All retail and wholesale businesses at some juncture will contemplate outsourcing warehousing services to an order fulfillment center. The order fulfillment centers are also referred to as 3PL (third party logistics) warehouses. They are mostly privately owned independent entities.
The services they offer are referred to by different names such as Public Warehousing, Fulfillment warehousing, Storage Warehousing, Warehousing and Storage, Warehousing Distribution, Inventory Fulfillment, E-commerce Fulfillment etc.
Services provided by Order Fulfillment Centers
Typically an Order Fulfillment Center will offer the following services:
- Warehousing and Storage Service
First and foremost the Order Fulfillment Center will offer warehousing and storage services. Most third party logistics warehouses have a sophisticated array of equipment to compliment their warehouse storage services. This equipment will include conveyor belts, forklifts, racks, docking doors, scanners etc. All the operations in a warehouse are tied together with the help of a Warehouse Management System (WMS).
The customer utilizing the services of the third party logistics warehouses (3PL) will ship their inventory from their warehouse to the Order Fulfillment Center warehouse. third party logistics warehouse will also continue to receive new inventory or returns on an ongoing basis.
In warehousing distribution, how the items are stored in the warehouse, plays an important role. For certain types of items first in first out is the norm whereas for some other items such as perishables first in last out is the norm. This is to ensure that no perishable good sits on the aisles longer then it has too.
- Order Taking service
An order fulfillment center will typically utilize a web based application, where the customer will enter the orders online. Once the order has been received by the order fulfillment center, it will then process the order. Orders can also be conveyed to the order fulfillment center using electronic feeds using files in many different (EDI) formats. These formats are pre agreed upon by both parties. The transmission of data can be once a day or real time.
- Order Fulfillment Service
Once the order has been received, following key pieces of information is required to process the order:
- SKU that uniquely identifies the item
- Customer Information
- Shipping Method
- Other Miscellaneous handling instructions
Based on the SKU, one of the key operations the order fulfillment center provides is to be able to locate the item. How the items are stored in a order fulfillment center is no easy feat. Storage of items is ideally done based on fast moving items closer to the docks and slower moving items further away. As items continue to ship out, the front aisles continue to get replenished with the fast moving items.
- Shipping and Handling Service
Once the item has been plucked from the shelf and is ready to be shipped, two key components are considered: Packaging and Shipping. If the item has to be shipped individually to the consumer, it is typically packaged and then shipped the same day or using the next day shipping service. UPS, Federal Expresss are typically used for this type of service. Since, the number of shipment volume is significant, these companies offer, order fulfillment centers, heavily discounted prices. This is an important saving that is passed on to the client.
In some cases items may be getting shipped in bulk, for example to a retail outfit. In such cases, the key component is consolidation. As the weight of the shipment can be considerable, services such as UPS and Fedex is not always cost effective. The distribution warehouse will then look to consolidate shipments using a private carrier. Shipments which constitute less than truck load (LTL) are consolidated with other shipments going in the same direction, to realize better savings.
- Processing Returns
Last but not the least is the capability the order fulfillment center should provide in the area of handling returns. Returns require more attention to details then any other aspect of fulfillment. Return requires manual inspection of the item. Notes on the condition of the item, needs to be entered. The item will be returned to a separate area that will be earmarked for return goods. These goods will eventually be sent backed to the manufacturer or the retailer may choose to take other actions.
Selecting a Order Fulfillment Center
Three types of businesses typically look to outsource warehousing and storage operations:
- E-Commerce Retailers
- Wholesale Distributors / Importers
Small Medium Sized Companies
If you are a small or medium sized operation (say with the net revenue of three million or less), you could search for order fulfillment companies online or go by word of mouth.
When selecting the order fulfillment company keep in mind the following selection criteria:
- Product specialization
- Location of the warehouses as per the proximity to your customers
- Size of the warehouses
- Order Management System and Reporting
If you are a large wholesaler, distributor or manufacturer and you are looking to outsource the warehousing and order fulfillment operations, your best bet would be to engage a non asset based 3PL (third party logistics warehouses) to setup your operations or engage a consultant to understand your requirements and locate a suitable asset based 3PL partner.