This guide discusses the implications of outsourcing order fulfillment and criteria for choosing a partner. Shipwire provides order fulfillment services in the U.S., Canada and the UK; however, this guide is intended to be a helpful overview regardless of whether you choose Shipwire for your fulfillment or another provider.

Topics that this guide will cover:

• What is outsourced order fulfillment?
• Are you ready to outsource fulfillment?
• The power of multiple warehouse & a global warehouse network.
• Pros & cons of outsourcing fulfillment.
• Choosing an outsourced order fulfillment provider – Questions to Ask.
• The Setup Process.
• Packaging and labeling your products for order fulfillment success.
• Going International.

If you sell goods to buyers over the Internet, the process of storing the product in the warehouse for selection upon purchase by an end-buyer, packaging it for shipping, labeling it and finally shipping the product is called “order fulfillment”. As your business grows you may find that this process becomes incredibly time consuming distracting when you want to focus on growing sales.  That is where outsourced order fulfillment services start to look compelling.

In a nutshell, outsourced order fulfillment is defined as storing your inventory in a third-party warehouse (3PL or third-party logistics) where you route your orders for processing. This outsourced fulfillment provider will take your order and pick, pack and ship the order to your customers in a way that you define.

Other elements come into play when you want to make order fulfillment as cost-effective as possible.  For example, geographically optimizing your inventory placement to lower shipping costs and fulfilling international orders.

You may be asking yourself, “When is the right time to outsource my order fulfillment?” If you are asking yourself that question, the time is likely upon you.  Here are some other factors to consider:

• Your level of experience – Do you know how to get a product from point A to point B the fastest method, for the lowest price with the least margin of error? Do you want to spend your time in a warehouse or garage packaging and shipping your products? Can you integrate your Web store or shopping cart with your warehouse or order fulfillment solution to automate your business?

• Business Growth Plans -If you believe that your business will grow, you need to ask yourself some key questions.  Will increasing business mean you will need to add additional warehouse space?  Will my current staffing be able to handle additional growth?   Will I still be able to focus on growing sales if I win a few big accounts?    If future sales look good, outsourcing your order fulfillment lays the infrastructure for your business growth.

• Order Volume – Maybe your future sales pipeline is normal; but, you are just having trouble keeping up. This is a good time to start looking at order fulfillment which can scale better as you grow your business.

• Eliminate Shipping errors - One of the laws of do-it-yourself order fulfillment is that “as shipping volume goes up, error rates go up”. Employees and family get stressed, people are working late, WMS (warehouse management solutions) designed for lower volume start to break down…generally, mistakes happen more often. Mistakes cost your business big: Angry customers, expensive returns shipping, restocking times, reshipping costs and general hassles. A good rule of thumb is that each error cost you 3-4 times whatever your per order pick-pack-ship cost; assuming you can retain the customer.

• Product Type – Not all products are right for order fulfillment. If you are shipping handmade items that you make on demand, items that need customization like monogramming or wedding invitations, individual (1-off) items like closeouts and antiques or some perishables then order fulfillment will likely not work for you. Outsourced order fulfillment is best for non-perishable items that you buy by the lot, pallet or container and sell by the hundreds.  Easily repeatable items like toys, electronics and apparel.

• End Buyer- Who you are selling to will make a big difference in what your order fulfillment needs are. Consumer shipments verse direct ship, drop ship, wholesale, distributor, retailers (big box retailers). Also consider where your customers are located around the world (see below regarding the power of multiple warehouses).

• Inventory Complexity – A Stock Keeping Unit (SKU) is an individual type of product. If you sell a black t-shirt in S, M & L that is 3 SKU’s. If you sell the same shirt in 1, 2 & 3 packs with all sizes that is now 9 SKU’s. The general rule is that the more SKU’s you are carrying the more complex (and expensive) your order fulfillment can get. The reason for this is that many warehouses will put individual items in bins in a forward pick-pack area to make it easy to pull orders. A good general rule of thumb if you have a lot of SKU’s is look to outsource the fulfillment for the high-turnover (“best sellers”) first.

• Receiving Needs – Receiving is what the warehouse does when you send it your product in bulk, freight or by the container. You tell the warehouse what is arriving via an Advanced Shipping Notice (ASN) and packing list – this tells the warehouse the product characteristics and number of each SKU that is arriving.  To ensure accurate receiving make sure that items are labeled with the appropriate SKU’s (or make advance plans with the warehouse for labeling upon receipt); ensure your manufacturer or shipper has an accurate packing list and communicate all details to the warehouse.  Whenever possible give the warehouse the tracking information for your inbound inventory ; the larger the receiving the more important these items are. If you buy wholesale lots and don’t know what your receiving make sure your fulfillment solution can handle a “blind receiving” where they tell you what you got based on a review of inventory according to the packing list.

• Customer Support – Customers expect superb CRM (Customer Relationship Management/Messaging) of order status, shipping status and tracking numbers. Customers expect the right order shipped at the time that they expected. They want to be able to return items they find unsatisfactory. When it comes to supporting international customers all those rule apply and you need to understand the tax and customs consequences of how you ship. Outsourcing can give you all this without major investments.

• Automation & Order Status Notifications- The key to scalability and error elimination is automation. This is hard for the actual packaging and shipping; however, this is eminently achievable when it comes to sending orders to the warehouse and getting ship confirmation and tracking numbers back. See our Compatible Ecommerce Carts page for a list of solutions automated with Shipwire.

• Tax considerations – Most countries that you may want to import inventory into will require you to put your local tax ID on inbound imports. This is usually quite easy to get. See our UK Warehouse Guide for an example of where to get this Tax ID in the UK or get a US Import Tax ID.

• International Shipping – We are going to cover this a lot more below.  Successfully shipping international orders is a skill; doing it cost effectively is a process that requires you to think like a Fortune 500 business. Move inventory in bulk (by freight) into foreign markets like Canada and the UK. Once you have inventory you can ship local ground parcel services with 1-2 day delivery times, just like merchants in that country. Shipwire can help you do this.

• Retail Compliance – Retailers like Target®, Walmart®, Sears®, and chains like The Men’s Warehouse® require suppliers to offer EDI (Electronic Data Interchange) between your order fulfillment solution and their supplier software.  EDI/Retail Compliance gets very complex and can be expensive to integrate. It is very common for an entrepreneur to get a 40-60 page document from a retailer that wants to sell your product. Consider whether you want to absorb the cost of compliance or partner with a company that does this.

• “Single Neck to Choke” – If you are tired of trying to get claims out of the parcel carriers, handling employee staffing issues, finding the lowest shipping rate and handling hundreds of shipments you may be ready to outsource fulfillment and push the reliability for shipping perfection to a provider like Shipwire. We call it the “Single neck to choke” when something goes wrong.

Fast and accurate order fulfillment is a requirement to compete in today’s domestic and international ecommerce. If you have concerns or can see the writing on the wall that you are not going to scale – partner with an expert like Shipwire and negotiate a cost that works for your business. Failing to be an expert in order fulfillment means that you will lose sales and anger customers. This is especially true of rapidly growing ecommerce businesses.

You can reduce shipping costs and order delivery times by locating inventory in multiple warehouses closer to end buyers and ship orders from the warehouse closest to the end buyer. For online e-tailers that are selling nationwide or globally, this is critical.

Outsourcing order fulfillment to a third-party should result in savings of time, headaches, order fulfillment costs and… shipping costs. Many order fulfillment providers will tout location as key to shipping price savings; and, they are right. However, don’t settle for one (1) good location; you need multiple locations that are geographically close to major population centers and your buyers.

Why multiple warehouses are better for your business

If you ship 25% of your orders to the West Coast of the U.S.A, 25% to the East Coast of the U.S.A., 25% to Canada and 25% to Europe it is very probable that most of your shipments will will go to major population centers where buyers are (LA, Chicago, New York, Toronto, London, Paris, etc).  If your current warehouse is in Portland, then a warehouse in LA or Chicago will improve your delivery times to the East or West Coast compared to your Portland facility; however, it doesn’t make any sense to locate all your inventory in one of those locations. You outsourced and optimized for 25% of your orders if you are lucky.

A better solution would be to spread your inventory out into 5-6 warehouses in LA, Chicago, Toronto, Vancouver and the UK or mainland Europe.  Move inventory globally using bulk freight shipments and local warehouse storage close to major population centers.  As orders are received ship them out from the warehouse closest to the end-buyer. This results in lower parcel delivery costs, faster delivery times and true shipping cost savings. This is a play straight out of the Fortune 500 top online retailer game book.

Discover true shipping cost savings

Discovering real savings in your storage and shipping supply chain has been the same since the time of Alexander the Great – use the cheapest mode of transport for the longest distance, and discover ways to leverage “economies of scale”.

When you move product in bulk (freight/lot versus individual parcel), you get the greatest economies of scale and the lowest cost. When product inventory is moved in bulk from consolidation points (manufacturer and freight forwarding short-term storage), to distribution points (warehouses) it can be moved very cost effectively on a per-item basis. The most expensive part of retail fulfillment is the last leg of the products journey – from your warehouse to the end-buyer – that is typically a parcel shipment with a major carrier rather than freight.

Let’s look at a simple example of  a 10-lb. parcel shipment from a New York City warehouse to a residence in Los Angeles. If your warehouse is in New York, your cost for a normal ground shipment to the residence in LA would be approximately $12.66 (Feb ‘08 pricing, ground, with residence fee and fuel surcharges). If you need to get it there via next-day air it would be approximately $81.00. If you put some of your inventory in a warehouse in Los Angeles, your cost for that same package would be $8.39 (ground, with residence fee and fuel surcharges).  If you had to get the product to the customer the next day, it would be the same $8.39 fee.

Multiple warehouses reduce costs

What is the lesson? Carrier pricing is a factor of distance. If you strategically place inventory in multiple locations, you can decrease delivery time and costs. Granted, in this example we saved a little over $4.00. However, if you’re doing 100 shipments a week you would be saving over $1,500 monthly just on shipping. You just saved roughly one-third of your shipping costs while increasing your service levels. This is a true cost savings…this is the power of multiple strategically located warehouses.

The objection we typically hear is, “I would have to pay to move my inventory to my second warehouse.” Bulk freight shipping, those 18-wheelers you always see on the interstate, is cheap compared to the outbound piecemeal parcel shipping of FedEx or UPS. An 18-wheeler filled with 10,000 stuffed animals will cost less than $5,000 to ship from NYC to LA, that’s $0.50 a stuffed animal, in return for $3.00, $5.00, or more in savings for each stuffed animal you would ship individually – not to mention your buyers get faster delivery times.

Therefore, the rule is to strategically place inventory closer to the end-buyer, and always try to shorten the last leg of the parcel delivery by the carriers. In industry jargon, this is sometimes known as “forward warehousing”; think of it as real savings. Alexander the Great actually invented the concept; he called it a “forward supply depot.”  Whatever you call it, it means real savings to you.

Shipwire offers warehouses in Los Angeles, Reno, Chicago, Toronto, Vancouver and the UK.

When considering whether you are ready to outsource your order fulfillment it is helpful to know some “Pros & Cons”.

Pros: Outsourced Order Fulfillment Benefits

• Scale your order fulfillment to match your growth.
• Lower cost shipping.  Most fulfillment solutions have greater shipping volume and can negotiate better rates with the carriers.
• Outsourced order fulfillment is usually less expensive than doing-it-yourself or running your own warehouse.
• No more hassles with warehouse employees.
• Automate your order handling between your shopping cart and your warehouse.
• Get reporting and tracking of all shipments.
• Automate claims handling.  Shipwire offers 1-click claims submission.
• Better understanding of your shipping and fulfillment costs without having to invest in warehouse leases (build outs), employees, software, vehicles, insurance, security, etc.
• More distribution center locations = lower shipping costs.
• Eliminates the hassle of storage and shipping. Whether you are out getting new business or relaxing at the beach, automation means it works without you having to pack and ship every order.
• Frees you up to grow your business and focus on sales and marketing.
• Automate returns handling (even Internationally).
• Allows you to enter new foreign markets with minimal investment.
• Gives you a point-of-contact for all storage and shipping concerns.
• Automate returns processing.
• Freight desk to help you iron out complexities in your supply chain.

By outsourcing you get an expert partner to help you grow your business and who is responsible for your customers receiving orders on a timely and cost effective basis.

Cons: Outsourced Order Fulfillment Hurdles And How to Overcome Them

• Inventory is off-site and you are giving up some control. If you like to wake up in the morning and watch your inventory while you have coffee you may have some concerns moving your inventory to a fulfillment outsourcing service. Consider only outsourcing 20%  of your inventory and orders. Alternatively, make the jump internationally, move 20% of your inventory to Canada or the UK (a location where you have existing order volume) and test outsourcing while testing a new market.
• Cost. There is a cost to outsource order fulfillment. When comparing a quote for outsourced order fulfillment to doing-it-yourself make sure you compare apples-to-apples. Don’t tell yourself you don’t have employee staffing costs if you pack and ship your own orders. Assign a reasonable hourly cost for your own labor.
• You must be conscious of your receiving and packaging. Outsourcing means that you are relying on a third-party that needs clear communication from you regarding your inventory details, when it is coming and how you want it handled.  You will need to be conscious to clearly communicate your needs and get agreement from the warehouse (aka, kitted, labeled with hang tags, repackaged, etc).  You will need to do this on your first receiving and on your hundredth. This is so important that we have included a special section below on clearly packaging and labeling

By working with your chosen outsourced order fulfillment provider, most of these “Cons” can be overcome and likely turned into additional “Pros”.

After reading this far you probably have a pretty good idea of what is going to be important to understand when speaking with potential warehouse vendors. That said, this is an easy-to-use guide though so here are some things to consider and questions to ask.

• General business & warehouse
  • How long have they been in business?
  • How friendly is the sales and support team?
  • Is the warehouse also a retailer? Be cautious if they are and look whether they are competitive to you; if so, your feeding a competitor all your sales and customer data.
  • Where are their warehouses? Shipwire warehouses are in the U.S. Canada and Europe, complete list of Shipwire warehouses
  • How much space do they have available for you to grow into? Shipwire has over 3M square feet of space.
• Tool & Automation
  • How user friendly are their online tools? How it works & Free Trial.
  • Do they provide reporting and transparency for your orders as they are received?
  • Can you submit insurance claims and customer support tickets online and track them? Shipwire offers 1 click claim submission.
  • Do they have the means and team to continue to build their platform and give you more and more advanced tools?
  • Is there a warehouse API (Application Programming Interface) to connect the warehouse platform to your ecommerce store and inventory tools?
  • Do they offer 1 click setup and compatibility to common e-commerce software? You don’t want to spend a fortune on developers integrating your store to the warehouses.
  • What type of automation do they offer for your storefront? Order Submission? Inventory levels? Tracking?
• Features and Supplies
  • What type of packaging does the service offer?
  • How are returns processed?
  • How fast will your products go from receiving to being available for shipping?
  • How does the warehouse software handle back-orders?
  • Does the provider’s packaging reinforce your brand or does the provider put their own brand all over the packaging?
  • What parcel carriers and freight options are available in the warehouse?
  • Do they offer pick-n-pack and lick-n-stick® services?
  • What happens if the warehouse makes a mistake or a package is lost?
  • Do they offer inventory insurance within the warehouse?
  • Can they accomplish consumer shipments, business-to-business and retail compliance?
• International considerations
  • Will the order fulfillment provider ship internationally?
  • Does the provider have a network of domestic and international warehouses that you can leverage to expand your business?
  • What international carriers will you be able to use?
• Pricing and contracts
  • Will they provide you with a quote quickly that they will stand behind? If you want to compare, please see Shipwire’s order fulfillment pricing calculator
  • Look for hidden costs. Many third-party logistics company contracts have an insane amount of hidden fees – Charges for Receiving, non-palletized receiving, forklift usage, automated order submission fees, packaging/repackaging fees, pick-pack minimums, minimum storage costs, extra charges to change their packaging, etc.
  • Look for minimum contract commitments hidden in the contract
  • With Shipwire, we stand behind our online pricing quotes, there are never have contract commitments and no minimums.
• Getting Started
  • Do they offer a free trial of any warehouse in their network?
  • Can you outsource a portion of your inventory, use one warehouse in their network only and/or stop and start during the year if your going to just use the warehouse seasonally or when your own warehouses is overwhelmed.

Overall, does the provider make you comfortable enough to trust with your inventory and your order fulfillment. Please see our “Set It and Forget It” list for more reasons why Shipwire is the best order fulfillment provider for your business

Here is how easy it is to get started with Shipwire’s real-time storage ane order fulfi

1. START – Start with a free trail (no credit card needed).  For a limited time you will also receive a free consultation from our sales team to ensure our services match your needs.
2. STORE – Tell Shipwire what products your sending and when they will arrive. Shipwire will automatically update your account when they arrive and flag any discrepancies if there are any.
3. SELL – Plug in your shopping cart
4. SHIP – Tell us your shipping method of choicea nd we will help youf
5. DELIGHT – configure customer messaging so your customers know when you ship products and when they leave the warehouse

That’s it! We can help you by picking up inventory at a port or at your manufacturer, consulting on what shopping cart may best meet your needs and help you choose the right warehouses internationally when you are ready for that.

*Pay attention to this section to ensure your products can be outsourced without losses*

Receiving is the process of getting your goods from your inbound shipper or freight carrier into the warehouse so that they can be racked/stacked and readied for your orders. You want receiving to go well so you need to pay very close attention to your order fulfillment service provider’s receiving criteria. This criteria usually falls into a few categories: Notice of what is coming, labeling, packaging and any “special projects” you want run by the warehouse as your items are received.

Advanced notice tells the provider what to expect

Most providers have some type of advance notice form as warehouses will often reject blind receiving(s) (no notice, no packing list, and stuff just showing up) .

For Shipwire we call the advanced notice an ASN which stands for “Advanced Shipping Notice”. This informs us what who is sending us something, when it is arriving, by what carrier, what is packed (packing list) and who to notify (you) upon receipt. We have a simple web wizard that you walk through and can update with tracking information from your shipper when you have it. For more information on Shipwire ASN and Receiving Instructions or log into your account.

Proper labeling of your shipment and individual products is critical.

Labeling your receiving shipment and your individual products is critical to ensure that they are properly received, stocked and can be found when an order comes in through your Web store. You want your inbound freight/receiving to have the receiving label in a prominent location (preferably multiple locations so that it is easy to find).

You should also have each individual item (SKU: Stock Keeping Unit) individually labeled with the same ID that you will be passing through your Web Store to have the order fulfilled – This could be a bar code with a number below it or a SKU that clearly identifies what the product ID is. Remember that you are not the only customer in the warehouse and the no matter how long your in the warehouse they won’t “learn” your products as staff and merchants turn over. You want your products to be easily identified at every step of the Store-Sell-Ship™ process.

Packaging is important for the security of your shipments

Packaging is important to ensure your products are not damaged during shipment and will be easily moved through the warehouse.  Packaging is also a big factor in shipping costs (weight & dimensions).

Since packaging is critically important it is worth your while to spend some time with your suppliers and manufacturers going over the details of packaging. The larger your items the more important packaging can be; even little changes in small parcel packaging can have a huge impact on your products’ end user cost and your breakage rate. Some general rules of thumb that will be discussed:

• Packaging is typically less expensive closer to the point of manufacture
• Understand the maximum shipping size and weight of your favored parcel carrier if you are selling B2C.
• Package products as you would sell them to reduce labor costs (i.e. Master Cartons of wholesale or retail amounts)
• For large multi-part products consider how you want to individually package and group the constituent pieces to reduce shipping costs and ensure easy replacement with end-buyers.
• Understand the impact to your container freight and end warehouse costs when deciding whether to palletize or stack your products.

As you work with your manufacturers and suppliers on items that you can get delivered in “loose item” lots, it is well worth your time to ask for packaging costs. If your product labeling is susceptible to scratches then outer shipping packaging is especially important.

In many cases manufactures can typically source and provide the labor for packaging at a much lower cost than you will be able to get from a warehouse or from consolidation points along your supply line. This will also make full sample inspection much easier. When your manufacture ships the package with the shipping package you will get a much better understanding of the durability and end-buyer experience of your packaging. A general rule of thumb is that the further away you get from the manufacturer the more expensive the packaging materials and labor cost.

If you intend to sell your products online and ship to buyers using USPS, DHL, FedEx or UPS; make sure that your products final shipping dimensions and weight fit their guidelines.  Keetsa.com invested heavily in their packaging to ensure order fulfillment costs could be kept reasonable.

Package your products the way that you want to store them and sell them

If you sell individual items and wholesale lots, create master cartons of wholesale amounts that can be broken down to individual units at the time of shipping. This can greatly cut down your receiving and shipping costs, especially if you use outsourced order fulfillment. Have the warehouse store the wholesale lots and only “break” them to individual units as you sell them.

For goods over 150 lbs or oddly shaped (i.e. they don’t fit the standard shipping dimensions of the parcel carriers) consider working with your manufacturer to create multi-part assembled products that can be shipped individually. This will help for direct to consumer shipping and will help your bottom line if you need to reship a component due to damage or warranty.

Talk to your warehouse provider and understand their costs for receiving palletized versus not palletized inventory. Shipwire does not charge a different price; however, some storage provider contracts may subject you to a substantial “warehouse receiving” premium if you deliver a container with not palletized inventory. Ideally, you will not have to palletize your products for receiving as pallets take up 4″x4′x4′ or more inside of a container shipment.  If you are not in the business of selling pallets, so that is lost inventory space in the freight container.

Selling internationally It is not as hard as it sounds.  Don’t be afraid to expand your online retail business overseas.  In fact, in the global economy and international shopping, you are probably already seeing international buyers, so make it easier for them to buy from you.

(For clarity sake International means US merchants selling outside of the US; it also means a foreign company selling in the US.)

Are you ready to start selling International?

• The historically low dollar ($) is making US merchants think about selling overseas and motivating foreign buyers to buy from dollar ($) priced merchants.
• Are foreign buyers already finding your website and asking for you to ship to them?
• Do you want to expand your business into Canada, Europe or Asia?

What are you going to sell in international markets?

• B2C – are you going to sell direct to consumers through common marketplaces like eBay UK?
• B2B – are you going to sell to retailers or do you have distributors that you need to resupply?
• What products – If you have 1000’s of items (SKU’s) it may make sense to focus on your top selling items overseas. You likely have more inventory of these items and have a better defined sales and support process?

Is your Web site ready?

• Consider putting up a couple of foreign sales/product pages that focus just on the products you are selling overseas (rather than your whole catalog). This will tell international buyers that you are prepared to deal with their orders and focus buyers on the products you are ready to ship to them. If they want something different, make sure your contact us page is easy for them to find and be responsive
• Overseas payments don’t have to be difficult. Talk to your credit card processing company and see if they will allow you to accept foreign currency (understand additional fees). Try PayPal if you are just getting started.

International Order Fulfillment & International Shipping

• See our posting above about the benefit of a global warehouse network. Shipwire is designed to making overseas order fulfillment as simple as Store-Sell-Ship™. Move a portion of your inventory to Canada or the UK and cut your shipping costs.
• Shipwire ships to most countries from our US warehouses and we recommend low cost shipping methods in most cases. Tip: If you ship internationally, use trackable shipping and make sure your shipments are insured.
• If you are going to move inventory internationally please see our follow-up guides on getting Tax ID’s, calculating customs, using customs brokers. UK Order Fulfillment Guide.
• Call Shipwire and we’ll help answer questions and guide you to International success. See how one Shipwire customer entered Europe through the UK.
• Having multiple international warehouses will also help you deal with International returns at the lowest cost.

We are constantly updating this Guide. Please feel free to leave comments, suggestions or changes. You can also contact Shipwire to recommend a change or offer a suggestion.