Understanding eCommerce Fulfillment

eCommerce fulfillment refers to the series of operations that kick into gear once a customer places an order online. It covers everything from inventory management and order processing to shipping and returns handling. A smoothly running eCommerce fulfillment process ensures that your customers receive their orders accurately and on time, leading to satisfied customers and potentially repeat business.

Key Stages in eCommerce Fulfillment

A well-coordinated eCommerce fulfillment process typically involves several stages:

1. Receiving inventory: This is the stage where you receive goods from your manufacturers or suppliers and log them into your inventory system.
2. Inventory storage: Once the goods are in your possession, you store them safely until they’re sold.
3. Order processing: When a customer places an order, it’s retrieved from storage, packed, and prepared for shipping.
4. Shipping: The packed order is shipped to the customer using the selected shipping method.
5. Returns management: If a customer decides to return an item, the returned item must be processed, restocked (if appropriate), and the customer’s account must be refunded.

How to Improve eCommerce Fulfillment

Improving your eCommerce fulfillment process can significantly enhance customer satisfaction and your bottom line. Here are some strategies:

1. Inventory management: Use inventory management software to keep track of inventory levels in real time, minimizing the risk of overselling or underselling.
2. Packaging process: Evaluating cheaper packaging options, whether it is a poly mailer, bubble mailer, or corrugated box.
3. Packaging design: Your product’s package size can be a determining factor as well. If its dimensional weight is larger than its actual weight, it can be more costly.
4. Shipping options: Offer multiple shipping options using different carriers and speeds to give customers the flexibility to choose based on their needs and budgets. Some carriers are cheaper or quicker depending on what it is and where it’s going.
5. Returns: Implement an effective returns policy that makes it easy for customers to return products if necessary. This can enhance customer trust and loyalty.

Finding and Selecting a Third-Party Logistics Provider (3PL)

As your eCommerce business grows, managing fulfillment in-house can become challenging. This is where a 3PL provider can help.

1. Capabilities: Examine the services they offer, their technological capabilities, and their ability to scale as your business grows. A good 3PL should be able to grow with your business and meet your customers’ increasing demands. Some 3PLs just do apparel and some just do food and beverage products. Evaluate your options and make sure they have a customized solution suited to your needs.
2. Location: Consider their proximity to your customers. A 3PL with a strategic location or multiple warehouses can ensure faster delivery times and considerably lower shipping costs.
3. Record of success: Look at customer reviews, case studies, and their reputation in the industry. A successful track record is a strong indicator of reliable service.

Working with a 3PL

Once you’ve selected a 3PL, it’s important to establish clear expectations. This includes defining service level agreements (SLAs) and maintaining open lines of communication. Regularly monitor their performance and work closely with them to address any issues or challenges. A successful partnership with your 3PL can significantly improve your eCommerce fulfillment process.

Future Trends in eCommerce Fulfillment

Looking ahead, several trends are set to shape the future of eCommerce fulfillment. Automation and robotics will play an increasing role in speeding up processes and reducing costs, allowing brands to fulfill cheaper. Sustainable and eco-friendly practices will also become more critical, with many businesses seeking to minimize their carbon footprint. Personalized customer experiences will remain key, with an emphasis on fast and reliable delivery.

Despite being taxed on exports, maquiladoras benefit from duty-free imports of raw materials and equipment, reducing total production costs. As a critical cog in the U.S. production globalization, the maquiladora system has a rich history and a significant future.

What Are Maquiladoras?

Maquiladoras are foreign-owned manufacturing or assembly plants incentivized by tariff programs from the United States and Mexico to boost trade. They operate in diverse sectors from textiles to complex industries like automobile and aerospace manufacturing.

Maquiladoras provide a cost-effective solution for companies to scale economically and comply with trade regulations. This setup fosters foreign investment, employment, and economic growth, particularly in Mexico’s border regions.

Origins and Evolution of Maquiladoras

Maquiladoras were initiated in 1965 through Mexico’s Border Industrialization Program, a response to unemployment issues following the Bracero Program’s end. Over time, their number and operation complexity have grown significantly. This growth was accelerated by the North American Free Trade Agreement (NAFTA) in 1994, eliminating trade and investment barriers between the U.S., Canada, and Mexico. These trade agreements enabled maquiladoras to become integral to North American supply chains, enhancing their economic significance.

How Maquiladoras Operate

Operational maquiladoras import raw materials duty-free, convert them into finished goods, and export them, often to the source country like the U.S. They maintain ties with their parent companies, such as Honeywell or Mattel, who often control key functions like product design and marketing. The parent company enjoys reduced labor costs and trade agreement benefits, while the host country benefits from job creation and industrial activity increase.

Maquiladoras’ Economic Impact

Maquiladoras profoundly affect local economies, particularly in Mexico’s border towns, where they trigger urbanization and job creation. They also impact the global economy by being essential in international supply chains and attracting foreign direct investment. Maquiladoras foster export-led growth in Mexico and deepen economic integration between Mexico and its main trade partners, particularly the U.S.

Advantages and Disadvantages of Maquiladoras

The maquiladora system brings job creation, skill development, and economic growth. Companies also benefit from cost savings, lower labor costs, and easy access to foreign markets. However, they face criticism for promoting low wages, poor working conditions, and environmental damage. Furthermore, they create economic dependence on foreign investment, which has potential downsides for the host economy.

Maquiladora Success Stories

Successful maquiladoras, like those in Tijuana’s electronics and telecommunications sector, have significantly impacted local economies, turning Tijuana into a tech hub known as the “king of television manufacturing.” However, failures exist due to economic downturns in parent countries or mismanagement. These cases serve as cautionary tales for potential investors.

A distribution center is typically a large-scale facility where products are stored and later shipped to retailers, other distribution centers, or directly to consumers. This article will shed light on their roles, similarities, and differences, and how to choose between the two.

What are Fulfillment Centers?

Fulfillment Centers are specialized facilities that handle the storage, packaging, and shipping of products for eCommerce businesses. Their role in the eCommerce landscape is integral, as they ensure that customers receive their orders accurately and on time. These centers offer a range of services, including inventory management, order processing, packaging, shipping, and sometimes even returns management.

Using Fulfillment Centers, like Outbound Fulfillment as one example, comes with several advantages. They can effectively manage and streamline the shipping process, making sure customers get their orders promptly. They are often equipped with advanced technology to track inventory and order status in real-time. Moreover, they allow eCommerce businesses to focus on their core competencies while outsourcing logistics operations.

However, they also face some challenges. These include managing high volumes of orders, especially during peak seasons, handling returns efficiently, and dealing with inventory errors or shipping delays, which can impact customer satisfaction.

What are Distribution Centers?

Distribution Centers are larger facilities that act as the intermediary storage points in the supply chain. They receive goods from various suppliers, store them, and then distribute them to retailers or, in some cases, directly to consumers. In theory, a distribution center consolidates products from multiple brands and clients, and then delivering larger shipments to other big box store’s distributions, which can reduce the costs for all customers that participate. 

The primary role of Distribution Centers is to streamline the supply chain and efficiently manage product flow from manufacturers to retailers or consumers. They provide services such as storage, inventory management, order picking and packing, and transportation coordination. 

One of the premier distribution companies is the Reyes Beverage Group which acts as consolidator of and delivering it to the end stores. 

Comparison of Fulfillment Centers and Distribution Centers

Fulfillment Centers and Distribution Centers share some similarities. They both play critical roles in inventory management, have similar operational processes like receiving, storing, and shipping goods, and extensively use technology for tasks like inventory tracking, order management, and automation of various processes.

However, their differences lie mainly in their functions and services. Fulfillment Centers primarily serve eCommerce businesses and focus on direct-to-customer deliveries, while Distribution Centers generally service retailers and focus on bulk shipments. Fulfillment Centers may offer value-added services like kitting, gift-wrapping, or returns handling, which Distribution Centers usually do not. 

They also differ in the types of customers they serve – Fulfillment Centers mainly deal with end consumers, while Distribution Centers primarily interact with other businesses. Furthermore, the cost and efficiency considerations vary, with Fulfillment Centers typically requiring higher per-unit processing due to direct customer engagement, and Distribution Centers focusing on economies of scale.

How to Choose Between a Fulfillment Center and Distribution Center

Choosing between a Fulfillment Center and a Distribution Center depends on several factors. Your business model is crucial – if you primarily sell online, a Fulfillment Center is likely more suitable given their set up with the parcel carriers like Fedex and UPS. The type and volume of products you handle are also key considerations – if you deal with large volumes or need bulk shipments, a Distribution Center might be more beneficial. Your customer base and geographic reach play a role too. For instance, if you need to deliver goods directly to customers worldwide, a Fulfillment Center with global reach is ideal. Lastly, budget constraints are also critical. You need to assess the costs associated with each option and decide what’s most feasible for your business.

In scenarios where you have a predominantly online retail operation with direct-to-customer shipping, Fulfillment Centers are your go-to option. Conversely, if you’re a manufacturer or wholesaler supplying to a network of retailers, a Distribution Center will serve your needs better.

In conclusion, both Fulfillment Centers and Distribution Centers have significant roles in today’s dynamic business environment. Understanding their differences and similarities can help businesses make an informed choice based on their specific needs. Always remember to evaluate all factors thoroughly and consult with logistics experts if needed, to ensure you choose the optimal solution for your business.

The Concept of Free Trade Zones

Free Trade Zones have been a part of the global trading system since the 20th century. In the United States, they are commonly referred to as Foreign Trade Zones and were created in response to the failed attempt to stimulate american jobs from the Smoot–Hawley Tariff Act in 1930. This act created protectionist trade policies and the Foreign or Free Trade Zone was created to reverse some of the damaging effects.

These main concept of these zones are primarily designed to facilitate trade by reducing barriers such as import duties and customs regulations. The main objective is to foster economic activity, promote exports, and create employment opportunities.

The Benefits of Free Trade Zone Warehousing

The appeal of Free Trade Zones lies in the multitude of benefits it offers. First and foremost, it provides opportunities for duty deferral, reduction, and even elimination. When goods are imported into a Free Trade Zone, customs duties can be deferred until the goods enter the domestic market. If the goods are re-exported, no duties are paid. This can significantly lower the cost of doing business and give companies a competitive edge in the global market.

Some of the other benefits include:

1. Improved Cash Flow
2. Streamlined Customs Procedures
3. Enhanced Inventory Management
4. Flexibility in Manufacturing and Assembly
5. Trade Facilitation
6. Access to Foreign Markets

Setting Up a Free Trade Zone Warehouse

Setting up a Free Trade Zone involves understanding and complying with numerous regulations and requirements. The process typically involves submitting a proposal to the governing body overseeing Free Trade Zones, usually a country’s customs and border protection agency. This proposal must detail how the warehouse will operate, the types of goods it will handle, and how it will comply with regulations.

1. Feasibility Study: Conduct a thorough study to understand the potential benefits and challenges of setting up a free trade zone. This includes considering the economic, environmental, and social impacts it might have.
2. Stakeholder Engagement: Engage with all relevant stakeholders, including government bodies, private sector entities, local communities, and international organizations. Their support will be crucial for the success of the Free Trade Zone.
3. Policy Formulation: Develop a clear policy framework for the Free Trade Zone. This should include details on the regulatory environment, customs procedures, tax incentives, and other policies that will govern the Free Trade Zone.
4. Negotiation: If the Free Trade Zone involves multiple countries, negotiations will be necessary to agree on the terms of the agreement. These negotiations can be complex and time-consuming, requiring careful diplomacy and negotiation skills.
5. Legislation: Pass the necessary laws and regulations to establish the Free Trade Zone. This might include changes to customs laws, tax laws, and other relevant legislation.
6. Infrastructure Development: Develop the necessary infrastructure for the Free Trade Zone. This might include ports, roads, warehouses, office buildings, and other facilities.
7. Marketing and Promotion: Promote the Free Trade Zone to potential investors and businesses. This might involve marketing campaigns, trade shows, and other promotional activities.\
8. Implementation and Monitoring: Once the Free Trade Zone is established, it will need to be managed and monitored to ensure it is functioning as intended. This includes overseeing the operations of businesses within the Free Trade Zone, ensuring compliance with regulations, and assessing the impact of the Free Trade Zone on the local economy and environment.
9. Continuous Evaluation and Improvement: Regularly review and assess the performance of the Free Trade Zone. Based on these assessments, make necessary adjustments to policies and operations to ensure the Free Trade Zone continues to meet its objectives.
10. Dispute Resolution Mechanisms: Have in place clear and fair mechanisms for resolving any disputes that may arise within the Free Trade Zone.

Key Considerations When Choosing an Free Trade Zone Warehouse

When selecting an Free Trade Zone warehouse, several factors should be considered. The location of the warehouse is of paramount importance. It should be strategically located near major transportation hubs such as a maritime port or airport for efficient movement of goods. 

The size and capacity of the warehouse are also crucial. It should be able to accommodate your inventory needs and have the potential for expansion. Security measures are another critical factor, given the high value of goods that are typically stored in these warehouses, which could lead the facility illegally bypassing the sovereign country’s customs authorities.

Challenges and Solutions of Free Trade Zone Warehousing

Despite its numerous benefits, Free Trade Zone warehousing also comes with potential risks and challenges. These can include complex regulatory requirements, the risk of goods being seized for non-compliance, and potential reputational risks if goods are associated with illicit activities.

However, these challenges can be mitigated through best practices such as thorough understanding of Free Trade Zone regulations, robust compliance procedures, effective risk management strategies, and regular audits.

Case Studies: Successful Free Trade Zone Warehousing

Many companies have successfully leveraged Free Trade Zone warehousing for cost efficiency and operational effectiveness. Below are 2 examples. 

1. Samsung Electronics in Vietnam: In the early 2000s, Samsung Electronics decided to build a factory in the Yen Phong Industrial Park, a free trade zone in Bac Ninh Province, Vietnam. The decision was driven by several advantages offered by the free trade zone, including tax incentives, cheap labor, and relaxed import/export restrictions. Over time, Samsung has been able to significantly reduce manufacturing costs, which has contributed to its competitive edge in the global electronics market. Moreover, the company has been able to quickly import necessary components and export finished products, thanks to the simplified customs procedures in the free trade zone. As of my knowledge cutoff in 2021, Samsung’s Vietnam operations accounted for a substantial portion of its global smartphone production.

2. Tesla in Nevada: Tesla’s Gigafactory in Nevada, located in a designated Free Trade Zone, is another good example. Free Trade Zone status allows Tesla to import foreign-sourced parts duty-free, subject to certain conditions. This has significant cost benefits for Tesla, given that some components of its electric vehicles, such as lithium-ion batteries, are made from raw materials not widely available in the U.S. Furthermore, the Free Trade Zone also allows Tesla to reduce its inventory-carrying costs, as customs duties are not paid until the goods leave the zone.

Future Trends in Free Trade Zone Warehousing

Looking ahead, technology is expected to have a profound impact on Free Trade Zone warehousing. Innovations such as automation, artificial intelligence, and the Internet of Things (IoT) will likely streamline warehousing operations, enhance inventory management, and improve supply chain transparency.

Sustainability is another key trend shaping the future of Free Trade Zone warehousing. As businesses worldwide strive to reduce their environmental impact, sustainable practices like energy-efficient warehousing, waste management, and responsible sourcing will become increasingly vital.

In this article, we will discuss the factors that affect food storage, essential tips for safe and efficient food storage, best practices for food warehousing, and common mistakes to avoid.

Factors Affecting Food Storage

There are a variety of factors that affect food warehousing and storage, but there are 4 main considerations.

Temperature

Temperature is one of the most critical factors affecting food storage. Different foods have different temperature requirements for safe storage. For example, perishable foods such as dairy, meat, and produce require a lower temperature to prevent bacterial growth and spoilage. Frozen foods require even lower temperatures to maintain quality and safety. 

An additional consideration when controlling for temperature in food warehousing is the energy costs. Warmer clients will require additional energy to cool food warehouses. One opportunity that’s lesser known is using warehousing space in the old limestone mines of Missouri. Springfield, MO hosts 3.2 million square feet of food warehousing space called the Springfield Underground which naturally has cooler temperatures. The advantage is lesser energy costs because it’s below ground, doesn’t go higher than 65 degrees year around, and it’s not exposed to natural disasters.

Humidity

Humidity is another essential factor to consider when storing food. High humidity can cause mold growth and spoilage, while low humidity can cause dehydration and loss of quality. It is essential to maintain optimal humidity levels for different types of food products.

Another consideration with humidity is how it affects your food’s packaging. Humidity means high moisture content which can degrade the structural integrity of the packaging. If the structural integrity is affected enough, pallets can fall over causing workplace hazards.

Light

Light exposure can affect the quality and safety of food products. Exposure to light can cause oxidation and degradation of nutrients, flavor, and color. It is critical to store food in opaque containers or in areas where there is no exposure to light.

Some foods that are especially sensitive to light exposure include dairy which can break down riboflavin causing the flavor to be off. Another example is leafy greens which can lose nutritional value and a loss of quality from exposure to light.

Ventilation

Proper ventilation is also important for maintaining the quality and safety of food products. Poor ventilation can cause moisture buildup, which can lead to mold growth and spoilage. This can shut down a warehouse’s operations overnight.

Another consideration is the gases given off by certain fruits. As an example, bananas ripen much more quickly when exposed to ethylene, which is why their stems are often wrapped to prevent it and separated from other fruits within a food warehouse.

Tips for Safe and Efficient Food Storage

The actual storage of food is paramount to keeping its quality and efficient movement within a food warehouse.

Proper Food Handling

All food products should be handled with care and stored in the appropriate conditions. Food handlers should follow hygiene practices such as washing hands, wearing gloves, and using clean utensils if they come in direct contact with food.

If a food warehouse wants to take its handling of products one step further and give a level of confidence to its customers, it can apply for certification from a company like AIB. It’s an incredibly rigorous process that I’ve personally assisted with getting facilities their certification. The company can show up at any time to audit facilities against the guidelines that are best-in-class for food-grade warehousing. If you are a food distributor, it can be the vote of confidence that a customer needs when selecting from other competitors.

Correct Storage Containers

Using the correct storage containers is important, too. The containers should be food-grade and designed for the type of food being stored. Glass, plastic, and metal containers are commonly used for food storage. It is essential to label the containers with the date and contents for easy identification for both the customer and warehouse staff.

Organization and Inventory Management

Proper organization and inventory management are essential for efficient food storage. Food products should be organized based on their storage requirements, with those that require colder temperatures stored in the coldest areas of the warehouse. It is critical to keep a record of inventory levels to ensure that there is enough stock and prevent overstocking.

Typically, bigger companies like Kraft Heinz and food distributors will have sophisticated planning models to manage inventory and prevent overstocking using ERP systems like SAP. Smaller merchants can use inventory management tools like Cogsy to prevent overstock. Additional technology a Food warehouse will want is a robust WMS system like Manhattan. 

Pest Control

Having a mouse or a cockroach come out of a trailer sent from one of your food warehouses to a customer warehouse isn’t a good look, and I’ve seen it happen. Customers can completely shut down shipments from a facility when this happens, thus; stopping all activity at the food warehouse.

Pests such as rodents, insects, and birds can contaminate food products and cause damage to the warehouse. Implementing pest control measures such as sealing cracks and crevices, using bait stations, and monitoring the warehouse for signs of pest activity is essential.

Safety and Sanitation

Safety and sanitation are critical for food storage. The warehouse should be kept clean and free of debris, and spills should be cleaned up immediately to prevent slips and falls. Allowing spills and debris to remain as is can contribute to a workplace culture that accepts it as everyday business.

Best Practices for Food Warehousing

There are a variety of best practices for food warehousing. These are the best in my 10 years of experience operating them.

Rotation System

Implementing a rotation system is one of the best practices for food warehousing. A rotation system ensures that the oldest products are used first, preventing spoilage and waste. One of the biggest misconceptions in food warehousing is setting up the rotation of your inventory on a FIFO (First-In-Firt-Out) basis instead of FEFO (First Expired, First Out). Oftentimes, a shipment may arrive on May 1st with an expiration date of November 1st, but a shipment with the same exact product can arrive 2 weeks later, on May 14th, with an expiration date of August 1st. In other words, shipments with the same SKU can arrive after one another with an earlier expiration date. Using the FEFO method mitigates any food product expiring because the oldest products are used before the newer ones.

Storage System Design

The design of the storage system can also affect the safety and efficiency of food storage. The storage system should be designed to optimize space and labor, and ensure easy access to all products. It is essential to consider factors such as the size of the products, the weight capacity of shelves and racks, and the aisle width for easy movement. 

Some of the most common configurations I’ve personally experienced in my career are ABC organization in a racked food warehouse where the fasted movers are on the A level (or bottom level). Other configurations include zone picking, a flying-V configuration, or random storage which Amazon utilizes and is best used if a warehouse’s system is set up to interleave (another article should be written about interleaving). At the end of the day, it really depends on the unique needs of your food warehouse and the capabilities of your WMS system (another article about this).

Automation & Software

Automation can also improve the safety and efficiency of food warehousing. Automated systems such as conveyor belts, palletizers, and robots can reduce manual labor, increase efficiency, and reduce the risk of accidents. Automated systems can also provide real-time data on inventory levels and other critical information. 

In my experience and one of the ways I’ve seen automation is that we used Laser Guided Vehicles (LGVs), which replaced the need for forklift drivers. They drive around on a virtual track taking pallets off the manufacturing line and placing them in the food warehouse. While they are capital-intensive and best structured on a lease agreement, they can save immensely on labor costs.

Common Mistakes to Avoid

Many 3PLs and food warehouses upon start-up are prone to mistakes. Here are the most common ones and how to avoid them.

Overstocking

Overstocking is a common mistake that can lead to food waste and loss of revenue. Overstocking can also lead to the storage of products in inappropriate conditions, leading to spoilage and safety concerns.

As a past supply-chain consultant, an operator at a Fortune 500 company, and managing inventory for my clients at Outbound Fulfillment, this can make or break brands. I have seen up to 20% of a SKUs inventory be written off because of overstocking from low demand. Furthermore, overstocking creates additional working capital on the books that could be used for other core-business activities. 

Inadequate Inspection and Maintenance

Inadequate inspection and maintenance can also compromise the safety and efficiency of food storage. It is essential to inspect the storage area regularly for signs of damage, wear, and tear. The equipment should also be maintained regularly to ensure optimal performance.

An example in my experience of inadequate inspection that affected efficiency in food warehousing was the lack of adherence to Preventative Maintenance (PMs) (probably another article about this one) on forklifts and relevant equipment. One example is 5 forklifts from our 3PL that went down for repairs during the busiest day of the year due to the lack of proper maintenance of them in the off-season. This 3PL had to go out and rent forklifts to adequately fulfill orders as they came through, which was an additional cost to them. 

Poor Staff Training

Poor staff training can also affect the quality of products and efficiency within a food warehouse. One example of poor training is the amount of damaged product I saw at a food warehouse shipping cereal because of their slip sheet operators punching holes through boxes because they were not properly trained to pick up food that came in on slip sheets.  (Need an article on “What platforms to move product or freight: slip sheets, IGPS, Whitewood, CHEP, etc.”; or something like that)

Staff should be trained on proper handling and storage techniques, safety guidelines, and equipment operation. Regular training sessions can help improve staff performance and reduce the risk of accidents.

Lack of Monitoring and Control

It is important to monitor the warehouse regularly for temperature, humidity, and other critical factors. Real-time data can help identify potential issues and prevent spoilage and safety concerns.

If there are no safeguards in place for environmental factors that can affect your food, it can become susceptible to spoilage or degradation in quality.

Contract warehousing lets brands focus on core competencies, instead of having to learn and build a warehousing program. For businesses looking to outsource their warehousing and logistics operations, contract warehousing offers a good solution.

In this article, we will explore the benefits of contract warehousing and the considerations that businesses need to make when choosing a contract warehouse provider. We will also look at how businesses can select the right contract warehouse for their needs.

Benefits of Contract Warehousing

Contract warehousing offers many benefits to businesses, including:

Cost Savings

One of the main benefits of contract warehousing is cost savings. Instead of investing in their own warehouse facilities, and equipment, and dealing with labor unions, businesses can outsource their warehousing needs to a third-party provider. This results in a reduction in fixed costs and allows businesses to allocate their capital toward other strategic initiatives. 

As an example, companies like Ball Corporation, which manufactures ¼ of the nation’s metal cans, will outsource their warehousing to a third party like Buske Logistics. One of the biggest reasons why is because of cost. Using this model they are able to avoid labor unions by outsourcing to companies whose emphasis is on non-union labor. Instead of paying 1 union forklift driver $26 an hour, the company can outsource and pay $20 an hour with the third party’s margin included as well. 

Shared Resources

Contract warehousing providers also offer shared resources to businesses. By pooling resources, such as labor, equipment, and technology, contract warehouses can provide businesses with access to a range of resources that they may not have been able to access on their own. This results in cost savings and an increase in efficiency for businesses. A great example is during peak season for brands like Gatorade, third-party warehouses will fly in experienced labor that is already up to speed on the same technology to help out and fill in the gaps.

Flexibility

Contract warehousing provides businesses with the ability to scale their operations up or down depending on their needs. Contract warehouses usually employ a proportion of their workforce as temp labor. Thus, they can adjust their resources to match the changing demands of their clients, making it easier for businesses to change their inventory levels and reduce costs during periods of low demand.

Access to Specialized Facilities

Contract warehousing providers also offer specialized facilities for businesses. For example, a contract warehouse provider may offer cold storage facilities like U.S. Cold Storage or hazardous material storage facilities like those provided by Univar Solutions, which can be costly for businesses to invest in on their own. By utilizing a contract warehouse, businesses can access specialized facilities without incurring the associated upfront costs.

Focus on Core Competencies

Outsourcing non-core activities, such as warehousing and logistics, allows businesses to concentrate on their core competencies. Companies like John Deere, PepsiCo, Pentair, and General Mills all understand this and have used contract warehousing as a solution, leading to better productivity, innovation, and overall business performance.

Considerations for Contract Warehousing

When selecting a contract warehouse to work with there are several factors to consider:

Service Level Agreements (SLAs)

Businesses need to define their performance expectations and establish service level agreements (SLAs) with their contract warehouse provider. This includes expectations for inventory accuracy, order accuracy, and shipping and receiving times. Regular monitoring and reporting are necessary to ensure that the contract warehouse provider is meeting the agreed-upon SLAs. While SLAs can vary depending on a given business, some of the standard metrics in the industry include:

• Damaged and lost inventory: <= 3% of inventory. Everything after is a shared cost.
• On-time delivery: 95% 
• Freshness: 98%
• Order Fill Rate: 95% 

Data Management

Data sharing and security are important considerations for businesses that are outsourcing their warehousing and logistics operations. It is important to establish protocols for data sharing and to ensure that the contract warehouse provider has adequate security measures in place to protect sensitive business information. System integration is also important to ensure that there is a seamless data flow between the business and the contract warehouse provider.

Liability and Risk Management

Businesses need to establish clear contractual responsibilities with their contract warehouse provider. This includes establishing liability for loss, damage, and theft of goods. Insurance coverage like warehouse legal liability is also an important consideration to ensure that businesses are protected in the event of any unexpected events or damages.

As an example of the importance of establishing liability, inventory write-offs of greater than $1,000,000 are uncommon, but they do happen and it’s important to implement a clause within a contract to de-risk the manufacturer from any negligence by their contract warehousing provider. Typically, the contract warehousing company bears any responsibility for lost inventory over 3% of a year’s throughput or over a certain dollar value.

How to Choose the Right Contract Warehouse

The process to choose the right warehouse for your business should be a thoughtful and detailed process

Location and Access

The location and access of the contract warehouse is an important consideration. Businesses should look for contract warehouses that are located in close proximity to major transportation routes, such as highways and airports. This ensures that inbound and outbound shipments can be processed efficiently. Accessibility for transportation is also essential, as it can affect shipping and receiving times. A strategic way to go about identifying the right location for your 3PL is to use software like Log-hub which can help identify on a map where the optimal place is to find a contract warehouse based on your business’s individual needs.

Warehouse Size and Capacity

The size and capacity of the contract warehouse are another important consideration. Businesses need to ensure that the contract warehouse has adequate space to store their inventory and that it can handle volume fluctuations. The contract warehouse should also have the necessary equipment and technology to manage inventory efficiently. In order to strategically go about planning for the size of your contract warehouse, especially if you need more than 1, a robust software like Coupa, formerly LlamaSoft, can help identify your space requirements.

Experience and Expertise

It is important to choose a contract warehouse provider that has experience and expertise in the industry. For example, if a business is dealing with perishable goods, it is important to choose a contract warehouse provider that has experience in managing such inventory. Businesses should also look for providers with a track record of success, as this is a good indication of their reliability and quality of service.

Request for Quotation (RFQ)

To compare multiple contract warehousing solutions, it’s important to send out an RFQ with standard questions across the board. That way you can make an apples-to-apples comparison. Factors to consider when preparing an RFQ include:

• Company background
• Scope of work
• Warehouse management system (WMS) requirements
• Required security
• Contract terms (fixed or variable?)
• Pricing

A class is determined by The National Motor Freight Traffic Association which has assigned a class (Class 50, Class 55, etc.) for a range of weight per cubic foot of a product or group of products. For instance, Class 50 is for any freight that is greater than 50 lbs per cubic foot. To find the weight per cubic foot for a product, you can use this formula   Weight per cubic foot =  weight / (length x width x height).

As an ex-consultant who’s taken millions of dollars of LTL spend for shippers to market, learning how FAK pricing is determined and the nuances can be very confusing. Understanding FAK classes and pricing is essential for anyone involved in shipping, especially for businesses that regularly move freight. This blog post will provide an overview of FAK classes, how they affect LTL pricing, and offer tips for saving money on shipping costs.

Why were FAK Classes Created?

The NMFTA (National Motor Freight Traffic Association), a non-profit organization, created Freight All Kinds (FAK) classes to simplify the process of pricing and billing for freight transportation services. Prior to the establishment of FAK classes, carriers, and shippers negotiated rates and charges for individual items over multiple shipments, which could be time-consuming and complicated.

The NMFTA came up with the system below where a class is determined for ‘Freight of All Kinds’ through multiple shipments.

NMFA FAK Classes 

How FAK Classes Affect LTL Pricing

FAK classes are more expensive the higher up in the class system you go since they are less dense in weight, which means that it steals space in an LTL carrier’s trailer from other freight that could be put on it. There are other considerations about FAK classes that affect pricing besides class alone. For ‘fluffier freight’ which are high classes like Class 250 and above, this freight can be oddly shaped or less dense. Therefore, some larger freight may be charged an over-dimension fee for ‘fluffier’ or ‘dirtier’ freight. 

An Example of Calculating FAK Classes

Calculating the FAK class of a shipment is a straightforward process. First, determine the weight and dimensions of the shipment. Then, calculate the volume of the shipment by multiplying the length, width, and height. Finally, divide the weight of the shipment by its volume to get the density. The density is then used to determine the FAK class.

For example, if a shipment weighs 1000 pounds and has dimensions of 4ft x 4ft x 4ft, the volume would be 64 cubic feet. Dividing 1000 pounds by 64 cubic feet gives a density of 15.6, which would fall under FAK class 125. 

Common FAK Class Items

A wide range of items can fall under FAK classes, including electronics, clothing, furniture, and more. Generally, items that are lightweight and take up a lot of space will fall under higher FAK classes.

For example, a shipment of pillows may have a low weight but take up a lot of space, making it fall under a higher FAK class. Similarly, a shipment of electronics may have a higher value and require special handling, making it fall under a higher FAK class as well.

It’s important to properly classify items for FAK classes to avoid unexpected costs and delays in shipping. If a shipment is misclassified, it may result in additional charges or even fines.

Tips for Saving Money on LTL Shipping with FAK Classes

There are several strategies that shippers can use to save money on LTL shipping costs. One of the most effective ways is to negotiate FAK class pricing with carriers. By understanding the FAK classes and how they affect pricing, shippers can negotiate better rates and reduce shipping costs.

Another way to reduce shipping costs is to optimize shipment packaging. By reducing the size of the shipment and making sure it’s packed efficiently, shippers can avoid higher FAK classes and save money on shipping costs.

Lastly, accurately classifying items for FAK classes is essential for saving money on shipping costs. Misclassifying items can result in unexpected charges or delays in shipping, which can increase costs. Therefore, shippers should take the time to properly classify items and avoid mistakes.

How FAK Classes on The Go in an Operation

Dimensionizers are devices used to accurately measure the dimensions of LTL (less-than-truckload) freight and are used in operations that are mixing and matching freight for many shipments per day. These devices typically use laser or infrared technology to quickly and accurately scan the freight and provide its length, width, and height measurements.

Some common types of dimensionizers for LTL freight include:

• Static Dimensionizers – Stationary devices can be installed in a warehouse or loading dock. The freight is placed on a platform and the dimensionizer uses lasers or infrared technology to scan the dimensions of the freight.
• Mobile Dimensionizers – These are portable devices that can be moved around a warehouse or loading dock. They are often used for irregularly shaped or oversized freight that is difficult to move to a stationary dimensionizer.
• Handheld Dimensionizers – The other option are small, handheld devices that can be carried by a worker and used to scan the dimensions of small or irregularly shaped freight.

Using dimensionizers for LTL freight can help shippers and carriers accurately determine the size and weight of their shipments, which is important for pricing, capacity planning, and regulatory compliance.

Lumper fees can range from $50 to $200 per load, depending on the nature of the cargo needing serviced. These fees can add a significant cost to your transportation budget, making it important to understand what they are, why they’re charged, and how to avoid them. 

Why They’re Charged

There are several reasons why lumper fees are charged. The main reason is due to freight upon arrival that requires some form of value-added work prior to put-away. Examples of lumper fees charged in the trucking industry include fees for breaking down pallets, restacking, sorting, counting, and verifying freight.

As an example, distribution centers price their services out with a set baseline for productivity such as 45 minutes to unload 22 pallets from a full truckload trailer. When that productivity is disrupted by a broken pallet or shifted freight causing that load to take 2 hours to unload vs. 45 minutes, it has a significant effect on a shipper or 3PL’s balance sheet when compounded over time. Thus, 3PLs and shippers will charge lumper fees to the party responsible, which is typically the trucking company or origin warehouse.

How to Avoid Lumper Fees

There are several ways that shippers and truckers can avoid lumper fees. For shippers, one strategy is to work with warehouses or distribution centers that have their own staff and equipment to unload or load cargo. Another method is to negotiate with the warehouse or distribution center to include the unloading or loading cost in the overall shipping rate. 

Truckers can also negotiate lumper fees with 3PLs. Some 3PLs may be willing to reduce or waive the fees if the trucker has a good relationship with them or if they are a regular customer. Truckers can also consider using alternative strategies to avoid lumper fees, such as carrying their own equipment to unload or load cargo while they are waiting on their drop-off appointment. 

A few other creative strategies I have seen:

• Trucking surveillance equipment: allows the transportation manager to see when a trucker has to come to a stop quickly which shifts the freight. It can be intrusive but it can take assigning blame to the driver away, too. 
• Network of rework warehouses: OLIMP is a great company to find warehouses that will rework your product for a fee or provide short-term storage. I’ve personally used them for rework loads and it’s a nice network of warehouses to have in your back pocket. 

Here are some tips for shippers to avoid lumper fees:

• Plan ahead: Schedule deliveries during regular business hours when warehouse staff is available to unload or load cargo. This can help to avoid lumper fees charged during after-hours or on weekends.
• Communicate with the warehouse: Talk to the warehouse manager to find out if they have their own staff and equipment to unload or load cargo. If they don’t, see if you can rework the freight yourself or ask about their preferred 3PLs that can do the work.
• Include lumper fees in the shipping rate: Negotiate with the warehouse or 3PL to include the lumper fee in the overall shipping rate. This can help to avoid unexpected charges and simplify the billing process.

Here are some tips for truckers to negotiate lumper fees:

Build a good relationship with the 3PL. They may be more willing to negotiate lumper fees if they have a good relationship with the trucker. Being professional and reliable can help to build trust and rapport. 

Forklift drivers, warehouse staff, truckers share a kindred spirit in the sense that are on the front lines of the supply chain. I’ve seen plenty of times where truckers used a calm voice, tried to have the warehouse put themselves in their shoes for what happened, and were able to avoid lumper fees. If all else fails, there are a few other options: 

• Negotiate before arriving at the warehouse – It’s important for truckers to negotiate lumper fees before arriving at the warehouse. This can help to avoid any surprises and give the trucker time to consider alternative options if the lumper fee is too high.
• Shop around: Truckers can also shop around for 3PLs that offer lower lumper fee rates. It’s important to compare rates and services to find the best deal. Consider other trucker-friendly businesses with loading docks like maintenance shops or cross docks. 

In addition to negotiating and planning ahead, truckers can also consider alternative strategies to avoid lumper fees altogether. Here are some options:

• Bring your own equipment: Carrying your own equipment such as a pallet jack to unload or load cargo can eliminate the need for 3PL services and lumper fees.
• Consider alternative routes: Some routes have fewer winding roads and hilly sections. Truckers can consider alternative routes to avoid lumper fees altogether.

To put it in perspective as detailed by Supply Chain Dive, “the average detention and demurrage charge more than doubled from 2020, increasing 104%. This translates to an increase of more than $666 per container.”

In this article, we will talk about what demurrage is and how to avoid it.

What is Demurrage?

Demurrage is a fee charged by carriers or terminals for the use of their equipment or facilities beyond the agreed-upon time frame. It is typically charged by the day or hour, and the rates can vary depending on the mode of transportation and the location of the terminal. Demurrage fees are meant to incentivize shippers and consignees to keep cargo moving and prevent delays in the transportation process.

How are Demurrage Fees Calculated?

The calculation of demurrage fees can vary depending on the specific terms of the contract between the carrier and the shipper. However, in general, demurrage fees are calculated by multiplying the number of days or hours that cargo remains on the carrier’s equipment or terminal by the daily or hourly demurrage rate.

Common causes of demurrage fees include delayed paperwork, inefficient cargo handling, unexpected customs issues, and inaccurate forecasting of cargo volume. These issues can cause delays in the transportation process and result in extra charges for shippers or consignees.

How to Avoid Demurrage Fees

Avoiding demurrage fees requires careful planning and efficient cargo handling. Here are some tips for avoiding demurrage fees:

1. Plan ahead: Shippers and consignees should be aware of the time frame for loading and unloading cargo and plan accordingly. It is important to have all necessary paperwork and documentation ready in advance to avoid delays.
2. Use efficient cargo handling practices: Cargo should be properly labeled and packaged to ensure efficient handling. Loading and unloading should be done as quickly and safely as possible to avoid delays.
3. Communicate with carriers and terminals: Shippers and consignees should maintain open lines of communication with carriers and terminals to ensure that everyone is aware of the expected arrival and departure times. This can help to prevent unexpected delays and demurrage fees.

Demurrage Fees in Different Modes of Transportation

Demurrage fees can vary depending on the mode of transportation used. Here are some examples of how demurrage fees are charged in different modes of transportation:

1. Ocean freight: Demurrage fees in ocean freight are typically charged per day or per hour, depending on the terms of the contract. The fees can be significant, especially if the cargo is delayed for an extended period of time.
2. Air freight: Demurrage fees in air freight are generally less common than in other modes of transportation. However, if cargo is delayed in the warehouse or on the tarmac, demurrage fees may be charged.
3. Rail and intermodal transportation: Demurrage fees in rail and intermodal transportation are typically charged per day or per hour, similar to ocean freight. The fees can be significant if cargo is delayed for an extended period of time.

It is important to note that the specific terms and conditions of the contract between the carrier and the shipper will determine the demurrage fees charged.

Demurrage Fees and the Supply Chain

The impact of demurrage fees on the supply chain can be significant. Not only do they increase costs, but they also disrupt the flow of goods, which can result in delayed deliveries and dissatisfied customers. To mitigate the impact of demurrage fees on the supply chain, there are several strategies that shippers and logistics providers can employ.

Firstly, it is important to communicate effectively with all parties involved in the supply chain. This includes carriers, shippers, consignees, and other stakeholders. By sharing information about schedules, shipment status, and potential delays, everyone can work together to ensure that cargo is moving efficiently.

Another strategy is to employ efficient cargo-handling practices. This includes optimizing loading and unloading times, as well as minimizing the time that cargo spends in transit. By improving cargo handling practices, shippers can reduce the risk of delays and avoid incurring demurrage fees.

Finally, it is important to have contingency plans in place in case of unexpected events. This can include having backup carriers, alternative routes, or additional storage facilities available in case of delays or other issues. Businesses like CDL 1000 can act as an “Emergency broker for demurrage” can help solve these critical challenges, too.

Although their importance to food businesses is undeniable, working with food distributors can be challenging. Distributors have strict delivery requirements, and can charge carriers (who deliver goods from producers to food distributors) fees in the thousands of dollars for not complying. If a carrier is late by more than 15 minutes, a $1-5 fine per minute can be levied against the carrier. In addition, if the product requires any form of manual labor to unload it, lumper fees can be added as well.

In this article, we will explore the importance of food distributors, the types of distributors, choosing the right one, the benefits of them, and avoiding the challenges that come with working with distributors.

What is The Role of a Distributor in the Food Industry?

Food distributors play a crucial role in the food industry by facilitating the movement of food products from producers and manufacturers to retailers and food service businesses. They are responsible for storing, transporting, and delivering food products to their clients. Without food distributors, it would be challenging for small and medium-sized food producers to reach a wide range of customers.

The primary functions of food distributors include:

1. Purchasing goods from producers and manufacturers.
2. Storing and managing inventory of food products.
3. Transporting food to various locations. 
4. Selling goods to retailers and food service businesses.

Examples of food distributors include Sysco, US Foods, and Gordon Food Service. These companies are responsible for distributing food products to restaurants, hotels, schools, and hospitals. 

What are The Different Types of Food Distributors?

There are several types of distributors in the food industry. Each type serves a unique purpose, and understanding the differences can help businesses choose the right distributor for their needs.

1. Broadline Food Distributors: These distributors, such as DOT Foods and UNFI, carry a wide range of products, including fresh produce, meat, dairy, and frozen foods. They serve as one-stop shops for food service businesses and are usually large, national companies. 
2. Regional Food Distributors: These distributors operate in a specific geographic area and cater to local food service businesses. A few regional distributors in Chicago for instance include Fortune Fish and Gourment, which provides a broad base offering of seafood, and Testa Produce which specializes in a variety of fresh produce. 
3. Specialty Food Distributors: These distributors you can typically find around any major metropolitan area and focus on specific food categories such as seafood, organic, or gluten-free products. An example of a specialty food distributor is International Meat Company, based here in Chicago, which specializes in serving fine cuts of meats including wagyu steaks and different grades of tenderloin. They offer a more limited selection of products but are often more knowledgeable and provide better customer service than broadline and regional distributors.
4. Direct-to-Consumer Food Distributors: These distributors sell directly to consumers through online marketplaces or subscription services. They are becoming increasingly popular as more consumers seek out fresh, locally-sourced products. One of my personal favorites is Vital Choice, in which I can quite literally purchase a filet of Chilean Seabass and the fishermen in Chile will pack it with dry ice and ship it overnight to my home.

Each type of distributor has its advantages and disadvantages. Broadline distributors offer a wide selection of products but may not provide the same level of personalized service as regional or specialty distributors. Direct-to-consumer distributors offer convenience but may have higher prices than traditional distributors.

Benefits of Working with a Food Distributor

Working with a food distributor offers several benefits to both food producers and manufacturers, as well as restaurants and other food service businesses.

For food producers and manufacturers, working with a food distributor can:

1. Expand their customer base and reach new markets.
2. Reduce the need for in-house logistics and distribution.
3. Increase efficiency and productivity by outsourcing distribution.

For restaurants and other food service businesses, working with a food distributor can:

1. Save time and money by consolidating purchasing and delivery.
2. Ensure a consistent supply of high-quality products.
3. Provide access to a wide range of products and brands.

Successful collaborations between food distributors and food businesses include partnerships between Sysco and The Cheesecake Factory, and US Foods and Panda Express.

Challenges with Food Distributors

Working with food distributors can present many challenges for producers, carriers, and the customers that rely on them. Some of the challenges that businesses who work with food distributors may face include:

1. Strict Delivery Guidelines: The large and regional food distributors expect product to arrive on time, in full, and in pristine condition. These companies can levy high lumper fees in the thousands of dollars if product is shifted upon arrival, late by minutes, or the temperature of the product is above spec as detailed in the contract, which could require load to be rejected all together. 
   
   Ways to mitigate these fees include proper load securement using a load bar, driving carefully, avoiding winding roads in the mountains, and inspecting the product yourself prior to arrival. If the product is shifted, you may be able to shift the product over yourself or use a company like OLIMP to provide outsourced lumper services. 
2. Dependence on Distributors: Food service businesses may become too dependent on their distributors, making it difficult to switch to another distributor if needed.
   
   End customers can mitigate this risk by diversifying their supply base and taking their spend out to market every year with relevant distributors in their network. Further opportunities include creating a contract that is in your favor as well as your distributor by pegging any price increases to a third-party index like the Federal Reserve Economic Data (FRED)
3. Communication Issues: Communication issues between food service businesses and distributors can arise, leading to incorrect orders or delayed deliveries.
   
   Not all distributors have invested in technology to provide the most accurate ordering, picking and delivering, and communication infrastructure to service their customers. 
   
   For end-customers, a great opportunity to control any mis-shipments from communication breakdowns is doing a 2-way match using the purchase order and the receipt upon arrival.
4. Product Quality Issues: Food service businesses may receive products that do not meet their quality standards, leading to waste and loss of revenue.
   
   Both producers and the distributors are incentivized to sell product and more of it in terms of weight. For produce, it’s important to do spot checks of goods on the bottoms of a carton every now and then upon arrival. For meat, you will want to make sure food distributor’s delivery vehicles and storage facilities temperatures are within an acceptable range.
   
   It’s not uncommon to actually visit a potential distributor’s facility to see how they operate before entering into an agreement with them.

How to Choose the Right Food Distributor for Your Business

Choosing the right food distributor is crucial for the success of a food service business. 

Factors to consider when choosing a food distributor:

1. Product Range: Food service businesses should choose a distributor that carries the products they need. Sometimes dividing up deliveries amongst multiple food distributors can introduce a level of inefficiency in your business by devoting labor to additional unloading time.
2. Product Quality: Food service businesses should choose a distributor that offers high-quality products that meet their standards.
3. Delivery Schedule: Sometimes food distributors only deliver at certain hours. That’s a key consideration that should be taken into account for your business.
4. Pricing: Choosing a distributor that has competitive pricing is also a must have. Consider sending out an RFQ with your goods to multiple distributors to evaluate the best price. 
5. Customer Service: If customer service is a major factor, consider that as well. Some food distributors have tried to automate all customer service, so it can be tough to get that personal touch at times. 
6. Reliability: A good food distributor should be reliable and deliver products on time and in the right condition.
7. Research: Conduct research on potential food distributors and read reviews from other food service businesses.
8. Ask for Recommendations: Ask other food service businesses for recommendations on food distributors.