Fulfillment house

A fulfillment house is a company specializing in product fulfillment services, on behalf of the product owner.

Fulfillment house overview

Fulfillment, also known as order fulfillment or product fulfillment, is the process whereby a person or company fulfills their obligations to send a person an item or product that the person has ordered, purchased, or requested from the organization.

Fulfillment typically will refer to the services provided by a company that offers to store, receive the orders, package, and then ship the ordered item to the end consumer.

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 will often charge a storage fee based on the product storage requirements and any special handling that may be required.

Inventory Control

A fulfillment company will typically maintain and publish inventory counts as goods are shipped. Reporting systems can 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 will receive an order manifest. These "pickers" will then wander 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. With the "picker" taking the items in the order manifest back to the packing station, another employee known as a "packer" will then check to make sure all items in the order manifest are present and then begin the packaging process. Packaging of the product according to its type is then performed, optionally, a packaging slip may be attached, and the product is labeled with address identification of where the item is to be shipped.

A packaging slip may not always be 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, allow for an increase in productivity. However, systems of picking items for shipping will vary based on variables such as the number of items, and sku diversity of the goods to be shipped.

Shipping

It is rare for a fulfillment company to provide its own courier services due to the size of courier companies. In most cases, the shipping is outsourced to courier or delivery companies. However, often fulfillment companies are able to provide larger shipping discounts than smaller retailers may be able to negotiate on their own merit. This is because fulfillment service providers ship a high volume of orders every day. Because of this volume, small parcel carriers such as UPS, DHL, FedEx and USPS will negotiate a better discount. For smaller, light-weight parcels, USPS will often be used in America (typically 5 pounds and under).

Outsourcing to a fulfillment house or company

Advantages

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 will typically have thousands of available square footage for storage. If you warehouse your own inventory, you have additional expenses such as utilities. A fulfillment company is able to distribute this expense through storage fees they charge to multiple clients, resulting in a (typically) reasonable storage fee that is commonly less than an individual company would pay themselves. Storage fees vary by fulfillment company, however they normally consist of per item fees, per pallet fees, or dimensional storage fees based on the volume of space your inventory would occupy.

Shipping costs

Unless a producer is shipping thousands of items per month, the producer will not get the beneficial "bulk" shipping rates available to many fulfillment companies. The price these companies pay can often deviate from standard shipping prices by 30% or more.^{citation needed} In some companies, the savings associated with shipping bulk rates provided by fulfillment companies can outweigh the charges of the fulfillment company itself.^{citation needed} You may also be able to negotiate a flat-rate for shipping, meaning you pay a single fee based on weight and service, as opposed to weight, service and destination. This results in predictable shipping expenses, allowing you to budget for your shipping expense.

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%.^{citation needed} Of course, this depends on the fulfillment company. Often, fulfillment companies will include the packaging fee in the cost you pay for shipping, or per order. This is often how fulfillment providers are able to quote "free packaging." Most order fulfillment service providers will make a list of "standard cartons" available to their clients. If your products do not fit in these packages, you will likely need to provide your own packaging, or pay an additional fee.

Fulfillment costs

Fulfillment companies typically charge fees per order and per item shipped. However, there may exist hidden fees associated with fulfillment duties which could outweigh these costs including the following:

• 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 will 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.^{citation needed}

Disadvantage

Indirect control

Fulfillment companies act as the shipping center for their clients' companies. Should there be errors in shipping process or poor handling procedures, it will be the client company that receives the bad reputation, not the fulfillment center.

Product damage or shrinkage

Fulfillment companies will typically not take full responsibility for product damage unless they are directly responsible, nor will they take full responsibility for product shrinkage unless it can be proven that they are directly responsible. This practice will vary depending on the receiving procedures utilized by the fulfillment house. Typically if a fulfillment house verifies counts, they will accept a larger responsibility for the items in their care, however, if they accept packing lists for supplied inventory as accurate, they will likely not be as responsible for shrinkage.