, logistics management and real-time reports.
When and why does it make sense for distributors to use a fulfillment house instead of shipping orders themselves?
Consider a fulfillment house when you near your capacity for growth with your current resources. We spent time in the early days of MBG in trial and error, figuring out if a fulfillment house was right for us as a business. We maxed out our 1,500-square-foot building quickly, and if we had hopes of growing any further, we needed space. Using a fulfillment house gave us the ability to concentrate on what we do best, which is selling products and programs. Our fulfillment house not only saved us time but money when it came to shipping costs. We were finally able to stretch our legs and really see what we were capable of, which paid for all of our fulfillment house costs and then some.
How do I send orders to a fulfillment house? Can I integrate through e-commerce?
Many fulfillment houses use cloud-based technology to make the flow of information extremely easy and accessible. The most well-run fulfillment houses will have software and an internal IT department that syncs with most of the popular online ordering systems. This is crucial to creating an efficient and seamless connection between you and the fulfillment house.
Do fulfillment houses usually require a minimum level of business?
A fulfillment house will ask you for the EAU (estimated annual usage) for products being inventoried and the potential for account growth. Based on these facts, they will plan best practices and pricing for your program. If you are thinking of using a fulfillment house, you should collect this information from your current business data and analyze your volume. If the volume exceeds your own capabilities, has the potential for growth and can counterbalance the costs of implementing the program (including both time and hard costs), then this should be an easy business decision.
What fees should I expect? Will using a fulfillment house still allow me to be competitive on my prices?
When getting involved with a fulfillment house, expect a setup charge, inventory receiving fee (product inbound) and then a pick, pack and ship fee (product outbound). If you are bringing a sizable account with a high inventory turnover rate, you could negotiate with the fulfillment house to waive the setup fee. As for the inventory receiving fees and pick, pack and ship fees, you should plan for five to10 cents per piece.
Any additional requests, such as polybag, hang tags, etc., will also result in additional fees. If you have ever participated in order fulfillment, you will quickly understand the hassle and costs of setting up software, managing inventory and physically picking and packing orders. Even though a fulfillment house might cut into your profits, the benefits are far reaching. With lower shipping rates, space to chase larger accounts and your valuable time being saved overall, you will be able to sell more, break into new markets and ultimately increase revenues.
What are the most common errors when starting to work with a fulfillment house? What best practices should I follow to avoid problems or miscommunication?
The most common obstacle we see from our clients and partnering distributors is the lack of understanding—not of the fulfillment house process but of their own customers’ program. Do not rush into using a third-party fulfillment center without analyzing the scope of the requirements and, most importantly, the expected volumes. After you collect all critical information, you can confidently determine whether your program will be successful and profitable.
Should I be concerned handing off my client list to a fulfillment house? What steps should be taken to protect myself?
This was one of my major concerns when I had to use a third-party fulfillment house. You have worked very hard to nurture and grow your client base and the last thing you want is to hand over the ‘holy grail’ of your company. Most fulfillment houses will refrain from signing contractual documents such as a non-disclosure or non-compete agreement, but it’s up to you to establish and communicate expectations up front with your fulfillment house to protect any confidential information or procedures of interaction that might occur between your fulfillment house and your customer.
The precautions you take with a fulfillment house are no different than the precautions you would take when choosing a supplier or partnering decorator. There must be a level of trust, so always do your due diligence on a fulfillment house. I recommend an online search for credible reviews of the company and to look for any red flags. Also, ask the fulfillment house for referrals from other distributors and contact them about their first-hand experiences working with that fulfillment house.
Lastly, don’t be afraid to ask the fulfillment house directly for their current procedures if a distributor’s customer contacts them directly. They should be more than willing to share this with you. At MBG, our policy is simple: once a distributor becomes our partner (customer), their customer becomes our customer, but only through that distributor. We hold ourselves to the highest business ethics and have the belief that by working together with distributors, we can successfully grow both of our businesses.
How do I find a good fulfillment house?
Fulfillment centers may claim they have been in business for years or currently manage large accounts, but this does not mean they are a perfect fit for you. Take the time to interview them, asking key questions pertaining to your program.
Some of the basic questions to discuss with your fulfillment center include their ability to connect with your e-commerce system, whether they can meet your expected demands of growth, typical order turnaround rate, after-ship tracking information, return policy and what additional fulfillment services they offer that separate them from the other fulfillment houses. Remember, this partnership will be the representation to your customer of how you operate as a company, so it’s crucial to find a fulfillment house that you can trust to meet your needs.
Tara Mibus is marketing communications coordinator at PPAI business partner SAGE.