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Top 5 factors to consider when considering multiple fulfillment centers

by Mike DeFabis on 2013-12-20 10:23:00

Amazon has laid out the modal of “the closer you are to your customers, the faster the delivery times, the lower the shipping costs and the happier the customers”.  But you are not Amazon and implementing a second or even a third ecommerce fulfillment provider to distribute your products can get a little complicated.  Not everyone has the resources or expertise to follow Amazon’s lead. While the idea of multiple fulfillment centers to distribute your product sounds great, it is complicated. This blog is designed to give you some factors to think about when deciding if multiple distribution points are right for your ecommerce business.

Split Inventory                     usa shipping map

One of the most overlooked factors in deciding to implement additional fulfillment centers is the management and cost of split inventory.  This can be rather difficult to manage if you have higher SKU counts and slower moving SKU’s.  Implementing multiple facilities means you are going to have to increase your overall inventory and adds complexity as you are forced to manage inventories from multiple locations.  What happens if a customer orders multiple SKU’s but the facility that is closest to them does not have one of the SKU’s they ordered?  Do you ship from two different facilities to fulfill the order?  Do you ship from the facility that has the entire inventory?  What happens if neither facility has the ability to fulfill the entire order?  This situation will inevitably come up when shipping from multiple facilities.  Make sure that you have the capability and a plan to manage your split inventories or you will find out very quickly how difficult and costly managing multiple inventories can be.

Customer Distribution

Identifying where your customers are located is a key metric when selecting if and where you should place additional fulfillment centers.  If your fulfillment center is located on the east coast and 70% of your customers are on the west coast then it might be worth moving your distribution center location to the west coast.  Once you step back and take a broad approach to the location of your customer base you learn a lot about if and where you should put your additional facilities.

Order Volumes

This might be fairly obvious, but makes sure your order volume justifies using multiple fulfillment centers.  The more volume you can provide to the additional facilities the more efficient the facility is going be.  Keeping your cost per order down depends on providing enough volume to the additional fulfillment centers. 

Shipping Costs

By adding multiple fulfillment centers closer to your customer base may drastically reduce your shipping costs, but it can be rather difficult to calculate exactly how much savings can be achieved.  Gather your shipping data over the last twelve months and look at which orders would be shipped from the additional facility.  If you are outsourcing the additional facility to a 3PL, have them look at this data and give you an estimation of what the cost would be if the orders you intend to ship from them are processed from their facility.  If you are planning on keeping the fulfillment in house, get with your FedEx or UPS representative to see if they can give you a cost comparison.  This will provide you real numbers to use for analysis.

Transit Times

By locating the fulfillment center closer to you customer base you are will obviously reduce transit times.  Again, by looking at your customer distribution you can analyze where the best location for your fulfillment center should be.  Cutting down on transit time means faster inventory turns, greater customer satisfaction and hopefully more repeat business. 

These 5 factors are not the only factors that go into determining if and where you should open an additional fulfillment center, but they are designed to help you focus on the data necessary to make that determination.  The most important point is to take a step back and look at the big picture. Understand your customer distribution, your order volumes and shipping costs and you will have the data that will lead to the best decision.  Also, talk to your customers.  If your customers are dissatisfied with shipping costs, transit times and you are losing sales because of this, than it is imperative that you start taking a serious look at moving or adding a fulfillment center.

For more information on how IDS Fulfillment can help you with your fulfillment and distribution needs, please Contact Us Today!

By Michael DeFabis, Business Development Manager at IDS Fulfillment 

 

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