Fulfilment outsourcing costs
Fulfilment is the full process of receiving an order up to delivery of that order at the customer. Read more about what fulfilment outsourcing is.
Your fulfilment is in-house or outsourced. You are wondering what the costs for outsourcing fulfillment should be and which supplier would be the best fit. There are quite a few providers with just as many pricing models.
How can you compare apples to apples and arrive at the best possible total cost (total cost of ownership)? The process below will help you to proceed thoroughly. Negotiating prices is of little use without first clearly describing the required service and defining the costs for the various components that make up this service. This way you avoid surprises afterwards!
Steps outsourcing fulfilment:
We use a standard process that we adjust for your specific situation (click on the green plus sign for a description of each step).
1. Which size fulfilment supplier best matches your company?
We like to categorise fulfilment suppliers in three sizes:
- For start-ups and medium-sized companies
- For medium-sized companies
- For large companies
If you prefer to work with the largest companies in the field of fulfillment and your company falls, for example, into the first or second category, remember that you will be a less important customer.
Conversely, it can also be a less good choice for a medium-sized company to join a first category with the idea of being a very important customer. You should wonder whether the company can handle the amount of work for your company well and what the consequences will be for the fulfillment company once you decide to stop working with them.
Another important aspect is the possible specialization of the fulfillment supplier:
- Most fulfillment companies specialize in fast moving products. There are also those who specialize in slow moving products
- Think of specialization in fashion or anything but fashion
- Only B2B (Business to Business) or also B2C (Business to Consumer)
There is no right or wrong choice here, most important is to weigh this up well and make a conscious choice so that the relationship works well long term and both ways.
2. Compile a list of fulfillment companies that meet your criteria
There are quite a few fulfillment companies in the market. With the insights from step 1, select 10-15 suppliers for a request for proposal (RFP / tender process). Contact these companies by phone to check their interest and potential match to the service requirements of your company. Do they want to participate in the RFP?
3. Describe your current situation in the Request For Proposal (RFP)
- Describe your number of orders on a yearly level, how many products on average you have in storage, what dimensions and weight, is special treatment of your products during shipment necessary, expected annual growth, desired cut-off time, storage as a flat pack ( pick location) and pallet locations
- What are the current challenges you like to improve by selecting a new partner
- Preferred date of implementation
- Which integrations are needed (for example magento, shopify, Channel Engine, etc)
- …. and much more
4. Develop a clear Service Level Agreement (SLA)
This is often a missed opportunity if not all parts of the required service are clearly described in advance. No surprises afterwards and therefore no discussions afterwards! If there is anything that harms a relationship, it is the discussions afterwards.
A good SLA includes the following Key Performance Indicators (KPI’s):
- Goods receipt
- Stock reliability
- Order processing
- Shipment reliability
- Returns handling
- Peak moments
Each of the above KPI’s has a number of sub-components and a value so they can be measured.
5. Send Request for Proposal out
Send your request for proposal out including the previously developed SLA to those companies you selected earlier in the process. Give these companies at least two weeks to respond. Quality is more important here than the speed of submitting a proposal.
Use your own template as a response form for the request for proposal. This is an upfront investment in time, but will save a lot of time afterwards when analyzing the proposals and ensures that you compare apples to apples. If you don’t follow this basic rule, it will proof to be very time consuming to properly compare all proposals, each with their own (pricing) models.
In the response form, also include a section with questions about the supplier.
6. Compare fulfilment proposals
When analyzing the proposals, if you come across pricing for a certain part of the service that cannot be correct (relative to the others), then usually that is the case. While this may be to your advantage or disadvantage, approach the supplier and ask in detail questions to double check these points. This prevents surprises afterwards and shows your serious interest in a possible collaboration.
Once all proposals have been compared, select a top 3 to discuss further. Why 3? Two is also possible, we do not recommend one. During this process, for various reasons, one or more companies can withdraw their proposal or you come to the conclusion that one or more companies are not a good match for your company to work with. For all these circumstances, it is good to keep sufficient alternatives at hand.
Why not a top 5? This is a tricky one. Negotiating with 5 companies takes a lot of time and does not show to these companies that you consider their time as important. After all, they have less chance of success.
7. Select the most suitable fulfilment supplier for your company
You are now ready to select the most suitable fulfillment supplier. Note: this is certainly not the company with only the lowest price, take all parts of the service into account. Call two or more references to include the experiences of other customers in your decision making.
8. Contracting with SLA
A contract without a SLA (see point 4) that makes a service provision clear and measurable, can cause surprises afterwards. Avoid this!
9. Do’s and Don’ts
During this process, do pay attention to what you should (do’s) or should not do (don’ts):
|Always provide correct information to suppliers
|Do not exaggerate. You can mention growth opportunities separately
|Make sure you visit (some of) the suppliers before requesting a proposal. You will learn from this and can include the learnings in your request for proposal
|Don’t focus on prices only. Pricing alone says nothing about how good or less good a supplier is at what they do
|Request proposals with your own response form. If a supplier does not want to submit a proposal because they use standard rates or any other reason, there is a chance of surprises afterwards
|If you find this supplier interesting anyway, do not assume that those standard rates are the only rates they will charge. If possible, make a calculation yourself based on the information you have and then submit this calculation to the supplier. Ask what you may be missing in the calculation
|In your request for proposal, do ask the most important questions for your company, including references that you can call in case you want to continue with each other
|Do not only call the references that the supplier has provided. Try to also identify other customers of this supplier and call one or two unannounced. Most companies will try to help.
|When entering into a new relationship, it is logical to arrange everything properly in order to contract the desired service and avoid surprises afterwards. Also make sure to put the conditions for termination of the relationship very well on paper!
|The supplier may not agree to include termination conditions. Never agree to this. We are not talking about cancellation and the like here, but the costs for making your products available to you again, with what type of packaging material, if you want your products to be made available to you during the weekend in order not to loose sales during working days, etc.
|In addition to all the important topics, do you feel well connected with the supplier (especially during the negotiations)?
|Don’t judge the supplier (good or bad impression) based on just one person you have spoken with. Also try to speak to his / her colleagues from operations. They may be even more important to you if you want to continue with each other
How can we assist you?
- You are thinking about outsourcing your fulfilment and you need expertise and commercial support to achieve this
- You like to have a benchmark performed to compare your current fulfillment partner with the market
- Due to changed circumstances, you are looking for a new fulfilment partner
Examples of completed projects:
In a personal meeting, we like to present our services as well as reference projects and what opportunities this can create for your company.
Several webshops ecom company
- Opportunity assessment: benchmarking of current fulfilment partner with the market (The Netherlands) with the aim of reducing the total cost of ownership
- Tender process to select a new fulfilment partner
- Development SLA
Fashion company – internationally active
- Opportunity assessment: benchmarking current fulfilment partner with the market (The Netherlands) with the aim of reducing the total cost of ownership and improving the service
- Tender process to select a new fulfilment partner for the segments ecom, retail and wholesale
- Development SLA
What can you expect from us?
With a thorough procurement process, we select the best matching fulfillment partner that suits your company and contract them against commercially very attractive conditions.
We have developed an efficient response form for requests for proposals which suppliers are happy to fill in. In addition, we adapt our standard SLA to the wishes of our customer and the abilities of the company to be contracted. Our standard contract is in balance for both the customer as well as the supplier.
For this service, we work on the basis of a fixed price. No surprises afterwards and with a track record of successful procurement processes, we are happy to help you achieving your goals!