Handling Returns at an Order Fulfillment Center

A frequent question we receive when talking to prospective order fulfillment online retail clients is in regards to the returns process. How does it work – Can you handle returns – Can you inspect the product – How do you report the returns – Etc?

In most cases, the answer is that a typical fulfillment service can handle returns however you, as a customer need them to. For our clients, the returns process most often will include the following steps:

– the returned product is delivered back to our fulfillment warehouse

– it is checked in and referenced by its original sales order

– the order and product information is recorded and emailed back to the online retailer

– based on the customer’s direction, the product is inspected and returned to inventory to be sent out again

– or, for some clients all returns are set aside and the client periodically comes on site to inspect the items

– or, some clients have all items (most often food fulfillment products) disposed of, or returned to the manufacturer

The returns process of course starts with the communication to the customer on how to go about returning the products they need to. This is often done with step by step instructions that may be listed on the packing list, or the website. A returns label may accompany the orders as well. FedEx and UPS offer simply ways to have a pre-paid shipping label sent with the order to facilitate the return.

When it comes to inspecting the returns, setting up specific guidelines regarding what to look for is key. Many products are commonly returned into inventory but many require a much closer examination. Setting clear expectations and procedures at the outset is very important to make sure the process runs smoothly.

The cost for managing returns is really dictated by the requirements so there is no “list” price for returns in most cases. Once the fulfillment center has a track record of the types of returns and the amount of work that goes in to inspecting the returns they can often put together a “per return” cost. Prior to that, most order fulfillment centers will charge based on their warehouse hourly rate.

Check out Landis Logistics, a pick and pack order fulfillment warehouse located in eastern PA, and serving clients in NY, NJ, and nationally.

How much to charge for shipping from your online store?

One thing online retailers find challenging when operating an online store is deciding how, and how much to charge for shipping. Obviously covering the cost of shipping and handling is a must, but the latest trend for many retailers is to offer reduced or free shipping. It has gotten to the point that many consumers are starting to expect free shipping, even at the expense of paying more for the product (the cost has to go somewhere!). Being smart and efficient in how a company pays for the costs of order fulfillment and shipping is paramount as these costs often make up the largest % of a company’s operating budget.

I recently came across this article that nicely summarize the shipping costs and policies of many of the top retailers out there. It’s a good read if you are looking to create your own shipping rates for the products you sell.

http://www.savings.com/blog/post/Amazon-to-Zappos-Shipping-Rates-and-Free-Shipping-for-over-50-Online-Retailers.html

Shipping Cartons for Online Retailers

Some of the questions we often receive when talking to prospective clients are in regards to the shipping cartons used to package customer orders. As in, does the online retailer supply their own boxes or do we as the 3rd party fulfillment provide the cartons.

The answer is actually that it can work either way. Most order fulfillment centers will stock a variety of sizes to accommodate a range of product sizes. Because these specific sizes are being bought in bulk for several customers by the order fulfillment warehouse, they are typically available to the clients at a lower cost than if the client were to purchase the cartons themselves. If a client requires a “non-standard” size that the order fulfillment center does not stock, they’ll  often buy them on behalf of the client and mark them up slightly to cover administrative/ carrying costs (10-20% is not unusual).

If a  client wants to supply their own cartons, or use free cartons, provided by a carrier (like USPS, FedEx, UPS) then the fulfillment center may charge an assembly fee ($.20 +/- per carton) to cover labor and dunnage costs to build the box and prepare it for shipping.

If you are shipping a food product then packaging become a bit more complicated and insulted cartons will easily run 3 to 4 times the cost of plain corrugate.

How can online retailers offer free shipping?

A question we get a lot from clients is “How can so many online retailers offer free shipping?“, which is then followed up with “What can we do to compete with free shipping offers?”

There are a couple of reasons online retailers are able to offer free or cheap shipping, unfortunately the reality is that there are no free shipping service options with Fed Ex or UPS or the Post Office or anyone else. So whether you are a large shipper, ecommerce startup, or growing online retailer there is no such thing as free shipping.

What large companies do get, that startups and small companies typically do not, are substantial discounts on small package company’s published rates. In addition, if a company is shipping a very large amount of the same size packages there is often the chance to get preferential rates in those circumstances.

Clearly if you are a startup or small online retailer you are at a significant disadvantage because you are without the leverage to negotiate better rates with FedEx or UPS. But in the end, just like your business, the big online retailers are covering the cost of shipping with the margins in their products.

What to do about it as a startup or small online retailer? Obviously it is paramount to figure out ways to minimize shipping expenses because these are costs that are not going away no matter how big you get.

Consider alternatives to FedEx or UPS by looking at the options offered by the USPS. Many companies find that Flat Rate Priority Mail boxes are a good way to reduce costs. FedEx and UPS charge hefty residential, extended delivery area and fuel surcharges that hurt the economics of shipping Business to Consumer (B2C) with them.

More distance equals more cost so your shipping location is directly correlated to your shipping costs. Most of the people in the US are located in the mid-atlantic and northeast part of the country. If you are shipping from San Francisco to customers in New York, the cost could be double or more than the cost to ship to New York from a location in Pennsylvania. Another advantage the big guys have is the ability (as in volume) to ship from multiple points within the US. They can service most of the country with cheaper ZONE 2 or 3 shipments, as opposed to expensive ZONE 8 shipments going coast to coast by having multiple warehouse locations to ship from. Similar story, but it does take volume to make it worthwhile to set up multiple shipping points around the country.

Many 3rd party order fulfillment warehouses will pass on their volume discounts with FedEx and UPS, so look into a partnership to outsource your product shipping. Your operation will potentially benefit from the collective volume of all the customers shipping from that fulfillment center.

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Ken Kowal is the Director of New Business Development for 3rd party fulfillment warehouse Landis Logistics and ecommerce order fulfillment service FillShip.com. Follow Landis on Twitter @landislogistics. If you would like to talk about way we can help save your online retail business on shipping costs get in touch at kkowal@landislogistics.com.

Outsourcing Order Fulfillment

Taking the step to outsource order fulfillment clearly comes with some benefits, but also comes with some risks.

What’s the upside?

With proper execution a company can:

Speed time-to-market: Fulfillment centers are built for efficiency and speed. A strategically located fulfillment center can give a business better access to local markets, improving the time from when an order is placed and the order is delivered to the customer. Leveraging the advantages of the right distribution points is a key factor in how many online retailers are able to offer “free shipping”.

Lower operating costs: Outsourcing order fulfillment can reduce a company’s operating costs by taking what is presently a fixed expense (warehouse space and labor) and making it a variable expense that adjusts with the actual order activity levels. If a business is paying year round for a warehouse space that is large enough to accommodate its busiest time of the year, then there is likely a lot of unused space that is being paid for during the non-peak periods. Working with a 3rd party warehouse can also potentially help improve buying power when it comes to carton and shipping costs (the 2nd key point in how online retailers are able to offer free shipping!).

Of course, in the end the goal of any business is to increase customer satisfaction and retention.

What’s the downside?

Whether the order fulfillment process is managed in-house, or is outsourced, failure to execute can have serious negative effects. Clearly a failure to deliver orders accurately and in a timely way can erode customer confidence and in the end lead to customer and market share loss.

In the online retail business it takes a lot of effort and cost to attract and convert paying customers. The order fulfillment and delivery process will likely have the greatest impact on a customer’s perception of their experience with a company.

Order Fulfillment and Shopping Carts

So you have a successful store and maybe a website, and now you want to sell some products from your ecommerce store. Taking a brick and mortar retail presence and building a scalable ecommerce delivery solution can involve a few different resources to accomplish some success.

Here is a breakdown of the different functions that make up a complete ecommerce order fulfillment solution beyond just hosting your company’s website (and of course assuming you aren’t interested in creating all of this on your own).

From a process standpoint the website continues to act as the electronic billboard and hopefully it is capturing potential buyers and telling the world about what your company has to offer.

In a complete solution, your website will connect to an Ecommerce Software package. This logistics software will house product information, the shopping cart functionality, provide reporting, etc. It will then connect to a merchant account provider and your order fulfillment operation.

All your products available for purchase will be uploaded and maintained as part of the ecommerce software by you or your company’s designate, although appear to be on the your main site from the customer’s perspective.

At this point the process for communicating orders from the ecommerce software provider to your ecommerce order fulfillment provider would be established. This will be set up to be transparent to you and is straightforward to accomplish. Depending on the provider there may be some minor programming costs to automate the process.

Customers will look for and choose products, place them in a shopping cart similar to any other website. The work flows are standard and you should assume the integration for this part of the process will work seamlessly for the customer and be transparent to you.

Handling the payment transaction will possibly bring another party (the Merchant Account Provider) in to the process. To handle payment at the point of check out, you will either need to designate a separate Merchant Account Provider that will connect to the ecommerce software to handle the payment, or many software providers will provide the service.

Most systems also provide CRM (Customer Relationship Management) Tools that will provide you with information on its site users, which may be of value from a marketing perspective.

Social Media for Logistics

Do your own order fulfillment?

One of the largest expenses for any business that sells products online is the cost for order fulfillment. In total, the order fulfillment process includes the storage, packing, and shipment of customer orders that come through an online store. These costs are beyond the expense of sourcing and purchasing the products being sold (regardless of what the business might be selling) plus all the marketing and other various cost of sales type expenses. Taken all together, this long list of different cost items have to be managed effectively for a business to maintain an acceptable profit margin. It goes without saying, a positive profit margin is vital to the viability and success of an ecommerce retailer. Fortunately, making the right decisions regarding the storing, packaging, and shipping costs are likely the easiest on the list to impact for the better.
Below is a list of the three primary cost considerations for ecommerce retailers when it comes to packing and shipping customer orders.
• Packing Supplies. These costs include the dunnage (or packing material) to fill in and around to protect the product, as well as the cost for the cardboard carton the goods are placed into. Basic shipping supplies and cartons from UPS, FedEx, and USPS are free, as is the logistics software they will provide – so that is one thing to take advantage of when you can. Of course shipping a lot of empty space in a bad fitting carton is a poor choice for a number of reasons. Your business may also prefer to brand packaging with a company logo and not a big UPS label! The additional cost of customized packaging has to be considered.

• Direct Shipment Costs. The choice of who ships the order (whether it is USPS, UPS, Fed Ex) and at what service level (Ground, Next Day Air, etc.) impact costs often more than any other single item. Shipping Ground Service instead of Next Day Air can often save over 2/3 off the shipping cost. Of course it can also add 4 or more days on to the delivery time. Volume means a lot when it comes to shipping with FedEx and UPS, so make sure your contract stipulates that discounts on shipping will kick in once you hit certain volume thresholds. There is a “hybrid” option in which a shipping company (such as FedEx or DHL Globalmail, or various others) acts as a mail integration partner. These companies will pick the packages up on their own trucks but then move the parcels to the USPS who make the final delivery to the consumer. This set up works only in a business to consumer model and generally requires a minimum daily amount of parcels (typically 250 per day). Using Social Media for logistics and supply chain companies.

• TIME. Is packing up customer orders in cartons, maintaining space for storage, and printing shipping labels the best use of your time? As a small business owner you should be asking yourself constantly throughout the day – Is what I am doing right now helping to make my business more successful? Managing your social media presence, marketing, or selling are all important priorities. Chances are you could make better use of your time than doing your own order fulfillment.

Breakdown of Ecommerce Order Fulfillment

What are the different service and cost components of packing and shipping with a 3rd party fulfillment operation?

If you are an online retailer thinking about partnering with a 3rd party order fulfillment warehouse to handle your pack and ship operation you should understand the different categories of service a typical fulfillment house will provide.

This includes the process of receiving your goods into their warehouse. It begins with a thorough inspection of the product as it arrives to ensure there is no damage and the exact products and quantities match what is expected based on your direction and the Bill of Lading. On an ongoing basis it is important for the provider to maintain and report accurate inventory numbers. Storage requirements depend on the product but can include the facility maintaining a temperature controlled environment, custom racking, or on-shelf storage. Receiving and Storage rates are generally billed as either a per pallet cost, or a per package cost depending on the product.

An integral part of the fulfillment process is how orders get transmitted from you to the facility. This can happen as part of the integration set up with your ecommerce logistics software, EDI, or sometimes even a fax. As the orders are received, they are placed in a box or picked. The Order assembly costs are typically based on a flat per order cost that includes the cost of packaging the first item, and then an additional charge for additional items on that same order.

This would include the cost of the carton the order is shipped in, any material used to protect the product in the box, as well as the person’s time to construct the carton. These costs may or may not be included in the Order Charges detailed above. Remember, most of the costs for an order fulfillment operation are people’s time so each “action” takes time which is money.

The packaging expenses that go into preparing an order to be shipped (printing and affixing the shipping label, taping the boxes, etc.) are covered by the per Order Charge. But obviously one significant additional cost is for sending the package with FedEx, UPS, and USPS. If you have one, it is often preferable to use your company’s own account number and most fulfillment providers should allow you to do that. The order fulfillment company may offer a better contract with one of these small parcel shippers and be able to provide you will some additional discounts.
Here is a usefule article on Social Media for Logistics.

3 Ideas for Creating a Social Media Identity for Logistics Companies

Here are 3 ideas to begin building a presence in Social Media for your logistics company.

Start a Blog – A very effective way to establish credibility for your company and yourself is through a blog. It will also help your search engine optimization (SEO) efforts and social media marketing (SEM) – both of which help draw traffic to your website. A blog builds credibility by giving you the opportunity to post regular updates and content that will be of interest to your existing and potential customers. Are you an expert on logistics management software? You can blog about that. Are you an expert on online ecommerce order fulfillment, blog about that, etc. These updates should be educational and not overly promotional. Giving the opportunity for readers to comment will engage them in discussion and help you develop a deeper level of trusted advisor relationship. Becoming the expert on a topic, and then when a need comes up you will be who the customer thinks to go to first.

Post Customer Reviews and Testimonials – As part of your blog, website, Twitter, or anywhere else – make sure to promote and encourage customer feedback and reviews. Positive comments hold a lot more weight when a reader feels they are coming from an independent voice. It adds credibility to the message. But what about negative comments you ask? Use those as a chance to engage the person with thoughtful follow up and help to resolve the issue. Done right, this will turn the unhappy customer into a fan and win over potential clients who were watching the dialogue. Being willing to engage and talk to customers about the good and the bad is great for trust building in the market place.

Be Accessible – A social media presence is also about be available and responsive to the marketplace. Make sure your offer the chance for readers of your content to have the chance to comment, as well as contact you directly with questions. Needless to say providing emails and phone numbers is a given in addition to offering a contact us page.

Building a presence in social media is largely about building credibility for your logistics business. It is accomplished through educate, engagement, and in the end, consistency.

Logistics Spend Management

Transportation spend management is the process of evaluating the shipping costs a company is incurring to ship goods. This can include the cost of shipping orders to customers or moving raw materials from suppliers or even the transfer of work in progress materials between facilities. Understanding these costs is an important part of an overall supply chain management program and the first step in identifying opportunities to reduce costs and make the logistics process more efficient.

The largest component of cost is usually shipping customer orders. These are the outbound shipments of finished goods going directly to customers. How these orders are shipped is often dictated by when the customer needs the product. It is important to understand how the customer’s delivery demands are affecting the cost to make the delivery. “Expediting” a shipment will often double or triple the cost, so managing those types of situations is important.

The opportunities for reducing freight expense typically revolve around a few key areas.

Carrier Rates: Are the rates you have in place competitive? You need to be certain the carrier rates you have in place are at or below the market rates. This can be verified through periodic Request for Proposal exercises. Also, it is important to make sure the right carrier is being selected every time with your logistics software.

Route Optimization and Load Planning: Are orders being routing as efficiently as possible? Making sure the correct mode of shipping is selected, and orders are combined into the most cost effective load plan are very important. An example of this would be to find opportunities to combine multiple LTL (less than truckload) shipments on to one multiple stop truckload shipment.

Logistics Software: Eliminating manual processes from the logistics workflows is away to add
efficiency. Often improvements are helped by employing supply chain software technology.

Social Media for Supply Chain Management.