The Real Cost of a Poor-Performing Fulfillment Provider

A strong-performing fulfillment provider can be a valuable business partner, helping to increase efficiency, control costs and improve customer service. A subpar provider, on the other hand, can seriously impact your operations in the opposite direction, taking a real toll on your business and your bottom line.

Near-Term Cost Impact

It doesn’t take long for poor fulfillment performance to put a dent in your budget.

Inventory control is one major problem area. If a fulfillment provider doesn’t provide quality inventory control and reporting, they can’t receive or pick properly, and you won’t have the visibility necessary to identify out-of-stocks, lost products or other issues. Inventory costs rise and customer service suffers as a result.

To salvage customer satisfaction, you may need to expedite shipments, thereby incurring increased freight costs as well.

Another short-term impact of poor provider performance is lost time – and time is money, after all. Your time is spent managing exceptions instead of managing your business. You have to figure out how to get products to the DC or to the customer because your fulfillment provider failed to deliver.

Challenges like these become particularly costly during peak sales periods such as the holidays or major promotions. A bad provider doesn’t get better when volume spikes. If they’re struggling in August, their performance will really suffer on Cyber Monday.

Poor service, of course, leads to lost sales, lost customers and ultimately the loss of your good reputation.

Long-Term Cost Impact

If poor performance goes unchecked, you’ll begin to experience higher operational costs.

When customers lose confidence in your products/company, it can be costly to win them back. The bar is much higher the second time around.

To ensure that you can meet customer expectations, you’ll need to bolster your safety stock – adding as much as 50% for backup because your fulfillment provider’s inventory reporting is unreliable. Naturally, that requires increased storage space. Inventory costs add up.

You may also need to increase internal staffing, perhaps hiring an inventory planner to compensate for your provider’s poor management abilities. In addition, your own staff may become frustrated and more likely to quit because of the negative environment.

With the need to focus on short-term, tactical issues, strategic planning can be difficult. You’re looking one or two weeks out instead of long range, focusing on near-term challenges instead of the bigger picture. That’s when your business really starts to suffer.

When you lose trust in your fulfillment provider, you’ll find that you can’t place orders, make nimble decisions or make commitments with confidence. Ultimately, the uncertainty prevents business growth.

At this point, you may find yourself incurring yet another cost – that of transitioning to another provider.

Early Warning Signs

In today’s direct-to-consumer, omnichannel environment, you’re likely to learn about performance issues quite quickly.

Your customers expect to get exactly what they want, when they want it. With the prevalence of social media today, you’ll get immediate feedback if they don’t. When your customers are dissatisfied, they will let you know – along with everybody else.

Prevention is the Best Medicine

To safeguard your business from poor performance issues, it pays to do your due diligence up front. Take time to research your options and ask plenty of questions before partnering with a third-party provider.

As a rule of thumb, look for an experienced fulfillment partner with the following characteristics:

  • Good communication
  • Extensive resources (space, staffing, equipment and technology)
  • Flexibility/scalability to handle business fluctuations and growth
  • Commitment to quality management/continuous improvement
  • Ability to work with partners throughout the supply chain
  • Overall ease of doing business

Investing the time to find a reliable partner will pay off in the long run. Isn’t your business worth it?

Tom Patterson is Senior Vice President of Warehouse Operations for Saddle Creek Logistics Services

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