What is a Fulfillment Center (AKA Fulfillment Company, Fulfillment Service, or Fulfillment House)?

A Fulfillment Center Company, also referred to as a Fulfillment Service, Fulfillment House, or Third-Party Logistics Provider(3PL), is a warehouse company that possesses the ability to manage your inventory, orders, packaging, shipments and returns. The majority of businesses that utilize a fulfillment center are online, small businesses with daily shipments to customers located throughout a local region, the entire US or internationally. Some mid-size and large companies use them, too. With the majority of consumers taking advantage of e-commerce, these services are becoming essential for the success and growth of small businesses today.

A fulfillment center will have one or several order fulfillment centers strategically located throughout the US. Some 3PLs will have several warehouses for shorter delivery times; whereas, others will only have a local warehouse for fulfillment and distribution. These fulfillment companies have many clients under the same roof and manage hundreds to thousands of shipments each day. They also take on the financial risk of the operations and staffing requirements so you do not have to.

What Does a Fulfillment Center Do?

The range of services at a fulfillment center vary based on your needs. If you are interested in all services offered by a fulfillment center, this will include everything involved in the shipping process, such as inbound receipt of goods from suppliers or manufacturers, warehousing storage, order processing, picking and packing, labeling, arranging shipping, loading the truck, providing the proper documentation for each order and tracking the shipment, as well as handling returns. The 3PL also provides all of the equipment and tools necessary to prepare each shipment and the labor required to fulfill each order.

Fulfillment centers also take over all of the administrative, technological and operational expenses of the warehousing and shipping processes typically incurred by businesses. Fulfillment centers negotiate rates with carriers based on all of their client base for far better rates than individual businesses are able to secure. They choose the best packaging for each type of shipment. The best fulfillment companies will constantly upgrade equipment and technology to ensure shipments are as efficient at cost-effective as possible. And they also take on the lease or own the warehouse and hire the employees that will complete all fulfillment activities. Some fulfillment centers specialize in certain products, which others specialize in certain services, such as e-commerce fulfillment.

What Do Fulfillment Centers Cost?

The cost of a fulfillment center will vary greatly based on the 3PL you select and the types of services you require. There are four main fulfillment fees or costs that most centers charge and that make of the vast majority of your bill: Receiving, Storage, Order Fulfillment and Shipping. First, most companies will charge a fee to receive your inventory. They may also charge you for inbound shipments based on the carrier you use. If you select one of their carrier partners, they often provide a discount. Second, you will be charged a monthly storage fee at nearly all fulfillment centers, which usually comes in the form of a fee per pallet stored per month or a cubic foot charge per month or a fee per bin used per month. Third, you will also charged for picking and packing services – usually either a flat fee per order or a fee per order plus a fee per item. Fourth, all outbound shipments will incur a shipping fee and may have a discounted rate based on the negotiations of the fulfillment center with their partner carriers.

As part of the cost structure, each fulfillment center will charge for their services differently. They may charge per shipment, per order, per item, per pallet, per weight and more. You may be required to have a minimum number of shipments per week or month for most 3PLs; however, a few 3PLs do not have a minimum order to utilize their warehouse and fulfillment services. And keep in mind that most centers offer specialty services, such as gift packaging, stock preparation, light assembly/kitting, returns processing and branded packaging. These additional services come with a corresponding cost.

What are the Pros and Cons of Using a Fulfillment Center?

The pros and cons for each business choosing the services of a fulfillment center will vary. One of the greatest benefits is that, despite the cost, outsourcing these services allows you to focus on growing your business. As a small business or a startup, it may not be possible to do everything exceptionally well and warehousing, managing inventory and shipping are highly critical areas of the business that can make or break profits. By using fulfillment services, you can focus on your strengths to ensure high levels of customer satisfaction in all areas of your business. This will result in repeat business and long-term sustainability for your business. While you still pay for fulfillment services, they absorb the majority of the capital requirements for these processes that small businesses and startups often cannot afford to do well without investment. Fulfillment houses also take away the fixed cost associated with a warehouse lease, making it variable and based upon usage. Furthermore, fulfillment centers relieve the burden

Fulfillment centers offer many benefits; however, they are not without some challenges and concerns. You may not be able to choose the carriers you prefer. Each fulfillment center has a designated group of carriers selected by the 3PL. You do not have a say in their carrier partners. It is important to note that many fulfillment centers do not provide insurance to cover your goods whilst being stored onsite or during transport. You still have to arrange to protect your goods at an additional cost. And many fulfillment centers utilize a fee per activity invoicing method, which means there will be many line items on your invoice and can oftentimes be cumbersome to manage. Finally, some businesses require very specific needs for their products, whether its strict climate controls, sophisticated packaging and kitting requirements, or other nuances. In these cases, it can be more challenging to find a company that can customize their service to your every need.

At some point in your shipping process, the cost of using a fulfillment center will be more than doing it in-house. You have to decide whether or not these costs are worth the need to dedicate your existing personnel to growing your business or if it is time to hire your own people for inventory and shipping to save money. The decision between in-house fulfillment and outsourcing fulfillment is a difficult one, and very important.

How to Choose a Fulfillment Center

Choosing the best fulfillment center for your company requires a great deal of planning and thought process. Each fulfillment center specializes in different services, such as the type of business to which they cater and the locations of the fulfillment centers. If you have clients across the country, you want to select a 3PL that has several fulfillment centers that are located close to your client base. If you have international sales, be sure the center has the capability to ship globally.

And make sure the fulfillment centers have the ability to store and ship your commodities. As an example, some fulfillment centers will not be able to store hazardous materials or ship large break bulk items. Be sure to choose the right fulfillment center for you based on your needs and do not forget to ponder the cost of the services. It may not be in the best interest of all small businesses and startups to use such services until they can afford to do so or until they have a higher weekly order count. However, the majority of businesses will absolutely benefit from the right fulfillment center that caters to their unique needs.