Starting A Fulfillment Operation in 10 Easy(?) Steps

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

If you are thinking of diversifying your business by entering the Third Party Fulfillment (3PF) business, the following 10 step process may prove helpful to you.  The following steps are presented in what is considered the optimal order, however, the incorporation of fulfillment is very seldom orderly and optimal, so using the data as a guideline or checklist is suggested.  The 10 step process can also be used as an outline for your business plan.

Step 1 – Type of Fulfillment

It is my recommendation that mailers and printers should focus their fulfillment activities on specific applications.  There are many types of fulfillment, but the last two fulfillment surveys completed in conjunction with the Annual MFSA/NAPL Fulfillment Conference have substantiated that fulfillment projects (handwork) and literature fulfillment are the top applications completed by 3PF companies.  These applications are a natural extension of print and mailing applications and represent the basic fulfillment applications.  It is important to understand that a literature fulfillment program, which requires a company to store and ship material for an infinite time period will also bring other applications.  These additional applications include: database management, returns processing, tradeshow & special events support, premiums management, print on demand applications, lead inquiry fulfillment and others.  These applications are all a natural extension of"capturing the sales collateral material" for a company.  There is a tendency for companies new in the fulfillment business to find fringe applications, which require either special software or additional capabilities. 

Step 2 – Selecting the Right Software

It is extremely important that prospective 3PF companies select the correct software for their applications and company strategy.  The fulfillment industry is fortunate to have six (6) very competent and experienced vendors providing fulfillment software.  Each of these vendors meets the criteria of understanding the back-end of the business, and providing the correct tools to achieve world class inventory accuracy.  Following please find the names of the five fulfillment software vendors that are also Mailing & Fulfillment Service Association (MFSA) members.  More information can be found on each vendor by browsing the MFSA web site at www.mfsanet.org.
           

Each of these software packages has specific strengths, and I suggest you have each vendor demonstrate how they approach the literature fulfillment and handwork applications.

Step 3 – Fulfillment Facility

If at all possible the fulfillment facility should be located separately from the print or mailing facility.  The primary reason is that your current facilities have 8 foot ceilings and very few dock doors.  A fulfillment facility should have at least 20 foot clear ceiling heights to allow installation of racking which will hold up to 4 pallets high.  Think high and don't be afraid to think about large foot prints for the building in the beginning.  Once you get started in the fulfillment business, you will find it is quite easy to get up to 1000 pallets in a hurry.    Several key design parameters include: the number of dock doors (4), the material flow, the lighting in the aisles, the space for handwork, and the accessibility of telephones, computers, and electrical outlets.  These factors are all important to the successful operation of the fulfillment center.  Remember to"think high" when researching fulfillment facilities.

Step 4 – Equipment

The equipment requirements for the fulfillment facility are as follows: pallet racking & shelving, forklift, electric pallet jack, pallet jacks, hand trucks, picking carts, counting scales, floor scale, pallet wrapper, computer workstations, shipping workstation, receiving workstation, hand pallet strapper, work tables, and several sections of adjustable and expandable conveyors.  Based on your individual fulfillment facility, you may also need a dock plate for receiving.  Your individual applications, such as large point of purchase materials, may require specific equipment.   Most of this equipment can be purchased second hand, with out fear of premature failure.  It is important to start simple and to master the basics of warehousing and inventory control with the basic tools of the trade before proceeding into something more sophisticated, such as pick to light or RF.  A start-up approach that keeps things simple and efficient has always worked best in the past.

Step 5 – Supplies

The supplies requirements for the fulfillment facility are as follows: packaging materials & tape, boxes, pallets, cleaning supplies, strapping materials and specialized shipping containers for special applications.   These are materials that are available in the shipping department of the bindery.  The only difference will be the large variety of packaging materials that may be required, such as padded envelopes, tyvex envelopes, and special corrugated boxes for kits.

Step 6 – Networks & Phones

It is expected that the current company network will be installed in the fulfillment facility.  The amount and type of computer hardware required will be dependent on the software vendor selected.  Several software vendors require fully hosted applications in your facility, which require the procurement of servers and the installation and maintenance of software in your facility. Other software providers are Applications Service Providers (ASP's), which are accessible through a web browser and store the operational program and software in a central location.  In either case, make sure you follow the manufacturers suggested configurations for optimal operation.  Sharing servers and telephone lines will slow the operation of your program down and adversely effect customer operations.  This is a high-tech business and you need to respond in a high-tech fashion.  Do not try to cut corners in providing the right access to web sites and operational equipment.

Step 7 – Personnel

Most fulfillment centers can be started with two or three people.  These would include a fulfillment manager, warehouse manager, and a warehouse/fulfillment specialist.  The fulfillment manger should be a fulfillment industry expert and have a very thorough operational understanding of the fulfillment software package being utilized.  This fulfillment manager should also have the ability to make sales calls and to guide clients through the fulfillment set-up process and serve as the initial customer service person.  The warehouse manager should be hired initially, because they will be responsible for installing the most important part of the fulfillment system – the warehouse management system, and will be responsible for writing all back-end procedures and training new personnel as the center grows.  The warehouse/fulfillment specialist need not be a full time employee, but can be a bindery person who can be trained and utilized as necessary.  Fulfillment projects can be completed by temporaries with the warehouse manager or specialist providing needed supervision.  Please note that there are no direct IT personnel assigned to the center.  If you have in-house IT staff, they should only be utilized as necessary and not assigned directly to the operation.  All IT time spent with the fulfillment center should be billable to the customer.  The operation is just not profitable enough sustain a full time IT employee.  The most common mistake made by start-up operations that effects bottom line performance is over staffing. 

Step 8 – Sales & Marketing

Most print companies are dragged into the fulfillment business by their customers.  In fact 88% of the companies responding to the last survey stated that as the primary reason.   Actually, getting into the business is not as hard as growing it and making it profitable.  So, it is imperative that company ownership and management make a concerted effort to market and sell the fulfillment capability to additional customers and to use the fulfillment capability to add new customers.   The first step is to decide how to sell the service.  The most successful method has been to utilize the existing sales personnel to open the doors and have either management or the fulfillment manager assist or drive the sale from that point forward.  More sophisticated and larger operations may need a specialist in the business to provide establishment selling skills to the organization.  The ownership must also provide a basic marketing campaign to communicate the new service (fulfillment) and new company message forward to the existing and potential client bases. 

Step 9 – Pricing

Establish a pricing matrix for the fulfillment operation that includes all services completed.  Some of these parameters, such as storage and customer service have never been charged in the past and justification with the customer and sales personnel will have to be developed and presented.  Following are a few of the basic pricing parameters that should be specified:

1. Storage - $/pallet/month
2. New Product Set-up - $/set/up
3. Warehousing – $/hour
4. Receiving - $/receipt
5. Cycle counts - $/hour
6. Order Receipt - $/order
7. Fulfillment Cost - $/order
8. Shipping Materials – Cost + %
9. Reports - $/report
10.  System Usage Charge - $/month
11. Customer Service - $/hour
12. Initial Set-up Charge – Total $

For more information on how to establish the values of these parameters watch the MFSA web site for the How to Price Fulfillment webinar.                 

Step 10 – Commitment

The most common problem I have observed is the lack of ownership and management commitment to learning and growing the business.  The decision to add fulfillment to your current operation is not to be taken lightly.  This is a service business as compared to your current production business – printing or mailing.  Pricing is based on services, employees and systems and not machines and furthermore is a partnership arrangement with your customer.  When you start a literature fulfillment application for a customer, you become a department of their operation and enter into a whole new business relationship.   Do not treat this business lightly, because it is much harder than it appears on the surface.  Failure to invest ownership and management time could result in losing the fulfillment business and the current mailing and printing business, as well.   I wish you good selling.