Fulfillment services are not new to the eCommerce industry. Gone are the days of shipping packages out of your home after selling them on eBay. Amazon has led the way by creating a seamless fulfillment service for selling products on its site. But what about the other eCommerce players selling from their own websites?
There are many fulfillment companies out there but don't treat them like a line item on a budget. Especially in the early stages of your company while developing a go-to-market strategy, you need to make the correct choice on a provider. Choosing the wrong fulfillment provider can cost you dearly in the long run.
"Customers expect their orders to arrive exactly as anticipated, usually in two days or less, and with no damage or errors," said Eric McCollom. "When this doesn't happen, an eCommerce business could very well forfeit its opportunity to ever interact with that customer again." McCollom is the President of Red Stag Fulfillment, an eCommerce fulfillment service founded out of a need to help a sister company.
That company is a successful eCommerce store that had previously used three different fulfillment centers. "Over the first four years, the company outgrew three different providers," said Jake Rheude, Director of Business Development and Marketing for Red Stag Fulfillment. In a telephone interview, he explained how the company got started and why choosing the cheapest fulfillment provider is not always the best. Examples he gives are the total cost incurred when a customer receives the incorrect products, or when their shipment is late; and, spending Christmas in a warehouse trying to fill orders that should have been done on time by someone else.
Based on poor service, all three contracts were eventually cancelled, costing the company an immense amount of money in switching costs and a loss of value to customers. "When a customer's order is incorrect, late, or damaged, they don't care that it's a third party's fault, they want the eCommerce store to fix the issue immediately," said Rheude. The first one was cancelled due to scalability problems while the last one Rheude attributes to the company no longer being able to pass along value to customers. But, it was at Christmas that actually led to the beginning of Red Stag.
According to Rheude, their last fulfillment provider fell six weeks behind in shipments around Christmas time. "This meant the owners of the eCommerce business spent Christmas Day down in the warehouse picking and packing, trying to get the orders out as soon as possible," Rheude said of the eCommerce company. "While doing so, they thought of ways to help create a better service."
Rheude stated the company tried to find another provider but there were none that could meet the demands, all of which are now a standard part of Red Stag's business model. This includes a guaranteed 48 hour stocking window from when items arrive at the warehouse, picking accuracy, inventory accuracy, and on-time shipments.
"There was not a desire to start a fulfillment company," adds Rheude. However, it developed into a business model rather quickly. The company started in early 2013, focusing purely on the eCommerce sister company. After the first half of the year, they developed a model that they felt would provide value to other eCommerce players. "Once we realized we could provide a value, we started to bring on new clients."
A cheap provider may look like it adds value to your bottom line but you need to take into consideration the money you lose when orders are shipped incorrectly, not shipped on time, or missed opportunities from inaccurate inventory. "That's why it's so important for an e-retailer to operate with perfect accuracy and on-time operations," adds McCollom.
Rheude hopes that Red Stag Fulfillment can be the provider who gives that level of value to eCommerce customers. "We really believe that the service level expectations of customers, particular in the U.S., are only going to increase." He adds that Red Stag is currently focused on delivering these expectations while providing scalability for its clients.
When it comes to fulfillment services, there are many players out there. Whoever you choose, taking value into consideration over price can help make the difference between lost sales and increased revenue. As Rheude added, at the end of the interview, "If you want your eCommerce business to survive, your fulfillment is arguably the lifeblood to your business. It is where the value gets delivered to your customer."