Keeping Fulfillment Costs Under Budget

Reducing fulfillment costs is a priority for most companies that are either creating a new fulfillment process or trying to improve upon a current system. If you’re looking for information on how much fulfillment will cost you, comparing costs of outsourcing or doing research on how to reduce fulfillment costs for your organization, this post will provide valuable insights.

Types of Fees Fulfillment Companies Charge

Fulfillment cost accounting takes includes many considerations and each fulfillment warehouse partner’s costs will be somewhat different. Consider these standard fees and charges you can anticipate:

• Receiving products into the warehouse
  • Inbound processing
  • In fees (e.g., fee per each inbound pallet or line item)

• Storage and Warehousing fees
  • Storage fees can include overhead and other times it’s a separate line item.
  • Warehousing fees are billed by linear square foot or by cubic foot.

• Picking and preparing orders for shipment
  • Outbound processing
  • Out fee (e.g., fee per each outbound pallet)

Order Fulfillment Pricing Models

The cost of fulfillment services based on these two alternative pricing models will vary, and can often be customized to meet your specific needs.

• Value-add
  • You keep ownership of parts (consignment).
  • You cover the cost of doing business, including space, overhead, labor, materials, selling, general and administrative expenses.

• Inventory ownership
  • 3PL owns the product.
  • 3PL adds a markup to the product cost, which includes material, labor, overhead, selling, general and administrative expenses.

7 Ways to Reduce Packaging Costs

Here are seven proven methods for minimizing your packaging costs:

1. Standardize packaging when possible to increase volume discounts.
   • Standardizing your packaging across multiple part numbers saves money versus having different packaging for all part numbers.
2. Partner with a distributor who already gets volume discounts from their current contacts.
3. Negotiate with packaging vendors or have your fulfillment vendor purchase the materials and do the negotiating for you.
4. Research environmentally friendly packaging opportunities.
5. Remove waste in your fulfillment process including unnecessary packaging.
6. Rethink costly die-cuts and logo placements.
   • Go with basic packaging that doesn’t include customizations and/or choose one-color logo if possible.
7. Research packaging material options to get the right materials and design for your needs.
   • Consider the following: total cost of materials, parcel weight, durability, dimensions/ease of handling, aesthetics, environmental resistance and government regulations.

Technology’s Role in Reducing Fulfillment Costs

On many fronts, technology helps businesses automate processes, reduce human labor and minimize human error. This is certainly true in order fulfillment. The right warehouse technology can help your labor force receive, pick, pack and ship faster. Automation of labels, documents, software and equipment can help lower costs by reducing quality errors and expediting operational activities.

Technology, like handheld mobile devices, can help contemporary warehouses more accurately store and track goods. In addition to increasing responsiveness and decreasing errors, using a technology-driven, digital fulfillment center is a more environmentally friendly approach to doing business.

Other Ways to Reduce Fulfillment Costs

Other tactics for reducing fulfillment costs include:

• Offer more ways to ship.
  • Adopting a multi-channel shipping strategy allows you to ship cheaper and stay aligned with customer expectations. A fulfillment partner should offer multi-channel shipping options.

• Minimize mistakes.
  • It may seem obvious, but avoiding mistakes helps you avoid unnecessary expenses. A properly trained and engaged fulfillment team helps prevent goods from becoming damaged, lost or mis-delivered.

• Consider your return policy.
  • Be sure to factor in the cost of returns when estimating your shipping budget. Determine if you should be charging for return shipping or if it’s better for your brand to offer free and easy returns.

• Update your equipment.
  • Another way to reduce fulfillment costs is by using the right equipment. You don’t need to upgrade to the newest packaging equipment, but old or inefficient resources can mean increased lead times and low performance.

• Partner with a fulfillment center.
  • Since storing, sorting, managing and shipping products requires expertise and infrastructure, most businesses find the best way to reduce costs is to outsource their warehousing and fulfillment needs.

Costs Associated with In-House Fulfillment vs Outsourcing

As you assess whether you have the resources to handle your fulfillment needs in-house or should consider outsourcing, there are several questions you should ask yourself:

• Do we have the labor force to dedicate to fulfillment?
• Do we want to devote time and money to training a team?
• What would our hourly wage be compared to a fulfillment warehouse?
• How do fulfillment warehouses’ overhead costs compare to ours?
• Do we/they have adequate space, or would we need to find, purchase or renovate a new building?
• Do we have the right systems, technology and equipment in place?
• Are we located in an optimal shipping location?
• Can we consistently meet key performance indicators (KPIs)?
• Will fulfillment responsibilities take focus away from our core competencies?

To determine if in-sourced fulfillment is the best solution for you, you’ll need to honestly answer these important questions and add up the costs for your organization. Most often though, when compared to outsourced fulfillment services, the price of handling all this yourself, in addition to the learning curve and risk, is just too high. Outsourcing keeps organizations concentrated on core competencies and focused on the bigger picture of growing their business.

NewStream Enterprises, LLC : Your Fulfillment Center Partner of Choice

If your priority is reducing fulfillment costs, consider partnering with a fulfillment company with the experience to get jobs done right the first time. Both small and large businesses find that outsourcing to a fulfillment center is the most cost-effective solution. At NewStream, we offer a wide range of fulfillment services as well as broader logistics solutions. Trust an industry leader with the insights and capacity to not only save you money now, but also to expand with you as your business grows.