For small business owners, the prospect of outsourcing their logistics needs to a third party logistics provider seem an opportunity both rich with promise and fraught with peril. The opportunity to consign a great portion of the business’ logistics responsibilities to another, more expert organization promises the freedom to concentrate on other areas of business growth. On the other hand, many small business, ecommerce and home-based business owners rightly feel anxiety about giving over control their business’ “back end” to others.
But such anxieties are unnecessary when given a clear picture of the relationship between a third party logistics provider – also called a fulfillment service company or fulfillment service provider – and an ecommerce, home-based business, or small business client company. Such arrangements are defined and agreed upon in advance, in legally binding terms, for the sake of both parties.
Fulfillment Companies Handle the “Hard” Parts of Order Fulfillment
Once having assumed controlled of a client company’s logistics, the fulfillment company becomes responsible for the warehousing, processing, cold storage (if necessary), packing and shipping of the client company’s products. These duties – sometimes called somewhat humorously the “hard parts” of order fulfillment – are completely relieved from the client company’s hands: client companies no long even need receive inventory from wholesalers or manufacturers at their offices. The fulfillment company receives the inventory directly.
Many fulfillment companies also participate in drop-shipping, which means the fulfillment company acts as a “silent partner” in the shipping. Packages are sent to the customers bearing the client company’s logo and contact information, making the arrival seem “official” and unassisted.
In such cases where a return is necessary, either the fulfillment company or the client company may receive the damaged or defective merchandise, according to their partnership arrangement.
Fulfillment Companies Profit Only From Their Clients’ Sales
In many fulfillment provider arrangements, third-party logistics providers deduct a percentage of each product shipped and sold. This presents the client company with a unique asset, as the fulfillment company obtains a vested interest in helping the client company move the maximum number of products without damage or return. In other words, the fulfillment company’s own growth is tied directly to the growth of its client companies.
Mail Order and Promotional Fulfillment
Many fulfillment companies can also provide promotional services such as the mailing of newsletters and catalogues provided by the client company. The details of such an arrangement vary, but are typically based on the existing fulfillment company – client company relationship.