A fulfillment house is a company that specializes in product fulfillment services, on behalf of the product owner.
Fulfillment house overview
Fulfillment, also known as order fulfillment or product fulfillment or, in E-Commerce business, Fulfillment Center, is a process whereby a person or company fulfills an obligation to send a person an item or product the person has ordered, purchased, or requested from the organization. Fulfillment typically refers to services provided by a company that offers to store, receive the orders, package, and ship ordered item to end consumers.
Fulfillment House Video
Standard fulfillment company services
Storage and warehousing
A fulfillment company stores items until an order for the item comes in. Storage facilities can be prepared for perishable items requiring refrigeration, temperature sensitive items requiring air conditioning or heating (such as certain types of chemicals that can break down due to extreme heat or cold), or typical warehousing protection from the elements. Third party fulfillment services often charge a storage fee based on the product storage requirements, and any required special handling.
Inventory Control
A fulfillment company typically maintains and publishes inventory counts as it ships goods. Reporting systems vary by company, and range from simple excel spreadsheets to web-based systems.
Pick and pack services
Pick and Pack is the process of selecting items currently being stored by the fulfillment company to prep for shipping. Companies have employees known as "pickers" that receive an order manifest. These "pickers" then travel through the warehouse to the location (known as a BIN or INTERNAL SKU) of the individual items, and pull them from the warehouse shelves to prep for shipping. After the "picker" takes the items in the order manifest back to the packing station, another employee--a packer--ensures that all items in the order are present, and packs and addresses them for shipping, typically including a packaging slip.
A packaging slip is not always required to accurately pick the contents of an order. Other methods of product identification exist, such as Pick to Light, and BINQTY strings, that allow for accurate picking of items. Such newer methods, increase productivity. However, systems of picking items for shipping vary, based on the number of items and SKU diversity of the goods.
Shipping
It is rare for a fulfillment company to provide its own courier services,But since E-Commerce business is growing, so established courier organization are getting in to fulfillment services. In most cases, companies outsource shipping to courier or delivery companies. However, often fulfillment companies--because of their large shipping volume--can negotiate larger shipping discounts with major delivery companies (DHL, FedEx, USPS, etc.) than small retailers can.
Outsourcing to a fulfillment house or company
Advantages
Outsourcing order fulfillment has many advantages. Firstly, order fulfilment is never the primary function of any business. By outsourcing this secondary function, time is better spent on the primary functions of the business, such as sales, marketing, buying, and innovation. There are also financial advantages. The costs of setting up a warehouse, staffing, managing, securing, and developing technology solutions can be countless. Outsourcing reduces the need for this investment. Economies of scale can also be achieved in couriers. An outsourcer will likely be able to achieve lower rates with couriers than one business can on its own.
Facilities
For younger products in infantile stages of development, the producer may not have adequate storage facilities or the funds to build them. Fulfillment companies typically have thousands of square feet of warehouse space. Companies that warehouse their own inventory have additional expenses, such as staff and utilities. A fulfillment company distributes this expense through storage fees to multiple clients. This usually results in a storage fee that is less than an individual company would pay to do it in-house. Storage fees vary by fulfillment company, but normally consist of per item fees, per pallet fees, or dimensional storage fees based on volume required.
Shipping costs
Unless a producer ships thousands of items per month, they don't get the beneficial "bulk" shipping rates available to many fulfillment companies. The price these companies pay oftens deviate from standard shipping prices by 30% or more. In some companies, the savings associated with shipping bulk rates provided by fulfillment companies can outweigh the charges of the fulfillment company itself. You may also be able to negotiate a flat-rate for shipping--a single fee based on weight and service, as opposed to weight, service, and destination. This makes shipping expenses predictable, which makes budgeting easier.
Shipping materials costs
Similar in concept to the savings associated with shipping costs, shipping materials bought in bulk also are purchased at more favorable rates. When compared to the cost of purchasing supplies for shipping through retail outlets, savings can amount to 50%. Of course, this depends on the fulfillment company.
Often, fulfillment companies include the packaging fee in the cost of shipping, or per order. This is how fulfillment providers can quote "free packaging." Most order fulfillment service providers make a list of "standard cartons" available to their clients. A company whose product doesn't fit one these packages may need to provide their own packaging or pay an additional fee.
Fulfillment costs
Fulfillment companies typically charge fees per order and per item shipped. However, there may be hidden fees associated with fulfillment duties that outweigh these costs. including the following:
- Protection of buying
- Receive merchandise
- Receive orders via mail order
- Manage continuity (autoship) programs
- Process credit cards, including multipays
- Coordinate and insert all bounce-back materials (returns)
- Prepare documentation for international shipments
- Provide all reports as required by client
- Inspect returned merchandise
- Update customer database for returns
- Issue customer credits
- Restock undamaged return merchandise
- Respond to chargebacks
- Make bank deposits
- Answer customer service phone calls
- Respond to all customer e-mail correspondence
- Storage
- "Account processing fees" for invoice payments made via credit card.
Firms looking to outsource their fulfillment may be able to receive bundled pricing, whereby all fulfillment activities are bundled into a set price per order fulfilled, often this is associated with orders that are consistently the same number of items, and the same weight. Alternatively, many third party fulfillment companies provide simple per order, and per item fee structures. In these ways, companies electing to outsource fulfillment services can more accurately forecast their costs.
E-Commerce
Fulfillment houses develop intelligent e-Commerce systems to help manage the many elements within the business. The e-commerce system is adaptable and is able to integrate into clients ordering system - or even host the ordering system themselves. They also enable integration into their respective couriers system - to enable the fulfillment houses clients live information upon package deliveries.
The eCommerce sector is growing worldwide at an astonishing pace. China leads the way with a reported 63% growth in 2014.
In the UK, The number of eCommerce parcels to be delivered will reach 940 million in 2014.
Disadvantage
Indirect control
Fulfillment companies act as the shipping center for client companies. Should there be errors in shipping process or poor handling procedures, the client company receives the bad reputation, not the fulfillment center.
Product damage or shrinkage
Fulfillment companies typically will not take responsibility for product damage unless they are directly responsible, nor do they take responsibility for product shrinkage unless it can be proven that they are directly responsible. This practice varies depending on the receiving procedures the fulfillment house uses. Typically, if a fulfillment house verifies counts, they accept more responsibility for items in their care. However, if they accept packing lists for supplied inventory as accurate, they are likely less responsible for shrinkage.
Fulfillment center
Companies such as Amazon.com do their order fulfillment in-house, using regional warehouses called fulfillment centers.
In an older but still extant example, Fingerhut carried its own catalog-sales fulfillment center success into fulfillment services for others including in e-commerce and for the company that acquired Fingerhut, Federated Department Stores, in the late 1990s.
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