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What is a Warehouse and Fulfillment Center?

Fulfillment centers allow merchants and sellers to outsource their shipping to them so they can focus on other aspects of their business. However, the most valuable thing they offer isn’t just shipping your products. It’s how they increase customer satisfaction around your customer’s shopping experience. That increased satisfaction is what turns a one-time buyer into a loyal customer and results in increased profits for you. So if you’re considering using a fulfillment center don’t just think in terms of less work for you. Think about how much you can increase your sales and your income. Making a sale is only half the job. Delivering the sales item in a timely, effective manner is the other half.

While people use the terms “warehouse” and “fulfillment center” interchangeably, they’re not the same thing. A warehouse is a large storage center or industrial space that houses your inventory in bulk quantities. Think of it as a giant storage unit with your product in boxes, or on pallets waiting to be shipped.

Warehouses primarily do wholesale or B2B orders in huge quantities because they have the space your business may not have to store all your product. Many small businesses rely on local storage facilities to do just that – hold their products in secure storage until they can be shipped. If that’s the case, and you’re growing, chances are you’ll eventually outgrow your local storage facility and will need a warehouse. Understand the difference between storing your product and shipping it.

Fulfillment centers are typically located in a warehouse or a physical location from which a third-party logistics (3PL) provider (also known as a fulfillment provider) fulfills customer orders for ecommerce retailers. A “warehouse” (store) will store your product, and they may, or may not also ship it. Their goal is to get your online orders to your customers in a timely manner and relieve your company of the burden of shipping, receiving, and returns.

5 Things Fulfillment Centers Offer Your Customers That You Can’t

The real reason smart business owners consider fulfillment centers is they see the bigger picture – customer loyalty, increased sales, good word of mouth, and yes – increased profit. But they also begin to recognize something else – that at a certain point, fulfillment centers offer your customers something you can’t.

There’s the basic service fulfillment centers have that you don’t – like lots of staff dedicated to shipping your products effectively, efficiently, and reliably. Unlike a small business owner, if a center’s employees get sick there are others to take their place. Shipping doesn’t back up or get delayed because someone, or their kid, got the flu and couldn’t make it into work. Fulfillment centers don’t run out of things like boxes, packing tape and shipping supplies. They always have what they need in stock because that’s their business. Those are a given. But there are more important things fulfillment centers offer that you can’t:

  • Lower prices on shipping. Major carriers negotiate prices with shippers who can promise them a high volume of parcels. That means that fulfillment centers, who are representing dozens or hundreds of businesses with thousands of parcels often get a better shipping rate than mom and pop shops ever will. Lower fixed shipping costs means you might be one of the lucky merchants who can now afford offer free shipping to your customers.
  • No return headaches. Depending on what industry you’re in, you may or may not experience a higher return rate than another. If you’re an online business you’re going to have returns. In fact, Did you know at least 30% of all products ordered online are returned as compared to 8.89% in brick-and-mortar stores? However, 92% of consumers surveyed said that they will buy again if the product return process was easy. And, 79% of consumers want free return shipping. When you use a fulfillment center returns are sent to the warehouse instead of your office or other location. That means you just have to issue a refund when necessary rather than take time to coordinate return shipping and the associated costs and hassles.
  • Inventory co-ordination and management. Believe it or not the biggest headache for many online merchants is over-selling their product! They have what’s called an “inventory management problem. “ When you can take orders, but can’t deliver on them, you hurt your business because you hurt your customer’s experience with your company. A bad customer experience can break your ecommerce business. says “89% of consumers have stopped doing business with an ecommerce company after a bad experience.” Ouch! Plus, a customer is 4X more likely to buy from a competitor if the bad experience was service-related rather than price-related.

The three top problems businesses face are: oversells, undersells, and stockouts. No matter which problem you have, it translates into a bad customer experience and loss of a sale. Inventory management is an operational problem for many online stores but it is a critical component of cultivating the best possible customer experience. This is where fulfillment centers not only make inventory management much easier, they allow you to focus on the other areas of your business.

  • Improving the customer shopping experience. You may be focused on your bottom line costs when it comes to using a fulfillment center, but a good fulfillment center is focused on customer service and improving your customer’s overall shopping experience. Yes, you can deliver a great experience too, but only for a certain number of customers. When your company grows past a certain tipping point you just can’t handle the hundreds or thousands of packages you need to as efficiently and effectively as you need to.
  • They can extend your sales reach. Many companies don’t sell outside the United States because of the hassles related to taxes, shipping manifestos, distribution, mail, and delivery concerns. Most fulfillment centers have those issues well in-hand. Filling out the paperwork to ship to a foreign country, military personnel overseas, or to Alaska or Hawaii is just another shipment to them.

How to Choose the Best Fulfillment Center for Your Business

All fulfillment centers are not created or run equally. What is the perfect fulfillment center for one business or industry can be a disaster for another. Would you expect to buy the best pizza in town at your local Chinese food buffet? Of course not. When you want the best of a specific item you go to the business that offers that item. Look for a fulfillment center that already handles products or an industry similar to yours. If you’re shipping food items, for instance, they’ll know the regulations, issues, problems, and tips for shipping food most effectively. The same is true for tools, clothing, and whatever it is you sell.

Do you sell kits or items that require assembly? Kitting, a term used in order fulfillment to refer to the assembly of individual items into ready-to-ship sets, or kits, requires attention to detail. If you’ve ever received a call or email from a customer who is missing a vital bolt or screw, or piece of a kit, you know what a nightmare poor kitting can cause. Having a fulfillment center that is equipped to deal with kits and the issues related to them is critical.

You want a fulfillment center that closely mirrors your brand as well. For better or for worse, up until now, you’ve been the face and the center of your customer’s fulfillment. When you hand the reins of your customer’s experience over to a third party you want to make sure they’re doing your job as well or preferably better than you can. Here’s where to start:

Get referrals. Contact others in your industry to see what centers they’re using. Ask them what they like, and what they don’t like, about the fulfillment center they’re using. Every company will have something they love, and something they don’t like about their fulfillment company. That doesn’t mean the company is bad. What one company may not like about a fulfillment company may be the very thing you’re looking for!

Customer service and support. It’s great if a fulfillment center offers your customers support, but what about you? How responsive are they to their companies once the contract has been signed? Can you get help, support, or your questions answered outside of working hours? Ideally the fulfillment center

Location, location, location. It’s true. Location is everything. Where is the fulfillment center located? Where are the bulk of your customers located? If you’re shipping farming supplies mostly to farmers in the midwest it’s a good idea to find a fulfillment center there. Los Angeles, Chicago, Cincinnati, Philadelphia, and New Jersey and the New York area are the most common areas for fulfillment centers, but that doesn’t mean they’re the best area for your products. Fulfillment centers closest to the port where your goods enter in the US will be the most cost-effective and efficient centers to use.

Terms of Service. Once you’ve narrowed down your list of centers, get and read a copy of their terms of service carefully. Look for things like their transparency in pricing structure and fees. Pricing transparency is a good indicator of the fulfillment company’s overall character. How willing is the company you give you a written fee schedule and explain how they charge? Before you can decide if a fulfillment center is a good decision for you right now you need an estimate based on roughly a month’s worth of orders. From there you can project what a fulfillment center would cost and if now is the best time to make the switch.

Read their reviews. Don’t eliminate any company because of a few bad reviews. Not everyone is going to be pleased with any company and that’s why you should be suspicious of any company with no bad reviews. Go to the Better Business Bureau website, the RipOffReport, Yelp, and others. This isn’t a decision you should make lightly or quickly, so set up a free Google Alert on companies you’re considering. Google alerts will then send you an email anytime the company is mentioned in the news or posts new content.

Talk to existing customers. Ask for referrals from current customers. Any company will gladly give you the names and contact information for the happiest customers they have, but ask for a range of names of companies they work with, then contact those companies on your own.

Look at their history. How long have they been in business? Are they a startup or are they so old they were shipping things before tape had been invented? While decades of experience sounds great, you have to wonder if they’re keeping up with the times and the technology, or if they’re holding on to outdated systems that can’t handle your business as effectively as someone else.

Startups have their issues too. They may be young, eager and promise you the moon and more, and they may deliver just that. The problem with a startup is they tend to learn at your expense. They haven’t been around enough to encounter and solve many problems. They will eventually become seasoned pros, but are you willing to risk your company brand on theirs?

Check their Tech. Ask about their technology. Does it integrate easily with the shopping cart solution you’re using? How often do they update their systems? When was their last update? Are you coming in on the installation of a new system, or joining a smoothly running operation that’s worked out all the bugs? Do they offer you a dashboard, meaning do you have access to real-time data, units shipped? Can you check to see how things are going – especially if a customer writes or calls? You need to be able to see a certain amount of data and to see it in real, or close to real time. Does the company analyze, or help you analyze your data, numbers, returns, shipping, and fulfillment?

Questions to Ask Before Signing with Any Fulfillment Center

Okay, you’ve done your due-diligence. You’ve narrowed down your list of potential centers. Now it’s time to get specific and interview the company. Schedule an appointment with a sales rep and take your list of questions and concerns with you or have them in hand if doing a phone interview. Here are a few of the questions you’ll definitely want to ask. You may have others. Write them all down and check them off as they’re answered. It’s easy to forget a question or to get distracted by a salesperson if you don’t have your questions in writing.

  • What software are you using and is it compatible with what you currently have? Not all fulfillment centers use the same software, and not all centers software is compatible with the system or process you’re currently using. You want to find out how much will it cost you to convert to the fulfillment center, not just in terms of software, but in terms of training your own employees (or self) to use the software they have? Is the center able and willing to work with the software you have? Many centers will work with you to find the most effective software for you both.
  • Value-added services. You may or may not have a product that simply needs to be packed and shipped – like auto parts, or cleaning supplies, or tools. You may be shipping jewelry or art, or food. If your customers want more than just a package ask about what value-added services — like customized packaging and gift wrap, personalization, marketing inserts, custom blending, embroidery of an item (hats, coats, etc.), and kitting, the fulfillment center offers.
  • How automated is the center? Television and website ads that show the “human” side of companies are wonderful marketing tools. Consumers love seeing ads that highlight the “hand-picked and hand packed with care,” work ethos of a company. You too may even enjoy the attention you’ve spent on one-to-one packing and shipping and getting to know your customer base. However, as you scale your business the reality is you or your fulfillment company need to be completely automated to meet customer demand for service. There comes a time when human errors hurt your business. Nothing is worse for your business than a customer receiving the wrong products, or not being able to find out what happened to their shipment. You or your fulfillment partner need to be using cutting-edge technology to receive, scan, store, pick, and ship your products. So, that extra personal attention is great, but the bottom line is how automated are they? How up-to-date is their automation technology? When was their last upgrade? How often do they upgrade? How “cutting edge” are they?
  • Scalability. Fulfillment centers are a business too — and like you, they scale, they have peak demand seasons, and they grow. Ask them about their peak demand seasons. Do they correspond with your season? How many other businesses do they handle? Are there extra fees during the holiday season?
  • Account manager. Once you sign with a fulfillment center will you have a dedicated account manager – someone you can go to with your questions and concerns, or business advice around fulfillment, or will you simply be shuttled to anyone who is available? For most things an expert is fine, but having someone who gets to know you, your business, and your account can be invaluable in terms of your growth and their fulfillment success.
  • Costs. Don’t focus on what the fulfillment center costs. Focus on what your actual costs are compared with that of the center’s fee schedule. A straight number-to-number ratio isn’t what you’re looking for. Knowing what your bottom line is in terms of fees, fee schedules, and added costs are what matters. Ask to see a fee schedule and to be “walked through” a typical month for a business similar to yours.
  • What comes standard? What costs extra? All fulfillment solutions include outbound service. But does the center offer inbound service, returns management, and storage, as well as shipping services? Find out what is standard, and what services come a la carte.

Deciding to hire a fulfillment center is a big decision. If you hire too soon or hire the wrong center, you can lose money. Take your time and make a smart move. Done correctly, your decision to hire a fulfillment center can only help your business grow!