When Should You Consider to Use Fulfilment Houses? Advantages and Disadvantage

What is a fulfilment house?

A fulfilment house is a service run by companies who offer to store, pick, pack and ship products on behalf of the owner for a fee.

What Do Fulfilment Houses Do?

These are service based companies who act on behalf of the product owner and get the product to the end consumer.

In return, the fulfilment company charges the owner a fee for all of the above services. Such companies are also known as order fulfilment or product fulfilment organizations.

Typically a fulfilment house will do the following

1. Receive the item in bulk from the owner

The owner sends the item in bulk for storage to the house. These may either be shipped by the owner or directly from the supplier to the company.

2. Store the items in their own storing facility

Once the products are received by the fulfilling house, they store them in their specialised storage facility according to the nature of the product. For instance perishable goods, health products etc. are all stored in warehouses specifically built for these products. This ensures that the products remain in their original condition during their shelf life.

3. Receive orders from customers for the items

Product owners may sell the products on the company’s websites such Amazon. Once these products are sold, it the fulfilment company responsibility to receive payment and process the order.

4. Pick the items

The company have employees called order pickers. They get a list of products which they pick off the shelves in their warehouse. They may have advanced system to identify picking products and thus increase productivity.

5. Pack the items

Once the items are picked, they are passed on to another set of employees called packers. Packers make sure that all items in the order have been correctly picked. They package the items for shipping to the end customer.

6. Ship the items to the end customer

Finally, the orders are ready to be shipped to the customer. Fulfilment companies usually use courier or mail services for the shipment of these orders.

More recently, Amazon have decided to launch their own delivery service due to high volumes of goods.

Difference between Fulfilment Houses and Drop shipping Service

You may have heard of drop shipping, right? Drop shipping is a service which does all the above services. However, the difference is that in drop shipping it is the drop shipping company who owns the product while in fulfilment orders, the company does not own the product.

Model of Dropshipping

model of dropshipping

Model of Fulfillment House Business

fulfillment business model

Advantages of Fulfilment Houses

There are many advantages for fulfilment houses. Order fufillment is a secondary function of the business. The primary function or the core business is marketing, sales, innovation, buying. Apart from operational and business advantages there are financial benefits of saving on staffing, storage, processing and developing other solutions.
I will briefly discuss the main advantages one by one here.

1. Frees Your Time

As I have said earlier, order processing is the secondary function of the business. It is not the core of the business. The core of the business is to focus on marketing, generate sales, developed strategies, source products, introduce innovations, expand, diversify and create new product ideas.

Once you have outsourced the order processing, picking, packing and shipping, you have freed yourself a significant amount of your valuable time. You can utilise the free time to focus more on the vital aspects of your business. This can significantly help you to take your business to the next level.

2. No Need to Hire Expensive Staff

Once your business develops, you obviously need to hire staff for processing the order. Outsourcing to fulfilment houses not only frees your time, it saves on hiring expensive staff. It also saves further from paying for payroll service, staff insurance, compulsory insurances and other applicable taxes.

3. No Need to Rent Storage

As far as storage is concerned, there is a double advantage. One, you do not have to rent storage and it will save a good deal of money. Secondly, you products may need special storage facility which may not be easily available near you.

In case of products like perishable items such as fresh flowers etc. you need to spend a good amount of money to rent such specialised warehouses.

4. Saving on Shipping Costs

Courier companies normally charge discounted prices to the companies which have large volumes of shipment. In case of small or individual business, this is not possible to get the same discounted rates.

Recently Amazon decided to launch their own shipment service. This wills not only earn additional revenues for Amazon but they may also pass on a portion of the benefits to their fulfilling customers.

Apart from saving 0n the shipping costs, businesses can also save on shipping materials. Shipping materials bought in bulk are a lot cheaper than when bought retail or in small quantities.

5. Better Technology Solutions

It is not easy or practical for small and individual business to integrate with advanced technological system. Fulfilment houses are large companies who can easily afford to integrate the whole business processes through advanced technology.

Technology integration ensures fast and efficient order processing as well as keeping the customer updated regularly through the whole process until the goods are delivered to them.

Disadvantages of Fulfilment Houses

As we have seen above there are many advantages and plus points of using the services of a fulfilment house. However, there are some downsides too. Here I shall briefly talk about some of these disadvantages.

1. Loss of Control

All the orders are directly controlled by the house and the business owner have not direct control over the order process. There are possibilities of poor order processing and errors on the part of the house. This results in creating bad reputation for the business and consequently loss of customers.

2. Problems in Personal Customer Service

Although, you can still directly communicate with your customer, the personal touch is lost when the customer knows that the whole order was processed and delivered by a third party.

Direct after sale support gives the customer a higher trust and establishes a long lasting relationship.

3. Problematic Returns

Every single order will not go right. There can be a lot of reasons for the customer to return the item. Fulfilment houses though are capable of handling the returns efficiently, things may still go wrong and the customer may not get the direct support.

There can be also problems of restocking and reselling the returned item.

4. Product Damage

No matter how much caution and care do you take, there can still be some instances of damaged good. In case of damaged goods, you may bear additional fees for restocking and handling.

5. Adding Cost

And, of course, the cost too. Fulfilment houses are not free and they are there for business. A fulfilment service may add additional cost to your overall expense and thus reduce your profit. This is true if your business volume is quite small and you can handle everything on your own.

So is It Worth to Use the Fulfilment Houses?

It all depends on the nature, size and requirements of your business. In case, you are able to easily and cheaply store your products and manage the order processing, picking and packing without any additional costs, then it is better to operate on your own.

However, if you have a significant amount of inventory or you need specialised storage, then it is highly recommended to use the fulfilment house services.

In case of one man show, it is often difficult to manage everything on your own. Doing everything yourself is not the wisest strategy as you lose on many other fronts in your business. Hiring staff also comes with additional burdens. So, if your business has a significant amount of turn out, it is absolutely recommended to look into the fulfilment house service.

Back in time, I used to sell a lot of low cost item in high volumes. The turnout was more than a 100 items a day on average. In the holiday season, it would even become double. Because these items were quite small and post office was our cheapest option, it would cost us a number of hours to pick, pack and ship. We outsourced a few lines to fulfilment houses; it made our life a lot easier.

The end point is if you need to hire additional people for order processing and inventory handling, fulfilment is a better and cheaper option. However, this may not work cheaper in all types of business.

I am KK an eBay and Amazon expert, teacher and internet marketer. I offer advice on e-commerce, content marketing and guest posting.

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