The Logistics Considerations around Starting an On-Line Business

Many entrepreneurs recognize opportunities to sell products on-line in today’s connected world – and those opportunities certainly abound. There are, however, real challenges when it comes to transforming the dream of a successful on-line business into a reality. As well as having a fantastic idea, arranging finance, securing the product from the source and developing a sales platform, there is the challenge of reacting to orders with timely and cost-effective fulfillment.

The most obvious way to achieve this is to invest your own time to pick and pack then ship orders from your home, however, that strategy soon hits a snag as scale is encountered. Sooner or later, you will be faced with the question of whether your time would be better spent selling or developing new product offerings than picking individual items into shipping cases, taping boxes and driving to the local shipping node.

Recognizing where your time is best directed is part of being a good businessperson, however, that decision is not simple. Many people think that the cost associated with ordering an item from Amazon is what they can expect to encounter when dealing with a dedicated Third-Party Logistics (3PL) order-fulfillment operation. The reality is quite different. Whereas Amazon has immense scale and can use profits from sales and advertising to offset logistics costs, most 3PL’s do not have that option. The cost of facilities and labour must be recouped in order to make a profit allowing the 3PL to grow in lockstep with your business. This relationship is a true partnership. Advantages of working with a well-established 3PL include:

► Immediate access to sophisticated services and systems as expected by B2C and B2B customers such as:

•  Order tracking within the facility and after shipping
•  Real-time inventory on-hand data fed back to the on-line sales system
•  Compliance with bar-code labeling, Advance Shipping Notices, etc.
•  For Healthcare clients, compliance with Health Canada regulations, access to regulatory advice and site licensing. Some 3PLs, such as i2i fulfillment, can also act as your Importer of Record for the purpose of Health Canada regulatory compliance.

► Real time communications with you, the client, including:

•       Receiving and shipping confirmation e-mails
•       Shipping confirmations sent to your on-line customer automatically
•       Reports on inventory turns, coverage (based on sales history) and fulfillment performance
•       Visibility of Inventory on hand, inventory committed to orders in-process and in-coming inventory

► Access to freight discounts that would otherwise require significant sales volume to achieve

► Flexibility that allows you to try new initiatives and provide separate pricing for B2C and B2B orders. 3PLs can often work with FBA (Fulfillment by Amazon) and MBS (Marketplace Web Services) to broaden your marketplace visibility while maintaining a consistent service level. Large partners such as Amazon will tend to dictate your approach.

You can be very successful in working with a 3PL by tailoring your business model to compliment the benefits of order fulfillment service providers. Some common-sense steps include:

• Select a product that has a high intrinsic value or with a reasonable minimum order value
• Sell in quantities that make the pick & pack process efficient (for example, small cases)
• Ensure the value of each sales covers the cost of the product, the value of your time and energy, storage costs, shipping and handling costs, and potential return costs
• If you want to offer free shipping, ensure it is justified by the value of the sale
• If you want to charge for shipping, try using average pricing across the country (you can add a supplemental cost for rural areas). It is notoriously difficult to predict actual delivery costs in advance due to supplemental freight charges imposed by couriers (rural delivery charge, congestion charge, wrong-address charge, re-delivery charge, etc.), however, after some experience and experimentation, it is possible to develop an average ship cost.
• Ensure your inventory turns over. Having inventory is a necessity, however, if it doesn’t move it represents a significant cost in relation to sales. The longer the supply chain and the longer the lead-time - the more likely it is that you will have to hold additional stock.
• For customers based outside of Canada, a good 3PL can provide access to import rules and regulations, duties payment and information on establishing your company as a non-resident importer.

Perhaps the best part of partnering with a good 3PL is that you have immediate scale and capabilities. If you grow quickly or have a seasonal business most 3PLs can accommodate this fluctuation in space requirement – something that is very expensive for a start-up or growing business. In return, the 3PL will likely impose a monthly minimum charge so it’s best to work from home until you reach that point – for i2i fulfillment that is typically 40 to 50 orders per month.

Our business is order fulfillment and we are here to support you as you develop and grow your new or growing business.

Michael Docherty

PRESIDENT