Why is Outsourced Fulfillment Such a Good Idea?

Posted by Kyle Voniderstein on Sun, Jan 30, 2011 @ 12:14 PM

At the center of every business, there exists a few core processes. Whatever you do to actually make a sale is usually a part of this. For a software manufacturer, it could be writing the code. For a magazine, it could be researching, writing, and editing the stories.  It’s these activities that generate 70% or more of revenue. So the question becomes, why do the rest? If 70% of the activities that you spend time on only generate 30% of your revenue, there is no need to do them. Some would in fact argue that you are not being very wise if you continue to do them.

What types of activities are we talking about? Well, for the software manufacturer, it could be product packaging, assembly and shipping. They can use a fulfillment house to handle those tasks. For the magazine, it could be the actual printing of the issue, the mailing process and the subscription management areas. 

While there are many benefits to outsourcing your fulfillment process to a third party fulfillment house, there are really four important reasons that every business should consider.

The first, as we have already alluded to is the ability to concentrate on your core business. Not being involved in the day-to-day process of fulfilling orders, for example, enables your company to focus on marketing your products, improving sales and increasing revenue. We all know there are only twenty four hours in a day. We need to maximize every minute we have. Stuffing envelopes or answering phone calls from customers are usually huge time killers. And profit killers too.

How about human resource considerations? People are expensive, right? When you outsource some of the labor intensive tasks, staffing concerns are shifted from your company and placed on to the fulfillment service. During peak seasons rather than spending large amounts of time hiring new employees or utilizing temporary personnel, your fulfillment provider will manage all of these concerns for you. Often times, fulfillment houses are equipped to handle peak seasons well in advance.

Next, is the idea of controlling your costs. We all know that cash is king and how you manage your cash flows can make all the difference in the world. In fact, it can mean the difference between staying in business and closing your doors. Since your company will only be paying the fulfillment house for the work they actually perform for your company, you are able to project costs and maintain the specific margins needed to insure profitability. You can better manage fixed and variable costs.

Finally, the concept of real estate comes into play. Again, one of the big expenses of operating a traditional business is rent or lease expense. This is one big reason why online businesses have prospered, because they don’t need a building. With outsourcing your building needs, warehouse space is no longer a concern since this will be passed on to the fulfillment house. Many companies that outsource their fulfillment services to a third party firm decided to outsource because much of the year they were paying rent on very large facilities that had little or no inventory in them, but they needed the space to accommodate their busy seasons.

So, why is outsourced fulfillment such a good idea? It helps your company be more successful in the long term.