Pricing & Value: How to Measure Success in Fulfillment (by IDS)
This slideshare by Integrated Distribution Services (IDS) will provide helpful information for ecommerce, retail and direct selling companies looking to get the best price and value out of their order fulfillment services.
Published on: Mar 4, 2016
Transcripts - Pricing & Value: How to Measure Success in Fulfillment (by IDS)
Pricing and Value: How to
Measure Success in Fulfillment
Key Issues When Negotiating
Services With Your Fulfillment
• You can save a lot of time and legal fees if you
understand some of the key issues that often drag
out contract negotiation.
• Many ecommerce and direct selling companies are
not aware that the underlying law governing the
relationship their fulfillment company is the Article 7
of the Uniform Commercial Code (UCC). This article
deals with bailment which is the relationship
between the owner of goods and bailee who is
entrusted by the owner with their storage and
• Often times, companies using an ecommerce fulfillment
service believe that the fulfillment company has
insured their goods against casualty loss such as a
tornado, hurricane, fire or other act of God. That is not
• The fulfillment company (or Bailee) only insures the
goods against damage or loss caused by their failing
to exercise such care as a reasonable person would
exercise in a similar circumstance.
• This is often referred to as the Standard of Care as it is
defined in UCC Article 7. The fulfillment company (or
Bailee) will carry Warehouse Legal Liability Insurance for
those times when it fails to follow this standard of care.
Warehouse Lien & Loss
• Warehouse Lien: UCC Article 7 grants a first priority lien to the fulfillment
company (Bailee) in the goods in storage for any unpaid charges. This lien is a
priority over all other liens including any bank liens resulting from financing of
the goods in inventory. Ecommerce companies who have debt that is secured
by their inventory need to be aware of this provision of the UCC. You don’t want
to have a problem with you lender only to have them find out that the security
they thought they had for their loan is not there. Most banks will require a lien
waiver by the fulfillment company. Many fulfillment companies have dealt with
this before and have standard lien waiver language that is acceptable to most
• Loss Limitation: This provision states that any losses for which the fulfillment
company is responsible are limited to a stated amount. This amount is usually
stated as a cost per each or a cost per carton or a cost per pallet and is usually
the manufactured cost of the goods whatever unit of measure is used. This loss
limitation is required under the UCC Article 7 and is also required under the
fulfillment company’s Warehouse Legal Liability Insurance.
• Consult a lawyer familiar with UCC Article & when reviewing these
Pricing Ecommerce Fulfillment:
An Apples-to-Apples Comparison
• When looking for an ecommerce fulfillment company, comparing prices between one fulfillment company and
another can be difficult. They will often format prices differently; some will charge for certain services while others
may not, and often times, verbiage can be difficult to understand. So, how do you standardize your pricing
when you get are getting quotes from multiple fulfillment companies?
• What’s included in the price?
– Some things that may or may not be included in the pricing could be: a marketing insert, re-labeling, scan
audits, overflow storage space, etc. Make sure that you ask the right questions, or at least be sure to fully
inform the fulfillment company of what your program entails so that they can quote based on those specific
needs. If the services are not included in the pricing, make sure to get those services quoted separately.
• What’s my total cost/order?
– Work with the fulfillment companies that you are obtaining quotes from to get a total monthly spend into an
excel spreadsheet. Make sure that you include all of your variables, such as: number of orders, number of
units per order, number of SKU’s, storage space, number of inbound receipts, etc. Anything that might affect
the pricing should go into your models. Keep in mind when doing these models that if one variable changes,
such as number of orders, it might have an effect on other variables such as storage.
– Once you get this together, you should be able to get a total monthly spend and dividing that by the number
of orders will give you a total cost per order. This is the best way to compare fulfillment center pricing. In the
end, all that matters is how much is it going to cost you to get the order out the door.
• What are these accessorial charges for?
– It is impossible to cover every cost or issue up front that could potentially arise in the pricing for fulfillment
services. That is why many fulfillment companies use accessorial charges for labor to be billed for anything
outside of the standard scope of work. Be sure to understand when these charges would come into effect. If
it is something that is fairly typical for your program, see if they can give you a price per piece or a price per
order rate on it so you are not billed on the hourly rate.
An Apples-to-Apples Comparison
• Keep in mind that if the pricing is too
complicated to understand, then it is
probably not a company you will want to do
business with. No matter how one company
structures their pricing versus another, be sure
to break everything down into a standard cost,
whether that be a total monthly cost or a total
per order cost.
• Once you are able to do that, you should be able
to start comparing apples-to-apples.
Ecommerce Fulfillment: Adding
Value Through Packaging
Packaging: Know Your Options
• Packaging is one of the most overlooked and forgotten aspects
• First, you figure out what you want to sell. Then, you get your
website and fulfillment set up and then... oh yeah... you need to
figure out how to actually package the products. While packaging is
not the most exciting thing in the world, when it comes to
ecommerce fulfillment, if done correctly, packaging can add a
tremendous amount of value to your brand.
• Whether you are using a bubble mailer or a corrugated box, there
are always a variety of options for packaging supplies out there.
• Understand your options and shop for the best price. If you can
save a few pennies on supplies, those more than likely will go
straight to your bottom line. Take some time to understand your
options and continue to work to improve and save on packaging.
Branded Boxes & That ‘Wow’ Factor
• Branding your boxes can really help to grow your brand.
– Your brand is broadcasted to everyone who sees the package and it
adds a little extra excitement for the customer when the package
arrives. There are all sorts of ways to brand your boxes, but keep in
mind certain colors do not show up as well as others and the amount of
ink coverage will affect the pricing.
• There are many ways to add that extra wow factor to your package.
– If you have a little extra margin to play with and want to add that little
something extra that is going to help you stand out above the
competition, there are several things you can do. Colored tissue paper
or package filler is a good way to add that extra pop of color when the
package is opened. If branding your box is a little too pricey, try adding
a sticker or branded tape as a less expensive option.
• There are many ways to bring value through your packaging, but you must
understand your business and your customers. Spending too much on
packaging can have a negative effect on the bottom line, but if your
customers are spending a premium dollar for your product, providing
them with premium packaging can go a long way.
An Alibaba Lesson for All
It’s All About Logistics!
What Alibaba Can Teach Us
• Alibaba has been a great illustration of how important a strong logistics and supply chain strategy is to a
company's success. A great product idea, with an incredible website and capital backing may
sound like the three legged stool is set for success, but without a fully thought out logistics and
supply chain strategy the business will flounder. Logistics is the keystone and competitive
advantage needed for success. Not convinced? Let's break the components down and talk a little more
about the subject.
• First, let's look at the product Alibaba owns.
– Oh, Alibaba does not own a physical product, so we can throw the need for an incredibly new and innovative product
out the window.
• Next, is the Alibaba website.
– It is laid out in a friendly, easy to use fashion and has quick response. What more can you ask from a website? It
even tells users how to make a fortune by being a member of their network. Sign me up! I have two in college! So,
while the website works well for online shopping, there are plenty of others out there that have a similar look and feel.
• So where is the difference maker? It's in logistics.
– The Alibaba success has been a great sandbox to see the effects of what a superior logistics and supply chain can do
for a company. China's ports are some of the most efficient in the world, but the supply chain is extremely weak
throughout the interior of the country. China also does not have the abundance of store fronts, making ecommerce a
key in solving the Chinese logistics challenge.
• Alibaba solved the logistics problem through an asset light approach and instead of owning a DC, trucks
and physical store fronts has coupled together numerous asset logistic partners to solve China's network
problem with big data. Alibaba built a network of warehouses, processing centers and transportation
options to efficiently deliver orders quickly to the to the smallest cities and villages. Coupled with the
network is data for the buyer to receive reliable information and allow a trust to be built between that
builds trust between the consumer and Alibaba, while also providing all the information to build "big data"
analysis to optimize the network for consolidations and backhauls. Through Alibaba, there are now
villages in China that thrive solely because they are on the Alibaba network.
Alibaba: Location is Key
• Location is key to transit and shipping costs. For those ecommerce
companies selling consumable products, it is extremely important for their
re-order cycle to get the product in the customer's hands as quickly as
possible. An example is ecommerce mobile phone shipments. The mobile
phone order is processed the same day and overnighted to the customer's
doorstep, so the mobile phone carrier can quickly have it activated on their
network to begin generating revenue for the company. For the AT&T's and
Verizons of the world, they understand that the overnight shipping costs are
minimal impact to the company, when compared to having the consumer on
their network the next day. That is not to say the cost of shipping is not on
their minds because it is. They address the cost through a strategic
ecommerce fulfillment network that takes into consideration the population
density of their customers.
• To sum it up, Alibaba's success is because they solved the supply
chain and logistics problem, which is more readily seen in the logistically
challenged Chinese market. With that in mind, do not forget the importance
of logistics in your ecommerce strategy. It is the competitive advantage for
When is the Right Time to
Consider a New Fulfillment
When is the right time?
• When outsourcing your order fulfillment services, many times looking for a new
fulfillment company can seem overwhelming. Everything is probably running
smoothly with your current provider, but as we all know, complacency can
hamper growth. So how do you know when to look for a new fulfillment
provider? You might think that a lack of performance or disappointing service
levels would be your top reasons, but they are not the only reasons.
• 1. Changes in your Business Model
– As your company grows and develops, changes are inevitably made along the way. As your
business model changes, so might your needs with a fulfillment company. Some companies
might be better at certain aspects of fulfillment than others and these changes might take
your current fulfillment provider out of their comfort zone. These changes could mean
increased SKU’s, different product lines or maybe some more complexity. Be sure to start
talking with your current provider if you are going through changes so they are aware of
what’s happening. If your current provider is looking to change your price, be sure to get
quotes from several other companies, if for no other reason than to compare.
• 2. Your Contract is Up
– Now this may seem rather obvious, but you would be surprised at how many companies will
just automatically renew their contract when it’s up. This is the ideal time to see what other
fulfillment providers are out there that might provide better service and price.
Time to make the switch?
• 3. Performance Issues
– If you are having performance issues with your current provider, it may be time for a switch.
But, before you do, it’s a good idea to first do your homework. Make sure that you track the
issues you are having with your current provider. Are they outside of their KPI’s? Don’t rely
strictly on your fulfillment provider to track these issues. Once you know what these issues
are, talk with other fulfillment providers to see how they would handle these problems.
• 4. Changes in your Customer Base
– If your customers tend to be located in a certain part of the US, and you have already placed
your fulfillment center near them, continued growth in your sales could cause your customer
base to become national. If the location of your customers is changing, finding a fulfillment
company that is more centrally located or closer to the new customer outlay could be
extremely beneficial. Knowing where your customers are located and placing a fulfillment
center in the optimal location to them can drastically improve transit times and cut down on
• Changing fulfillment companies can seem overwhelming, but being complacent with
what you are doing can also lead to overwhelming headaches. Challenge you
current provider by making them work hard to earn your business and even
harder to keep your business. If you do decide that changing fulfillment companies
is the best move, ask your new provider to help with some of the transition costs.
Many times they will waive initial set up fees and startup costs to help ease the
financial burden of the move.
Order Fulfillment KPIs:
If you can measure it, you
can manage it!
• Management gurus have a saying “if you can’t
measure it, you can’t manage it”.
• This is especially true in fulfillment services. Everyone
tracks and measures Key Performance Indicators
(KPIs) that our outlined in customer contracts such as
inventory accuracy, order accuracy, order turnaround
times and others but these are merely the basic
measures that customers will be looking at to ensure
• There are many other metrics that needed to be tracked
and measured to ensure the success of your fulfillment
Identify Your KPIs
• To identify the KPIs most indicative of success, first look at core processes.
– Operations like the pick line, packing stations and replenishment. In each of these discrete tasks
has key measurements that can pinpoint success. For the picking operation indicators may include
units picked per minute or lines picked per minute. Measuring and understanding this productivity
point allows managers to know what the optimal performance is on a pick line and therefore allows
them to better plan for peak season volume. The same is true of the packing operations,
understanding the optimum performance level in orders or units packed per a measure of time not
only allows managers to plan for peak volumes but provides the information needed to adjust
staffing on a daily basis to maximize labor utilization.
• Once KPIs have been identified it is critical to identify the source data that will be used for
– Data can come from many points in the operation so identifying the proper point to extra certain will
determine the ease and completeness of the data extraction. Once tracking begins, regular
reporting periods should be established so that the KPI report is provided to managers in a form
and frequency that allows them to act upon it. There is no management value in a KPI that is too
infrequent and not formatted in a manner that allows for immediate action.
• One easy way to test a fulfillment services company’s true knowledge of their operations is
to ask for the KPIs they track and report and the frequency with which it is provided to
managers. Those looking only at contract KPIs are not viewing their operations broadly
enough to manage for optimum efficiency. To paraphrase the old saying “you not managing
what you aren’t measuring”.
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