What are the advantages and disadvantages of using a fulfillment house?
As a manager or business owner you will have to decide to use a fulfillment house or some other method to handle your logistics.A fulfillment house has several advantages and disadvantages, but you will have to determine if these match your business better than other logistics methods.
You have three basic methods to handle your company's logistics of getting the product to the customer.The traditional method has been to manage your own inventory.A new method that has developed along with the internet is the drop-ship method.This method is to have a business sell the product and the product is shipped directly from the manufacturer to the customer.Sometimes this can be done completely invisible to the customer so that they think they bought it and it was shipped all from the same company.
The fulfillment house is a combination of both of these methods.It combines the advantages of both of these methods and eliminates the disadvantages to a large degree.However, the fulfillment house has a few disadvantages that will be discussed later.
Fulfillment house advantages
The fulfillment house will also handle all of the disadvantages of holding inventory.This is very important to you because you don't have to tie up a lot of capital in holding costs.Additionally, you don't have to worry about insuring the inventory or loss due to theft or any of a number ways that you could lose your products.
The fulfillment house will also be able to ship product to customers all over the country or even world.Because they do this in volume you are able to get some discounts that you wouldn't be able to get as a single business owner.
The fulfillment house can also provide you with customer service support.This support can be for the ordering and the shipping part of the business.Once again, the volume of the fulfillment house gives them the ability to provide these services.All of this will be transparent to the customer who thinks they are actually calling your business when they are checking on the status of the product that they ordered.
The other large advantage to you is time.You do not have to worry about the logistics so you can focus on selling product which is where you make your money.You know that all of the logistic work is being handled by the fulfillment house and the customer service right down to the labels and invoices appear like they are coming from your business.You are then enabled to focus your time and efforts where you need to in growing your business.
The largest disadvantage is cost.The fulfillment house provides a lot of services to you and this costs them and so they have to charge you.This means that you must account for these costs as you put your business together.If the profit margin is not very large on the products you are working with, the fulfillment house model may not be the right way to handle your services.
In summary, you have several different methods to handle the logistics of your business.The fulfillment house model should only be used when it is the best fit for your business.Usually this is when you have a high enough margin to pay the fulfillment house and you make more money selling the product instead of managing the logistics.