Why Is Location So Important When Choosing A Fulfillment Company?
Posted On April 27, 2015 by
Having your fulfillment center near your business has never been more important.
With the boom of eCommerce, businesses has never been better for online retailers which means many companies are at some point faced with the decision of how to prepare for the next stage of growth. One of the first areas that a company examines is their fulfillment strategy to determine if it makes sense to expand in-house or consider outsourcing to a third party. As a result, many find it more economical to partner with a fulfillment company to enable them to expand more rapidly at less expense. Location is a top consideration when deciding which fulfillment company you decide to work with in your planning stages and for many reasons.
Lower Shipping Costs
It is advantageous to look at where your customers are located in proximity to the fulfillment company and their network. Some fulfillment centers have a single location while some have multiple locations or a network of centers with which they work. Companies that choose a provider with multiple strategically located fulfillment centers may be better prepared to grow and expand more efficiently. Sometimes, however, it may be just as effective to have a centrally located fulfillment facility that is equidistant to all target points. Generally speaking, the closer these facilities are to your customers, the less you’ll pay in shipping costs in the end.
In addition, consider the fulfillment center locations in relation to your manufacturing facilities, suppliers and shipping ports. This will help you save on shipping costs on all ends if you can employ a location strategy that can serve each of them. This can be especially helpful if you sell high volumes of product. Due to the economies of scale, a fulfillment company can negotiate more competitive shipping rates across the board.
Have Room to Grow
Check to see if the fulfillment center locations you’re considering have enough room to store additional inventory as you grow. You might find a provider with the perfect location but it won’t do you any good if they don’t have the room to expand in that market with you. Most fulfillment center locations are optimized to serve major population centers across the U.S. so if you’re customers are located near one of these centers this will most likely be less of an issue for you. Good forecasting can help a provider plan ahead to ramp up operations as needed.
You’ll need to factor in the workflow of your order management to see if your location choice ties in effectively. Do you want orders to come to your facility first and then be routed to the fulfillment house or should the fulfillment house handle the order taking? What percentage of items will be coming back as returns and will you be dealing with them or does the provider have the capability? All great considerations when looking at how far you’ll be located from the provider.
Taxes and Operational Costs
There is more to think about than just physical location based on shipping and receiving. Consider the location of the state in which you choose to execute fulfillment. Look at taxes and the labor costs of running a business from certain states. These costs for warehousing and transportation can be significant enough for you to consider a different state as more viable option.
When making your final choice, creating a Fulfillment Cost Model may be the best tool to see which fulfillment center locations will work best for your company like Scott Ohlgren, Owner of Brain Toniq, did when deciding to outsource his fulfillment and distribution. Scott was overwhelmed with the bid comparisons he received from three fulfillment companies so he created a hypothetical group of orders based on past order experience to determine the cost from each provider location. It helped him take the different bids and translate them into common pricing so he could easily compare and contrast pricing from various providers to determine the best location match for his fulfillment needs.