The Ultimate Guide to Fulfillment, Pt. 3

Real life insights into fulfillment and logistics for startups and subscription box companies

In Part 1 & Part 2, we shared an overview of how fulfillment works and the steps you can take to facilitate a smooth transition to outsourcing this part of your business.

In this section, we’ll discuss the process of finding a fulfillment partner and drill down into how to evaluate your options.

Not all 3PL’s are cut from the same operational cloth:

How do you find the right partner for you?

In the truest sense of the word, you are about to enter into a partnership. Your fulfillment partner will close the loop between customer purchase and delivery, and you are trusting them to do this effectively and as a representation of your business.

The right partner is a valued resource that helps you grow, while choosing the wrong option can lead to dissatisfied customers, delays and countless headaches.

Finding warehouses:

By now, you’ve evaluated your current operations and have a keen understanding of what your expectations are for fulfillment. But what are the actual steps to finding a warehouse? Anthony Thomas, Founder of Sticker Mule has some helpful advice:

“We start by contacting anyone we think can point us in the right direction. You can try connecting with product companies in your area to see who they use, and what their experience is like.

They may offer guidance for other 3PLs they spoke with, and offer insight into why they didn’t go with them, and why they may be a fit for you.

Search for reviews online to see how people are talking about different 3PLs. Quora can provide insights from a customer perspective, and Glassdoor can offer a look into the culture.”

Other resources to look into:

• If you are running a crowdfunding campaign, BackerKit not only will help you to effectively wrap up your campaign, they have recommendations for several fulfillment partners.
• There are databases such as 3PLfinder and Inbound Logistics’ search tool which are helpful when searching by location, though they can be overwhelming and require plenty of tedious outreach.
• You can contact Chambers of Commerce to see who they recommend from their network.
• Search for reviews or ask other users on forums like Quora, Reddit, etc.

With your list of warehouses in hand, you are ready to assess each potential partner to suss out the best fit.

Top 5 considerations for your warehouse:

You want a partner that is invested in your growth, after all, your success is their success. Likewise, your working relationship matters, both the business kind and the warm-fuzzy friendly type.

Remember, this will be one of your most important partnerships as you scale, and you’ll want to partner with people who are both effective and with whom you like working. Anthony of Sticker Mule shares how they prioritize the human element,

“I’m a big believer in the golden rule, so I look for their adherence towards it too. If I’m treating someone well and they’re not reciprocating, I move on.”

What are other important factors you should be considering? For many businesses, price is a major consideration. However, the price tag does not depict the whole story.

The total cost includes operational capacity, customer support, and technology infrastructure of the warehouse, which have a disproportional impact on your working relationship.

The Warehouse Equation:

Price = Fees + Location + Customer Service + Tech + Operational Capacity

Generally, if you receive a very low price from a warehouse, you’re losing something somewhere.

The cheapest option upfront may ultimately be more expensive over time (perhaps they have low per order costs, but make it up in shipping rates or maintenance fees).

Let’s also consider the evaluation through another lens: What happens if you factor in your customer’s experience? How do non-monetarily based variables such as customer service come into play?

In other words, cost should not be the only way to evaluate your options. Here are five important factors to review:

(Shippo has an easy to use interface to quickly price compare shipping rates.)

Fees: There are a variety of fees a warehouse may charge, but the most common costs are:

• Shipping rates: Use *Shippo *or *Easypost *to learn what your base rates should be by integrating your existing carrier accounts, or by signing up with UPS/ FedEx directly. Most warehouses charge a margin here, so you will be able to price compare with their rates.
• Fulfillment fees: Pick-and-pack, kitting, material costs. Buyer beware: When most people think cheapest they’re talking about these costs — Most warehouses know this and add the difference in shipping rates above.
• Storage fees: Warehouses typically charge a holding fee per pallet/ month. These generally range from $15–30/ pallet/ month. You should ask about lower-cost storage options, such as bins, and be sure to ask about reserve storage pricing. We’ll cover additional ways to save money in Part 4.

Questions to ask:

What are your preferred shipping rates?

Meaning: What are the true rates you get with carriers?

Good Answer: We offer the following discounts and charge a slight mark-up for using our accounts and the work we put into ensuring you pay the best rates. We do allow companies to charge against their own carrier accounts, however you lose our ability to help you reduce your costs with our volumes and our teams reviewing the invoices.

Better Answer: We offer a system you can use to test our rates to see if they’re better than you’re currently receiving.

Bad Answer: It depends, but trust that they will be better than what you are currently getting.

What are your per order outbound fees (i.e. pick and pack)?

Meaning: What are all the fees I should expect to pay per order?

Good Answer: We charge a flat fee of $1.25 + $0.25/ item.

Better Answer: Send us some example orders and we’ll give you your pricing.

Bad Answer: We charge you based on the hourly rate of our workers and every order can differs. Ali Kathari of New Grounds Foods offers some lessons learned the hard way:

“Hands down the most frustrating part of working with a new fulfillment center is understanding which shipping methods or the cheapest for each respective product.

Fulfillment centers don’t want to make it extremely easy to tell you which is the cheapest shipping method (because they make money on the shipping rates).

It takes investigating and running reports to fully understand which methods are best for which orders. And be sure to keep revising your shipping methods — pricing changes all the time.”

Other Common Fees:

• Accessorial charges: After a parcel carrier ships a package, there can be added fees that are charged up to several weeks later. The following are what we saw for one of our major clients:
• Shipping Charge Correction
• Residential Adjustment
• Fuel Surcharge
• Additional Handling
• Address Correction Ground
• Large Package
• International Shipping
• One-time setup charge (from a few hundred dollars to thousands)
• Integration fees for setting up your e-commerce integration ($125–250/hour)
• Manual corrections for improperly formatted CSV files, incorrect SKUs, invalid addresses, and other work that requires manual processing team
• Monthly account management fee (up to a couple hundred dollars a month)
• Repackaging items
• Receiving fees
• You can read about more common fees in Part 1

Ali continues, “With every fulfillment center, there is an on-boarding process where you have to learn all of the small rules that don’t come up in the intro meetings or contract, but instead come up when you are actually doing business with the fulfillment center.”

Going forward, it is important to evaluate each invoice you receive and ask clarifying questions into what each charge is.

(Source: Etsy)

Location: Where the fulfillment center is located will help determine how much cost savings you can attain for shipping rates. You will want to consider warehouses that are:

• Near the bulk of your customers
• Near carrier shipping hubs (cities where major carriers have large distribution centers)
• Near port (where ships dock and unload freight)

If you are manufacturing in the U.S., it may be helpful to have a warehouse near your production facility to minimize freight costs.

It is important to understand that proximity to you is less important. We understand many entrepreneurs looking for their first warehouse want to be able to visit and like the convenience of having it close by, but the factors above will be more meaningful in the long run.

Ali of New Grounds Foods explains further,

“If you are doing small volume, try to find the fulfillment center that has the best shipping rates. This will ideally mean a fulfillment center that is located in the middle of the country.

OR if you plan to only ship product to one region of the country, make sure your fulfillment center is in that region. Do not worry too much on the pick and pack fees, rather, worry about the shipping rates and which one can offer the best prices. Shipping rates will always increase, pick and pack fees [typically] will stay the same once they are set.”

Operational Capacity: How well can your warehouse handle your orders? How predictable and consistent are they? The better you understand how your fulfillment center operates, the more accurately you can plan your back-end logistics.

Questions to ask:

Do you handle kitting?

Meaning: Can you bundle together my products for final packaging?Good

Answer: We do this upfront after we’ve received your product into the system. We’ll optimize the process for you over time.

Better Answer: Depends on your needs, let’s spend some time learning more about your process. Send us some example kits or a video and we’ll work out your pricing.

Bad Answer: Yes. We kit your products each time a product comes in.

Is your warehouse temperature controlled (or other specific requirements your product requires)?

Meaning: Can you handle the specific needs for my product?

Good Answer: Our warehouse is within this temperature range: 65–75 all year-round. Our major concern is humidity, but we can keep that lower than most places because we have built into a cave and have a high-powered dehumidifier.

For your product, though, we’d worry most about the following environmental conditions… Here’s how we address each of those concerns.

Bad Answer: Yes, we can store your product in our office area because we keep the air conditioner on there.

What is your Dock to stock time?

Meaning: How long does it take to get my product from outside the warehouse to storage (and in stock so I can start selling)?

Good Answer: 8 hours — 72 hours

Bad Answer: It is incredibly fast, I am not sure on the specifics.

What is your mis-ship rate out of 1,000?

Meaning: Are they accurate, do they know how many mistakes they make? Good Answer: 99.86% if barcoded, 75% if it’s not barcoded. Our biggest gain in accuracy comes from automation systems.

Bad Answer: “We don’t mis-ship here.” (Everyone mis-ships)

Go in person. Do they have clean floors? Are their pallets in the aisles?

Meaning: You are checking if they have consistency and organization.

Good Answer: It is surprisingly clean.

Bad Answer: Pallets are found in seemingly random locations and floors have discarded boxes and tape lying around. If you do happen to visit the facility, you can find visual cues for how well run their operation is all around you.

For example, review how safely the forklift drivers move across the floor. If they’re speeding around and haphazardly providing audible and visual signals at intersections then it’s a poorly managed facility.

However, if the movement makes you feel comfortable and seems controlled with an annoyingly high rate of honking and visual sirens then you’re in a well run facility that takes safety seriously, and indicates they’re nailing the rest of the steps.

Customer Service: Your company’s reputation is now tied in part to the performance of your fulfillment company. When your warehouse provides inferior customer service or fails to deliver an order on time, it reflects poorly on you.

Questions to ask:

Do we get our own dedicated account representative that will be our only point of contact?

Meaning: If we need to get an answer, is there someone we can talk to directly?

Good Answer: You will have an account representative. Her name is Lucy. Here is her contact information. She will be your point person after we’ve on-boarded you into the system. Until then you’ll work with me and we will introduce you to her by this date.

Bad Answer: You can just call anytime, someone will be able to help you out within the hours of 9–6pm.

How quickly do you respond to questions?

Meaning: If we need urgent help, how fast can you provide answers?

Good Answer: Within 1 work day.

Bad Answer: You can email our customer support and they’ll get back to you in a timely manner. (They fail to guarantee a time period).

Ali from New Grounds Foods relays the importance of having a point person,

“Make sure that you work with a fulfillment center that gives you a dedicated account representative, and also make sure that this will be your ONLY contact for any fulfillment rated questions you have.

It was painful for us at our first fulfillment center when we had to speak to different people for different questions [which caused serious delays to get the answers we needed].”

Some warehouses have outdated technology.

Tech: How technically competent the warehouse is will either make your life a seamless breeze, or be a time-sucking nuisance for simple things like submitting orders.

Questions to ask:

How do we send our data/ orders?

Meaning: How much time will it take to send your orders for them to fulfill?

Good Answer: We have a Shopify plug-in so your orders will automatically be sent to our facility.

Bad Answer: It’s as simple as uploading a CSV. You can email it, or use our backend to upload! Oftentimes, you will need to rearrange data in the CSV download from your eCommerce store in order for the warehouse’s system to be able to process the information.

This can be a highly time intensive process that can lead to errors in data entry, causing mis-shipments, delayed shipments, or potential fees for information correction.

What tech do you use? Do you have barcode scanners or a WMS?

Meaning: Are you prone to human error and doing everything manually?

Good Answer: Both. There are automated systems to ensure accuracy by denying pickers/packers making trivial mistakes such as wrong quantity and wrong SKUs which is enforced with our barcode scanners and Warehouse Management System (WMS).

We also have human packers that will ensure your packaging and labeling looks right for your customer and is the cheapest option overall.

Bad Answer: We triple check every order to be sure, by hand. Now that we’ve covered high priority items, let’s delve into some of the nuances. You will want to discuss the following before making your final decision.

Additional evaluation criteria:

Below are a list of questions and other considerations to discuss with your potential warehouses. Due Diligence:

• Check references and claims history: To gain a full picture of the compatibility between you and your 3PL provider, talk to their customers whose businesses are similar to yours. The Better Business Bureau can be helpful for searching for grievances. Glassdoor can be helpful for gleaning insight into working conditions and the culture.
• Can you show me your liability insurance?
• Do you have X [industry-specific] certification (you will need to know which ones are pertinent to you)?

Operations:

• Ask what they do best (ie., “We specialize in perishable foods and bottled beverages”).
• What happens during the initial set up process? How long does this take?
• What happens if we need to move out? How does that work? Are there fees?
• What type of inspections do you provide?

Portfolio:

• Who have you worked with that are similar to us? Do you currently carry similar products?
• How many other vendors do you work with? What is the shipping volume of your largest accounts?
• Ask for examples of customers with similar needs to yours, and ask them to explain how they provided solutions to meet the company’s specific requirements.

Shipping:

• Do you automatically rate shop for each order?
• When are carrier pick-up times? What are cutoff times for each carrier?
• How quickly are orders processed (from order upload to being packed)?
• Can you provide your published shipping rates?
• Ask about emergencies and the holidays: How would you handle orders if I begin shipping 10x? 100x?

Packaging:

• How do you price out kitting?
• Can you walk me through the process of receiving, storage, order processing, picking, and packing?
• What packaging options do you have in house? How much are materials?
• What branding elements can you incorporate (Ie., inserts, stickers, etc.)? What can you not do?

Technology:

• What eCommerce stores do you integrate with?

Customer Support:

• Hours of operation?
• Help desk?
• How do you handle last minute order changes?

Returns:

• What is your process for handling returns?

You do not need to ask all of these questions, nor is this list fully comprehensive. Performing your due diligence will help you make a more educated decision for an important part of your business, and help suss out potential lemons.

You are ready to make your decision, but this is just the start. Going forward, there are ways to strengthen your relationship and important factors to consider.

General good housekeeping advice:

Anthony of Sticker Mule summarizes his evaluation process into four simple steps:

1. Ask around to get advice on a reliable potential partner.
2. Care about being a good client that’s easy to work with early on.
3. Continually try to build rapport and make your partner’s life easy
4. Don’t be afraid to switch partners if it’s not working out.

He reiterates that relationships go both ways:

“It’s important to work on being a good client before you consider switching partners. If you’re a bad client then every partner you meet is going to seem like a bad partner.”

On your end, be communicative (and civil!), provide as much advanced notice for potential issues as you can, be understanding when the inevitable mistake arises, and work with your partner to find solutions.

We’ve now covered the gamut from what fulfillment centers are, to positioning your business for a smooth transition to a warehouse, and how to find a partner.

// Glossary of terms:

• Accessorial charge: After a parcel carrier ships package, there can be added fees (for overweight, large dimension rules, stating commercial address instead of residential, additional handling charges, etc.).
• Carrier shipping hubs: Cities around the U.S. where major carriers have large distribution centers and ship to far-reaching parts of the country.
• Freight: Large volume of goods transported by truck, train, ship, or aircraft from your manufacturer to your warehouse.
• Port: Docks and distribution centers where ships unload freight.
• Receiving: The process of unloading product from the freight truck, inspecting the inventory in the dock of the warehouse, and putting product into storage.
• Dock to stock: How long does it take to get my product from outside the warehouse to storage.

Tools and resources mentioned:

• Backerkit: Comprehensive service that helps with post-crowdfunding logistics.
• Quora: Online forum focused specifically on business related Q&A.
• Reddit: Forum for posting conversations and articles. Search for specific business related subreddits.
• Glassdoor: Review site of companies, featuring feedback from former employees.
• Shippo: Shipping API for your eCommerce site, let’s you print shipping labels, get rates, track packages, print customs forms, submit refunds and more.
• Easypost: Easily integrate USPS, UPS, DHL and FedEx shipping APIs into a single application.
• Better Business Bureau: Non-profit that collects and provides free business reviews and helps mediate disputes between customers and businesses.