Order Fulfillment Pricing: Why Details are Your Friend
by Staci Americas on Oct 31, 2023 10:00:00 AM
In today's fiercely competitive e-commerce landscape, where super-efficient fulfillment is critical, the pricing for order fulfillment services remains a puzzle. For e-retailers, understanding pricing basics is vital, especially since 60% of online retailers at least partially outsource fulfillment. But be wary of providers who promise to make it easy with instant quotes based on limited data.
In this article, we uncover some details behind order fulfillment pricing, emphasizing the perils of quick quotes and providing guidance to make informed decisions.
Order Fulfillment Pricing Basics
The diversity of pricing models in the order fulfillment industry make it essential to understand the key cost components of order fulfillment pricing:
- Setup Charges: Typically one-time fees for integrating your systems with the fulfillment provider’s system, ensuring smooth operations.
- Receiving Charges: Costs associated with the intake of your products, including counting, inspection, and labeling.
- Storage Charges: Monthly fees for housing your goods within the fulfillment center, are influenced by factors such as duration, size, and special storage requirements, such as temperature-controlled storage. Storage charges can vary greatly based on location. For instance, you’ll pay a lot more to store products in or near major metro areas. On the other hand, your shipping costs will likely be much lower from these areas because you’ll be closer to your customers.
- Pick and Pack Fees: These costs are what the name implies – picking and packing your products and readying them for shipment. This is where most of your labor costs will fall. Those costs will vary based on required processes. For instance, do you have custom packout requirements? Do you have a high volume of returns that need to be processed?
Beware the Instant Quote for Fulfillment Services
If you plan to solicit price quotes from third party logistics providers (3PLs) for fulfillment services, the best thing you can do is provide as much detail as possible – about your products, volumes, seasonality, order profiles, and special requirements. Gathering those details takes time, and that might be time you don’t have.
For that reason, it could be tempting to gravitate to 3PLs that offer fast quotes – sometimes with a website form that asks only basic information. While fast and simple, this accounts for only a small portion of the details required for accurate pricing.
Fast quotes are a little like fast food. It’s convenient and saves you from cooking. But is it really the best thing for you?
The short answer: NO.
Order fulfillment pricing quotes based on high-level data will likely require re-pricing once the provider starts operating and recognizes that many of the assumptions made for the initial price quote are inaccurate. And guess what? Most re-pricing exercises don’t result in a price decrease.
Four months into an outsourcing partnership, you could be left trying to explain to higher-ups why the order fulfillment budget you submitted needs to be increased – by a bunch. It’s a bad look.
Beware of fulfillment service providers who do not push for as much detail as they can possibly get. They may seem easy to do business with and may make your life easier in the short term. But know this: the path to cost-efficiency and successful e-commerce operations begins with a meticulous evaluation that goes beyond the surface-level allure of instant quotes.
To ensure accurate cost estimates and avoid unforeseen expenses, it's imperative to delve into the specifics of order fulfillment pricing. In the next section, we get into the critical details that can significantly impact your order fulfillment pricing, emphasizing that more detail is the ticket to not only accuracy but also cost savings.
Details You Can Provide a 3PL that Result in Accurate eCommerce Fulfillment Pricing
As the saying goes, “pay now or pay later.” It’s best to do your homework before going out to bid for e-commerce fulfillment services. Here are some of the details that the best, most trustworthy fulfillment partners will want.
1. A Full Description of Your Products:
One of the fundamental pieces of information that you need for optimal 3PL order fulfillment pricing is a complete description of your products. This includes details such as the total quantity, dimensions, and SKUs per case. Understanding your products enables your 3PL to determine storage and picking space requirements. It helps them decide whether your inventory can be stored vertically or horizontally, the strength of racking needed, and the size of the pick front required.
2. Fragile or Hazardous Products:
If any of your SKUs are fragile or hazardous, it's vital to communicate this information to your partner. These products often require special storage and handling, which can significantly impact 3PL order fulfillment services pricing.
3. Palletized vs. Floor-Loaded Shipments:
Providing insights into the ratio of palletized vs. floor-loaded shipments is crucial. It helps your 3PL forecast the labor, time, and space required to receive shipments accurately, reducing the risk of bottlenecks during the receiving phase.
4. SKU Makeup of Inbound Shipments:
Your 3PL needs to know the average number of SKUs per shipment and the number of pallets or cases created from each inbound shipment. They also need to understand the percentage of cartons or pallets that contain mixed SKUs vs. a single SKU. Detailed data in these areas helps prevent unexpected dock delays and charges.
5. Special Receiving Requirements:
If your inbound receiving process requires more than a basic general inspection, this should be communicated. Tasks like barcoding, labeling, or quality audits can impact dock-to-stock time and costs.
6. Special Storage, Stock Rotation, or Handling:
Products that require special storage conditions, stock rotation, or specific handling instructions must be highlighted. Whether it's temperature-controlled space or specific shipping requirements like FIFO (First-In, First-Out) or FEFO (First-Expired, First-Out), these details can significantly impact storage and operational costs.
7. Average Weight of Pallets or Cartons:
Knowing the average weight of your standard pallets or cartons is essential. It helps determine whether your pallets can be stacked and how many can be stacked, allowing your 3PL to find the most effective configuration and racking choice to control your storage charges.
8. Number of Unique SKUs in Storage:
The count of unique SKUs in storage directly affects fulfillment center pricing. Each SKU requires its own slot or bin in the fulfillment center, so the more SKUs you have, the more space and expense are needed. Providing precise data in this regard ensures accurate 3PL order fulfillment pricing.
9. B2C vs. B2B Order Ratio:
Clearly defining the ratio of B2C (Business-to-Consumer) vs. B2B (Business-to-Business) orders is critical for calculating a realistic cost per order. Sharing details from your existing service level agreements helps your 3PL understand your multi-channel fulfillment operation.
10. Special or Value-Added Services:
If your orders require special or value-added services like kitting, on-the-fly kit assembly, or custom labeling, it's vital to inform your 3PL. These services impact the scope of work and need to be accurately defined for pricing purposes.
11. Special Release Days or Promotional Spikes:
Any information related to your sales trends, special release days, or promotional spikes should be shared. This data helps your 3PL design the most efficient labor plan.
12. Packout Process for Orders:
The packout stage is where most fulfillment expenses occur. Providing detailed information about your packout process is crucial for accurate pick and pack pricing.
13. Packaging and Dunnage Materials:
Details about the types of packaging and dunnage materials you use can have a significant impact on both warehouse operations and shipping costs.
14. Returns Processing Standards:
If your company has specific standards for processing returns, these must be communicated. Returns are typically more work-intensive than order fulfillment and need accurate estimates of space and staffing.
15. Monthly Velocity of Each SKU:
Understanding the velocity of each SKU is crucial for designing an efficient storage configuration and pick line, which can have huge cost implications.
16. Order Flow Integration with 3PL’s Systems:
Seamless order flow is essential for a successful partnership with your 3PL. Details about how orders will be placed and the systems integration and data flow requirements between your systems and your 3PL's systems must be discussed.
It's imperative to understand that accurate and lower order fulfillment pricing hinges on the details you provide to your 3PL. The more comprehensive the information, the more precise the 3PL order fulfillment pricing, and the greater the potential for cost savings.
How Order Fulfillment Pricing is Like Tax Accounting
While it’s tempting to take the easier path and get a fast quote from a 3PL without providing full details on your operation, that decision is likely to backfire.
Think about it, how would you regard an accountant that promised to do your taxes in an hour. You’d probably run fast in the opposite direction. Why? Because you know that the more detail you give an accountant, the more likely they are to do an accurate tax return and to recognize opportunities for deductions. Fulfillment services pricing is no different.
The best fulfillment operators will ask lots of questions. Our advice: feed their appetite for details. They can use those details to create the most cost-efficient operation possible and create a fulfillment price quote that you can confidently base budget projections – without worrying about having to endure a re-pricing exercise after start-up.
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