Order fulfillment is one of the most important aspects of your supply chain. Whether you have a direct to customer ecommerce business or sell to big box retailers, if you don’t meet your customer’s expectations when it comes to shipping orders, you’re in trouble. Recent studies show that 86 percent of consumers will leave a brand they were once loyal to after only two to three bad customer service experiences. This means it’s very important to choose a provider or warehouse that you trust to ship your products on time and with care. Hiring a third-party logistics provider (3PL) is a great way to flex up and down with demand and ship large orders when you don’t have your own warehousing space. However, fulfillment costs and fulfillment fees can be complicated and add up quickly. That’s why it’s important to have a comprehensive understanding of your fulfillment services pricing to ensure you are paying a fair price and making smart decisions.
Recent studies show that 86 percent of consumers will leave a brand they were once loyal to after only two to three bad customer service experiences.
A Breakdown of Fulfillment Services Pricing
Not every fulfillment provider uses the same pricing model, but most of them calculate fulfillment costs based on the services performed. Typically, these costs are totaled and invoiced monthly. Some of the main order fulfillment costs that you’ll likely see on your invoice are implementation or initial setup fees, receiving, storage, order fulfillment (pick and pack), account management and various other assessorial fees such as kitting, along with various hourly fees for one off projects such as physical inventories. While these fees are fairly common, the way they are calculated can vary between companies. Below we have broken down four examples of fulfillment services pricing.
Initial Setup or Implementation
Initial setup fees are charged only for the onboarding process with your 3PL or fulfillment company. The individual costs vary depending on your provider as well as any specific integrations you may need. One of the biggest expenses can be connecting your online shopping cart to your 3PL’s warehouse management system, which enables the seamless transfer of information and increases efficiency. If you sell on Amazon, similar integrations are needed with their systems in order to use Buy Shipping Services and meet other requirements. This depends on what type of Amazon seller you are so it’s important to know what specifications you need to meet. The initial set up of this type of integration is facilitated by an experienced IT department that can use EDI or API to allow for real-time updates and an increase in overall efficiency. When looking at fulfillment centers and 3PLs, be sure to ask whether they have in-house IT departments that can handle these integrations.
In order for your 3PL to begin fulfilling orders, it must first receive your inventory to store and manage. There are a few ways that fulfillment centers charge for receiving: per-unit, per-pallet, per-hour, or sometimes a flat rate. If you need extra services like bar code scanning or damage inspection, this fee will likely increase. However, some facilities don’t even charge itemized receiving fees, instead rolling them into their overall fulfillment fees in an effort to streamline their cost structures. Make sure you understand how your fulfillment center calculates receiving costs to ensure you are getting the best deal for your number of inbound shipments.
Inventory storage fees are a prominent aspect of your overall warehousing costs. The charges for this are calculated by pallet, cubic footage, bin, case, unit or square footage. These are typically charged monthly and vary based on your inventory levels from month-to-month. Depending on your product size, different types of storage will work better for you. Pallets come in different sizes and can be good for larger items that are typically shipped together. They can also be stacked or stored on racks if the product allows for it. Cubic foot storage is a storage method that measures the space your items take up in cubic feet, which keeps you from getting charged for any dead space on pallets. Bin storage is preferable for smaller items, as it makes the pick and pack process more efficient. Square foot storage is not as common, but it is typically used for large and bulky products. It’s important to remember that any climate controlled or food grade warehousing requirements will cause these prices to increase. Each of these inventory storage options are preferable for certain types of products and choosing the right one can help you make the most of your money. Your 3PL has experts who can help you choose the most efficient option for your business.
The fulfillment process itself consists of a variety of different steps depending on your business requirements. If you sell direct-to-customer ecommerce, your fulfillment process likely contains pick and pack process, which can be charged on a per-pick basis, meaning you’ll pay a fee for each item in an order. Fulfillment costs differ based on your inventory and shipments. This includes the number of SKUs you have, the number of units per order, your product size, and the complexity of your packing and will impact the overall pricing structure you may have. Before signing on with a fulfillment provider, be sure you know the kitting, assembly and pick and pack fees in advance to avoid any surprise costs.
Other Order Fulfillment Costs
Other order fulfillment costs come from things like kitting and special projects. Kitting can be a step in your fulfillment process if your packages require assembling multiple SKUs or arranging inventory in a certain way during the packing process. Assembly and special projects can be done by warehouse staff if boxes or displays need to be assembled before shipping, or if any of your products need services like paint touch ups or component replacement. Because these services are so specific to customers, kitting, assembly and special project costs can vary drastically. If you require these services, be sure to obtain this information in advance to control your fulfillment fees and avoid surprises. Something else to consider is additional costs for Amazon sellers if you plan to sell on their Marketplace. Due to the strict requirements for selling options, including maintaining a 99 percent on-time shipping rate and an order cancellation rate of less than 0.5 percent, some 3PLs may charge a higher fee for this higher level of service. The key is knowing any additional fees in advance and planning ahead.
Due to the strict requirements for selling options, including maintaining a 99 percent on-time shipping rate and an order cancellation rate of less than 0.5 percent, some 3PLs may charge a higher fee for this higher level of service.
Choose ITS Logistics as your 3PL
At ITS Logistics, we have procedures in place to ensure that our fulfillment costs are laid out in a way that is easy to understand. Before signing a new customer, we give them quotes for our services and make sure that the inventory, storage and fulfillment fees match their needs perfectly. If you’re looking for a capable 3PL to help you with your fulfillment process, call us today!
Interested in learning more? See these additional resources for ecommerce fulfillment
Ecommerce Reverse Logistics
Ecommerce Drop Shipping
Fulfillment & Distribution Case Studies
Learn how we’ve tapped our vast partner network to solve logistics problems for clients.