Support Services: To Outsource or Not to Outsource? That Is the Question1 Apr, 2012 By: Ayal Latz Response
As Response Expo approaches (May 15-17 in San Diego), we will meet many companies that are wrestling with the question of handling fulfillment and various backend function services. I’m sure you’ve also considered this, but what answers should you be seeking out?
Fulfillment is a separate and special function within the direct-to-consumer industry. It deserves all the attention, study and focus that other, more glamorous functions enjoy. So we start with these questions: “Why outsource fulfillment? As a start-up, or with my low volumes, can’t I handle this myself? Or, as a large corporation, can’t we use our existing B2B distribution network to fulfill to consumers?” It’s best to look at these questions category by category.
- Quantifiable Cost. Outsourced fulfillment provides a mostly variable cost component to your campaign. If you sell, you ship. If you ship, you incur known and predictable costs. As you are building your campaign financials, outsourcing allows a much tighter budget. If you predict activity, the fulfillment cost can be projected accurately. Compare this to doing the fulfillment yourself. Try to think of all the cost factors you will have to budget for: warehouse space lease, taxes, utilities and labor. It’s likely that you cannot anticipate all the factors that should be included. And, even if you can, you don’t know how to predict their variability over time, which makes your entire financial plan more risky. With an outsourced solution, you have negotiated a cost structure with your fulfillment center, allowing you to predict a transaction unit cost.
- Expertise. Fulfillment is much more complicated than most people think. To do it accurately and cost effectively, you need specialized systems, labor, management and expertise. Even marketers that already have distribution centers fulfilling B2B orders should think twice before trying to utilize these resources for consumer-direct fulfillment. They’re very different, and the landscape is very dynamic. Carriers and freight programs are ever changing, technology is evolving and consumer expectations are becoming more demanding. An experienced fulfillment provider is on top of these changes and can shift you into more advantageous programs quickly.
- Lower costs. Beyond the discussion of fixed vs. variable costs, outsourcing your fulfillment will most certainly provide lower overall costs. First, you avoid making an investment in real estate. Second, outsourced fulfillment centers are more efficient with labor, lowering your unit cost. Third, your fulfillment center obtains better shipping rates than you can achieve on your own, meaning you can keep your costs to your customers lower, and/or you can improve your profitability. An outsourced fulfillment center will have the ability to scale up or down to your changing needs. We often hear small and/or start-up companies worry about set-up fees or monthly minimums. There is a perception that these costs can be avoided if they do it themselves. However, these costs are a negligible portion of any start-up. If you are going to be successful selling direct-to-consumer, you need to think long term.
- Location. If you handle your own fulfillment, you are stuck with your own geographical location. If most of your sales will be in your immediate area, then being located close to your customers is a benefit. But if your customers are located across the country, or scattered around the country, you can choose your fulfillment partner based on geography.
- Depth-of-service options. Many fulfillment centers offer a suite of services, including fulfillment, order management, customer service, backend shopping cart and reverse logistics. You may have needs for several of these functions, and you can create your own package that is provided by one supplier, simplifying your management efforts.
In summary, use your time at Response Expo to search out, meet and discuss business with the fulfillment centers that will be exhibiting there. You will be adding a great strategic partner to your team that will help ensure that your investment in direct response will be a success.