Fulfillment - Five Traps to Avoid

By Tom Quinn,
Director of Fulfillment Services, Mailing and Fulfillment Service Assocation

I have had the privilege of visiting many different companies over the past several years, both as an MFSA representative and as a consultant.    While I am happy to report that many of our members are enjoying the profits and long term business relationships characteristic of the fulfillment industry, others are not.  In fact, some are unprofitable and causing a financial drain on the parent company.  Below I have listed the five (5) major problems that I have encountered with companies new to the fulfillment industry.  You may find it beneficial to investigate these five (5) areas of your fulfillment operation to improve your business.   Do not get caught in these business and operational traps.

1. Fulfillment Software Not Implemented Correctly – Most of the companies that I have visited, have purchased one of the 3PF packages available for the industry.  These are very comprehensive software packages the have the ability to complete many different fulfillment applications from literature fulfillment to on-line stores requiring credit card processing.  The key element of each of these packages is that they provide the client with ability to order directly from their desktop through a web portal.  The problem that I find most often is that the software is not fully implemented, which means that functions that should be fully automated are completed by hand.  The integration with the shipping carriers (UPS, FedEx & DHL) workstation is a good example.  The systems are designed to automatically communicate through the local area network to the shipping workstation which means that when a package arrives at the station for shipment that the operator only need scan the pick slip bar code, place it on the scale, and apply the shipping label.  The shipping information is automatically appended to the order and the 3PF software and downloaded at days end.  The alternative is to add the shipping information at the workstation and to manually enter the shipping information into the 3PF software – both steps take additional manpower.  

The most flagrant failure to implement the software correctly comes during   customer implementation.  In many cases, the most powerful tool in the software – web access to order, inquire and retrieve reports, is not being utilized.  The primary reason for this failure to implement is that the client dictates the implementation, because"that's the way they have always done it".   The company management, sales and fulfillment manager should educate the client on the new and improved utilities of the software.  In many cases I find 21st century software implemented in a 1980's method. 
The solution is: learn the software and let a fulfillment specialist teach the client how to utilize the software to improve their business model.

1. Too Much Direct Labor - Most fulfillment centers started in support of a printing or mailing operation can be operated with 2 or 3 direct employees and temporary labor.  The first three employees serve as the base for future growth and would be required to be fully cross trained in warehousing, fulfillment and customer service operations.  The most common problem observed in my visits is too much direct labor in the customer service, warehousing, and information technology areas.  The first three hires should be the Fulfillment Manger, the Warehouse Manger, and a warehouseman/fulfillment specialist.  The Fulfillment Manager must be able to thoroughly understand and implement the software; be capable of assisting in the sales cycle by answering technical questions and defining implementation requirements; serve as the initial customer service person, and pack and ship orders when necessary.  The Warehouse Manager will complete receiving and put-away functions; manage the warehouse; implement the warehouse management portion of the software; and pack orders when necessary.  The Warehouse/Fulfillment specialist will be primarily required to pull pack and ship orders.   There is a definite requirement for an IT person in the personnel skills mix, but you should not hire a person full time.  Find an IT contractor and only have the contractor complete work that can be invoiced to the clients.   Temporary labor can be utilized for heavy shipping days and handwork and kitting projects.  Do not keep temporary employees around when there is no work for them.

The solution is: keep a close count on direct labor headcount and do not exceed the guidelines that a fulfillment specialist should complete 8-10 orders per hour and that until you exceed 64-80 orders in a day, do not add any permanent personnel.

1. Sales Not Engaged in Business – It seems that no matter what company I visit or how many sales people the company employees, I usually find two or three sales people engaged in providing business to the fulfillment center.   I have visited with sales teams with as few as 5 and as high as 28 members and come up with the same very poor percentage of print sales personnel selling fulfillment.  These same trends hold true for selling digital print and color variable print.  The inability of the sales personnel to grasp the importance of the diversification requirements of the business is seen as one of the true impediments for industry growth in the future.  As a 3PF provider, I was always looking over my shoulder, wondering when the printing and mailing companies would finally see the benefit of providing a turn key service to the marketing organizations.  The business downturn after 9/11 forced may companies to evaluate their business model.  Those that have been quick to adopt the diversification model are now reaping the benefits of their decisions.   So the question is –"Why are sales personnel not embracing diversification strategies?"  My best guess is they are happy and complacent with their current income and client set and why risk losing existing business, if we mess up the fulfillment projects or programs.  My observation is the younger, non-established sales representatives are more quickly grasping the concept.

The solution is: sales management and ownership must fully embrace the change and demand participation from most, if not all, of the sales personnel on the sales teams.  This means they must learn the business, as well.

1. No Focus on Handwork, Kitting & Assembly – Very few fulfillment centers have enough order activity to sustain their fulfillment operation simply on fulfilling orders.  Therefore, the completion of hand work projects is key and crucial to the financial success of the fulfillment center.  In fact, the highest profit margin opportunities should come from completing handwork projects for fulfillment program clients. The requirements to be successful and profitable when completing handwork projects are simple – space, a good estimate, a great work ethic and someone responsible.  The most common error I have encountered in my visits is completing handwork projects in the bindery, which usually does not have enough room to accommodate the layout of an appropriate assembly line.  The fulfillment center usually has ample space to complete handwork projects, the ability to receive and store material until the project is active, and the ability to not only ship, but to track the shipments involved in the distribution.   Another common error is made by not involving the fulfillment operation in the estimating process.  It is important to get the input of the people completing the project to complete the estimate, as they will add critical information concerning the process that sales, estimating or customer service will not know.

The solution is: dedicate someone to mange this important revenue potential.  Utilize an estimating program that includes the total cost – direct labor, warehouse, receiving, customer service and IT.  Investigate nearby colleges and universities with Industrial Engineering departments and utilize students to plan and execute effective handwork lines.

1. Ownership & Management Not Engaged – One of the great attributes of fulfillment is that the barriers to entry are low.  For $200,000 you can establish an operational 20,000 sq. ft. fulfillment center with great software.  This is a low capital investment compared to starting new other new businesses.   However, sometimes I do not think the owners and key managers understand the difficulty of operating a service business within a printing or mailing company.  The overwhelming desire is to operate the business like the existing company, which has the result of increasing the direct labor requirements of the fulfillment center and slowing some processes, particularly invoicing.  I visited one fulfillment center that had 96 jobs open for the 96 different clients that had material stored in the fulfillment center.  Most of these clients had very little if any fulfillment activity.  How many man hours do you think it would take at month end to close out 96 jobs?  Some of these jobs would bill $40 or less, which is probably less than the cost of creating the invoice.   This is a different business – one which derives it's billing parameters from people and systems and not machines, and it is important that ownership and management understand these nuances.

The solution is: get involved, and understand the nuances of the fulfillment business by attending seminars at trade shows, attending webinars, talk to your peers in other parts of the country, and use the resources provided by your associations.