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

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.

In my 10 years of experience of working with 3PLs, one common misconception I hear working with clients looking for 3PL is that the term 3PL means 1 thing and 1 thing only. Not true. 

3PLs offer a variety of services. They don’t act solely as a transportation carrier or e-commerce fulfillment provider. 

In this blog post, we’ll explore the definition of 3PL, the different types right for your business, and provide insights on how to choose the right 3PL provider for your business.

Definition of 3PL and Its Importance in Logistics

In simple terms, 3PL is the outsourcing of logistics and supply chain management to a third-party provider. This involves the management of transportation, warehousing, and distribution of goods, and may also include other value-added services such as packaging, labeling, consulting, and customs brokerage. The importance of 3PL lies in the fact that it allows businesses to focus on their core competencies while leaving logistics, or the coordination and movement of goods and information, to the experts.

The differences between 1PL, 2PL, and 3PL

There are several levels of logistics providers, each with its own unique set of responsibilities. These include:

1. 1PL (First-Party Logistics): In this model, the company manages its own logistics and supply chain operations. Think about a tomato grower that grows the tomatoes and manages the shipment to their own store.
   
   Another example that I have personally worked with in the past is that Walmart handles parts of their entire supply chain: setting up transportation, their own drivers move the product, and it’s delivered to their own store. An easy way to tell if a logistics company is 1PL is if they own the goods they are shipping.
   
2. 2PL (Second-Party Logistics): In this model, a company outsources one or more logistics functions to a second-party provider. This may include transportation, warehousing, or distribution.
   
   An example of a 2PL would be a trucking company hauling goods from 1 place to another. The trucking company in this case would not own the freight at any point and the manufacturer or entity requesting the shipment of the goods between 2 locations would facilitate all of the pick-up, drop-off, and set-up details.
3. 3PL (Third-Party Logistics): In this model, the company outsources all logistics and supply chain management functions to a third-party provider. This includes transportation, warehousing, distribution, and other value-added services. The difference between a 3PL and 2PL as an example would be if a 3PL takes on any additional responsibility such as 3PL specializing in warehouse management.
   
   In this example, a 2PL of warehouse services would become a 3PL when services expand beyond offering just outsourced labor in forklift drivers to move product. Additional services that would make this example a 3PL is managing inventory, dictating to forklift drivers where to pick and load trucks, and optimizing a warehouse. In reality, almost all 2PLs in a given example offer some form of expanded services beyond a limited scope, which makes a majority of outsourced logistics providers to be 3PLs.

Benefits of Using a 3PL Provider for Logistics Management

The benefits of using a 3PL provider for logistics management are many, and include:

1. Cost savings: Outsourcing logistics to a 3PL provider can result in cost savings for businesses as they are optimized for scale, where as a 1PL takes on the burden of additional cost from having to pay a premium for low purchase quantities in the form of storage, trailers, or driver. 
2. Access to expertise: 3PL providers have extensive experience and knowledge of the logistics industry, which can be leveraged to optimize supply chain operations.
3. Scalability: 3PL providers can scale their operations up or down based on the needs of their clients, allowing businesses to be more flexible and responsive to changes in demand. This includes excess driver capacity or storage space for a fulfillment provider
4. Risk mitigation: 3PL providers can help mitigate risks associated with supply chain management, such as aging inventory, experts in hauling different types of freight, and managing volatile labor schedules.

What are the Different Types of 3PL Providers?

Third-Party Logistics (3PL) providers offer a wide range of services. Here are some of the different types of 3PLs:

• Transportation-based 3PLs: 3PLs can specialize in transportation services, including freight forwarding, carrier management, and shipment tracking. 
• 3PLs for Freight Brokerage Services: True freight brokers are asset-light and help by coordinating their large network of drivers. An example of a company in this space is Spot Freight.
• Warehouse-based 3PLs: 3PLs that offer warehousing services such as storage, inventory management, and order fulfillment. Depending on how big of a product you are needing moved will determine what 3PL you want to find. A company like Outbound Fulfillment, which focuses on small parcel fulfillment can be that provider. Larger full-pallet shipments a company like Buske Logistics can help with shipping. There are many factors as well including if it’s food grade, hazmat, or has lithium batteries.
• Freight Forwarders: Freight forwarders are 3PLs that specialize in arranging and coordinating the transportation of goods for businesses. They work with multiple carriers and modes of transportation to provide the most efficient and cost-effective shipping solutions. Steam Logistics is an excellent example of a Freight Forwarder.
• Customs Brokers: Customs can be an incredibly nuanced area of the supply chain that can have big ramifications for your business if not done right. Customs brokers can act as a 3PL by specializing in helping businesses navigate the complex regulations and paperwork involved in importing and exporting goods across international borders. They can help with everything from customs clearance to compliance with international trade laws.
• Inventory Management Providers: These 3PLs help businesses manage their inventory by providing real-time tracking and reporting of stock levels, as well as implementing automated systems to optimize inventory levels and reduce costs. This one is important. I’ve even seen situations (like during my time at PepsiCo) that required a 3PL to write off $1.2 million in lost inventory from bad inventory management practices. Typically, any warehousing 3PL that you work with should offer this as a part of their services.
• Order Fulfillment Providers: Order fulfillment providers specialize in picking, packing, and shipping products on behalf of businesses. They can manage the entire order fulfillment process, from receiving orders to managing returns and exchanges.
• Value-Added Services Providers: 3PLs offer additional services such as kitting, assembly, packaging, labeling, and other value-added services that can help businesses streamline their operations and reduce costs. Have you seen those cardboard pop-ups at the end of the grocery aisle from Starbucks, Gatorade, or a beer company? More than likely came from a 3PL offering this service if it was outsourced.
• E-commerce Fulfillment Providers: E-commerce fulfillment providers, like my company Outbound Fulfillment, specialize in handling the unique requirements of e-commerce businesses, such as managing online orders, integrating with e-commerce platforms, and providing specialized packaging and shipping options. 
• Reverse Logistics Providers: Reverse logistics providers specialize in managing the return of products from customers back to the manufacturer or retailer. They can handle everything from product testing and repair to recycling and disposal. Companies that can handle that include: Outbound Fulfillment, Renewal Logistics, or Boxzooka.
• Financial and Information 3PLs: These 3PLs offer financial and information management services, including freight payment and auditing, transportation management system (TMS) integration, and data analytics. During my time at PepsiCo, we had 3PLs proving transportation and payments considering the large amount of information that needed to be efficiently coordinated, which was not our expertise. A couple of examples of “informational” 3PLs are Cass, which handled driver detention when I worked with trucking carriers, as well as Tusk Logistics that has pre-negotiated parcel rates using a regional network of carriers vs. the higher cost options of going with UPS, FedEx, or USPS.
• Consulting and Customer Adapter 3PLs: 3PLs of consulting services provide logistics consulting and help businesses adapt their supply chain processes to meet changing market conditions and customer demands. In a previous life as an example, I acted as a 3PL consultant where we would design clients supply chains and determine where to place warehousing 3PLs. An example of 3Pl consulting include Riveron  which offers traditional supply chain consulting or Carton that provides consulting for packaging procurement
• Dedicated Contract Carriage Providers: These 3PLs offer dedicated transportation services to a single client, providing a fleet of vehicles and drivers dedicated to meeting that client’s transportation needs. An example I’ve managed in the past is a shuttle carrier moving corrugate and bottles from a vendor to a manufacturing plant. One example I have worked with in the past is Shamrock Cartage
• Asset-based 3PLs: Other 3PLs can own and operate their own fleet of vehicles and/or warehouse facilities, providing comprehensive transportation and warehousing services to clients.

6 Steps to Choose the Right 3PL Provider

Choosing the right 3PL provider can be a daunting task, but considering a few factors can help you make an informed decision that will benefit your business in the long run. Here are some factors to consider when choosing a 3PL provider:

1. Industry Experience and Expertise

Ensure that the 3PL provider has experience in handling logistics for your industry. Ask for case studies and references from previous clients in your industry. 

2. Technology Capabilities

Choose a 3PL provider that has invested in advanced technology to ensure seamless and efficient logistics operations. The provider should have a robust tracking and reporting system to keep you informed of your cargo’s status in real-time or product moving through a warehouse.

3. Service Level Agreements (SLAs)

A reliable 3PL provider should provide clear SLAs that define the services they will offer, delivery times, and quality metrics. Review the SLAs and ensure that they align with your business objectives and requirements.

4. Flexibility and Scalability

Your business needs may change over time, and the 3PL provider should be flexible enough to adapt to these changes. Ensure that the provider can scale up or down their services to accommodate your business’s changing needs, such as seasonality of business where they may need to hire temp labor to assist with the holiday season.

5. Pricing Structure and Transparency

Choose a 3PL provider that provides transparent pricing and does not have hidden fees. The provider should provide a breakdown of all the costs involved in their services to help you make an informed decision.

6. Reputation and Reviews from Previous Clients

Do your due diligence and research the 3PL provider’s reputation in the industry. Check online reviews and ask for references from previous clients.

So before signing a contract with a 3PL provider, ask the following questions:

1. What types of logistics services do you offer?
2. How do you ensure quality control and timely delivery?
3. What industries do you specialize in?
4. What technology do you use for tracking and reporting?
5. Can you provide references from previous clients?

It’s important to conduct due diligence when selecting a 3PL provider to ensure that you choose a reliable partner that will help you achieve your business objectives.

Two common options for food businesses are using third-party logistics providers (3PL) or distributors. In this article, we will explore the differences between 3PL and distributors for food products, and compare their advantages, challenges, and costs to help you make an informed decision for your business.

The main difference between 3PL and distributors

3PLs provide logistics services for companies, including warehousing, transportation, and inventory management, while distributors purchase products from manufacturers and sell them to retailers and end consumers.

3PL for Food Products

A third-party logistics provider (3PL) is a company that provides logistics services for businesses, including warehousing, transportation, and inventory management.

When it comes to food products, 3PLs can provide temperature-controlled storage and transportation, which is important for perishable items like fresh produce, dairy, and meats. 

3PLs also offer flexibility and scalability, allowing businesses to adjust their logistics needs based on seasonality and demand fluctuations. Using a 3PL can also reduce overhead costs and increase efficiency, as businesses do not have to invest in their own warehouse and transportation infrastructure.

However, there are some challenges to consider when using 3PLs for food products. One of the biggest challenges is ensuring quality control and food safety throughout the supply chain. Businesses must ensure that the 3PL they choose has the proper certifications and procedures in place to maintain the quality and safety of their products. 

Additionally, relying on a 3PL for logistics means giving up some control over the supply chain, which can make it challenging to monitor and respond to issues that may arise.

Some examples of 3PLs that specialize in food products include Americold, Lineage Logistics, and DHL Supply Chain.

Distributors for Food Products

Distributors are companies that purchase products from manufacturers and sell them to retailers and end consumers. When it comes to food products, distributors can help businesses reach a wider audience by leveraging their existing relationships with retailers and other distribution channels. 

Distributors can also provide valuable insights into market trends and demand, helping businesses make more informed decisions about product development and marketing.

One of the biggest advantages of using distributors for food products is the control that businesses have over the supply chain. Businesses can work closely with distributors to ensure that their products are handled and stored properly, and that they are reaching the right audiences. Additionally, using a distributor can reduce the administrative burden of managing multiple relationships with retailers and other distribution channels.

However, using distributors for food products also comes with some challenges. One of the biggest challenges is cost, as distributors typically take a percentage of the sales revenue as their fee. Additionally, businesses must ensure that they choose a reputable and reliable distributor to maintain the quality and safety of their products throughout the supply chain.

Some examples of distributors for food products include UNFI, Sysco, and KeHE.

Comparison of 3PL and Distributors for Food Products

When it comes to choosing between 3PL and distributors for food products, there are several factors to consider:

• Cost: One of the most important factors is cost, as both 3PL and distributors come with fees that can impact profitability. 
• Services provided: Additionally, businesses should consider the service offerings of each option, including temperature-controlled storage, transportation, and quality control procedures.
• Flexibility: Flexibility is another factor to consider, as businesses may need to adjust their logistics needs based on seasonality and demand fluctuations. 
• Quality control and time to market: are also important considerations, as businesses must ensure that their products are reaching consumers in good condition and on time.

Conclusion

In conclusion, choosing the right logistics partner is essential for the success of a food business. While 3PLs and distributors offer different advantages and challenges, businesses must evaluate their specific needs and priorities to make an informed decision. By considering the cost, service offerings, flexibility, quality control, and time to market, businesses can choose the logistics partner that best fits their goals and objectives. 

Whether using a 3PL or a distributor, businesses must prioritize quality control and food safety throughout the supply chain to ensure that their products reach consumers in good condition and on time. Ultimately, the right logistics partner can help businesses increase efficiency, reduce costs, and reach a wider audience, setting them up for long-term success in the competitive food industry.

A poor customer experience can cost you business. In the United States, more than 80% of consumers stopped doing business with a company after a negative experience. 

Positive customer experiences, on the other hand, can help you to create trust and build a strong relationship with your customers. When their orders are delivered on time, in good shape, and as expected, this enhances the customer experience. 

What Is Order Fulfillment?

The order fulfillment process is the entire lifecycle of a sale, from the time the order is placed all the way through to when it is delivered to a customer. The flow of order fulfillment looks like this:

1. The customer places an order.
2. The order is received, often by a third-party logistics (3PL) provider to which order fulfillment is outsourced. 
3. The order is picked from its location in the warehouse, distribution, or fulfillment center.
4. The order is packaged and labeled for shipping.
5. The order is shipped through a shipping carrier to the customer.
6. The order is delivered to the customer.

4 Steps in Order Fulfillment

Order fulfillment is often outsourced to a 3PL, which can help you to scale your growing business and ensure that orders are handled in an automated and efficient manner. The 3PL can handle all aspects of order fulfillment, from receiving the order from your sales channel to picking, packing, and shipping it. 

The 3PL will house your inventory in one or more distribution or fulfillment centers. They’ll work directly with major shipping carriers to ensure the most affordable and efficient shipping methods. 

1. Receiving

The first step in order fulfillment is receiving and storing the inventory at a fulfillment center. 3PL providers often use advanced technology and automation to receive goods from suppliers, organize them in a warehousing storage location, and keep tabs on the inventory. 

With a good order management system, the 3PL can track and monitor inventory to ensure that when orders are received from customers, they can be quickly turned around. 

2. Picking

The next step in order fulfillment is picking. Once an order is received in the 3PL’s fulfillment system, it is pushed to a picking team. The picking team will receive a packing slip with the order information (items and quantities) and where the products are located within the facility. The picking team will collect the items and pass them on to the packing team.

3. Packing

The third step in the order fulfillment process is packing. Orders are packed for security and efficiency. It is important to ensure that the proper packing materials are used to secure the products, for example, and that they are packed into as small of packaging as possible. 

Packages are billed based on actual or dimensional weight (the space they take up). Because of this, smaller packaging is optimal.

3. Shipping

The final step in order fulfillment is shipping. A 3PL provider will work with existing relationships with major shipping carriers to provide you with affordable and efficient shipping options. 

The 3PL will attach a shipping label to the order, and the carrier will typically pick up the package directly from the fulfillment center. After the order has been picked up by the shipping carrier, tracking information is shared with you (and often with your customer), so the order can be tracked in real time. 

Tips for Proper Order Fulfillment

Customers expect their orders to be shipped and received in a timely fashion. It is important to optimize order fulfillment processes to achieve this. 

To ensure proper and optimized order fulfillment, you should use the following tips:

• Optimize your receiving processes. Orders and shipments need to be processed as soon as possible to ensure efficient order fulfillment. This starts with having a strong and optimized receiving process, so you can quickly turn inventory over.
• Adequately forecast demand. It is important to have enough inventory on hand to handle spikes in sales, so you can keep up with customer demand and efficiently fulfill orders. Use historical order data to account for seasonality and peak sales times.
• Have backup plans in place. There are inevitably going to be issues during order fulfillment at some point. Packages can be damaged or lost in transit. It is important to have a strategy for these external factors that you cannot control.

Developing an Order Fulfillment Strategy

Order fulfillment will look different for each business. There is no one order fulfillment strategy that is going to work for everyone. 

There are some important factors to consider when developing your order fulfillment strategy, including your business size, order volume, technology, sales channels, the location of your customers, inventory, and customization options.

Order Volume & Business Size

When your business is still small, and you are not fulfilling very many orders per month it can be more cost-effective to manage your own order fulfillment and to do this in-house. As your business grows and you expand the number of SKUs you carry, and your sales increase it can be helpful to outsource order fulfillment. You should work towards creating an e-commerce order fulfillment strategy that is scalable and can evolve with you as your business grows.

Technology and Sales Channels 

Your order fulfillment strategy needs to integrate into your online sales channels and work with your technology. Order fulfillment software that integrates with your e-commerce sales platform can help you efficiently manage your order fulfillment processes.

Technology should work with you and be leveraged to properly manage your inventory. It should ensure that you can quickly receive, pick, pack, and ship online orders. As soon as an order comes in, it should be pushed automatically to your fulfillment operations.

Location of Customers & Inventory

To optimize shipping routes, it is important to try and shorten the distance between where your product is shipped from and to. Shipping rates and times are calculated based on shipping zones. The more zones a package must travel through (the farther it has to go), the more expensive it will be and longer it is going to take. 

To manage customer shipping expectations, it is beneficial to use fulfillment or distribution centers that are closer to your customer base. 3PL providers often use more than one fulfillment center to split inventory. This ensures that they are shipping the shortest possible distance for the most cost-efficient and fastest shipping options.

Customization Options

If your products are custom-made or require specialized packaging or gift wrapping, it can be optimal to handle order fulfillment in a more hands-on manner. When your products are made-to-order, your order fulfillment strategy will need to be tailored to support this. 

Options for Order Fulfillment

There are several options when it comes to developing an order fulfillment strategy. These can include fulfilling orders yourself, using a 3PL, or dropshipping. Your needs are going to differ from those of your competitors. 

In-House Fulfillment

Typically, when an e-commerce business is just starting out, they will complete all parts of the order fulfillment process themselves. This is called self-fulfillment, merchant fulfillment, or in-house fulfillment. This option of order fulfillment gives you complete control over your entire retail supply chain. 

As your order volume increases, so will the need to either outsource your order fulfillment or invest in fulfillment infrastructure, such as technology, labor, warehouses, and equipment. 

Outsourcing Fulfillment

Supply-chain related tasks, such as inbound and outbound goods logistics, can commonly be outsourced to a 3PL. As your business and order volume expands, order fulfillment logistics can become more complex and time-consuming. 

A 3PL uses advanced technology, giving you a high level of visibility into your inventory and retail supply chain. The 3PL can take care of all your order fulfillment needs, from storing your product in strategically placed fulfillment centers to inventory receiving, picking, packing, and shipping. Using a 3PL can free up your time for other important business aspects and tasks. 

Dropshipping

This form of order fulfillment is the most hands-off, as all inventory is produced, stored, and shipped directly from the manufacturer. A customer will place the order, which will then be forwarded to the manufacturer. The product will be shipped straight from there to the customer. This method gives you the least amount of control over your retail supply chain but can also involve lower overhead. 

Manufacturers are commonly located overseas. This can mean that shipping times are longer, leading to less customer satisfaction.

Order fulfillment is a vital part of your e-commerce business and key to a positive customer experience. As your business grows, it can often be optimal to work with a 3PL for all of your order fulfillment needs.

References

Customer Retention Statistics – The Ultimate Collection for Small Businesses. (January 2021). Small Business Trends. 

What Is Dimensional Weight? (2022) FedEx.

You need to be able to meet customer demands and expectations without spending too much on inventory storage for product that is not moving. An inventory tracking system can help to optimize your inventory management solution. 

Using inventory tracking software can increase your profit margins, improve customer satisfaction, and simplify your business logistics. It is important to know what products you have and where they are. This is accomplished through an inventory tracking system.

What Is Inventory Tracking?

An important aspect of your business is to be able to track your inventory in real time. Inventory tracking involves knowing what SKUs you have on hand, where they are being stored, where they are in the retail supply chain (shipping from the supplier, in your warehouse, or being shipped to the customer), and what quantities are available at each of your locations. 

As your business grows and evolves, you will often need to advance your inventory tracking system. Inventory can be tracked through a variety of ways, including manual and automated processes. 

Inventory Tracking Systems

Inventory tracking systems allow you to track and monitor your inventory levels and quantities of each specific SKU in real time. This is typically performed using an inventory management dashboard, software, or program. 

Using inventory management software or an inventory management system is an efficient method for tracking your inventory. It allows you to know how much product you have where, and it provides a high level of accuracy and visibility. 

Who Needs Inventory Tracking?

Any business that sells physical goods will need some method of tracking inventory. The bigger the business and more product involved, the more advanced and streamlined inventory tracking should be. Large companies will use complex, automated inventory management and tracking systems, while smaller companies may opt to do these processes manually. 

As your company expands and sells more product, a more technological approach to inventory tracking is optimal. Inventory tracking systems can help your business to better manage inventory turnover and make more informed business decisions regarding your products.

Tracking Inventory Throughout the Retail Supply Chain

It is important to be able to track your inventory throughout the entire retail supply chain. This is much more than just counting your products and logging when they move. You will need to track and monitor your inventory as it comes from the supplier, turns over and moves through your fulfillment center and out to customers, as well as when inventory is damaged or returned.

Tracking Inventory From the Supplier

Buying product from the supplier is a massive investment. As such, it is important to protect this investment — to know where it is at all times. You need to track your inventory after you have purchased it, while it is still at your supplier, and while it is in transit to your fulfillment or distribution center. 

By knowing exactly where your inventory is, especially when it is not yet directly in your possession, you can help to maximize your sales and meet your customer demands. Failure to know the difference between inventory on hand and inventory that is still in your supplier’s hands can lead to missed sales, late deliveries, and difficulties with your inventory accounting.

Tracking Inventory Turnover

Inventory turnover is when your inventory is sold and replaced. A high and healthy inventory turnover indicates that your products are selling and moving well. On the other hand, if you have a low inventory turnover, this can indicate that your products are not selling as anticipated, and this can cut into your bottom line. 

By understanding the average turnover rate for each of your products, you can better optimize your inventory management. This can allow you to ensure that you replenish inventory as needed, set optimal reorder points, and make informed decisions about necessary inventory changes to boost profit margins

Tracking Inventory Returns

Inventory returns are an unfortunate and common aspect of e-commerce, and it is important to know when inventory is sent back to you. By keeping track of what products are being returned and why, you can make informed decisions on whether to keep stocking these products and if they are put back into rotation or need to be examined further. 

Tracking Damaged Goods

It is also important to account for damaged goods in your inventory, as these goods are not able to be resold and therefore should not be counted as regular product. They need to be reflected in a separate inventory tracking category and not as part of your general inventory levels. 

Benefits of Inventory Tracking

All businesses that sell physical goods need some type of inventory tracking. By using an inventory tracking system, you can be sure to meet your customers’ demand and expectations. You can also ensure that you have the proper amount of inventory on hand at all times (not too much and not too little) and be better able to make decisions about when to retire products or when to expand your product line.

Meet Customer Demand

In order to make sales and meet the demands of your customers, you will need to know exactly how much inventory you have available to sell. You cannot sell what you do not have. If you do not know what you have, it is possible to oversell and underdeliver, leading to customer dissatisfaction. 

By ensuring that you know what you have in stock in your inventory, you can provide a more seamless and enhanced customer experience. This can lead to better profit margins.

Optimize Inventory Management

With inventory tracking measures, you can make better decisions on how much inventory to have on hand at any given time. While you need to be able to meet customer demands and therefore need to have enough inventory on hand to do this, you also do not want to be spending too much money on storing excess inventory or inventory that is not moving as quickly. With an inventory tracking system in place, you can help to prevent stockouts as well as save money on extra storage or warehouse fees.

Informed Inventory Business Decisions

Using the data from inventory tracking, you can see what SKUs are performing well and which ones are not. SKUs that are not moving and are taking up costly warehouse space can be retired to save you money on your bottom line, for example, while high-demand SKUs can indicate that it might be time to expand your product line and add more products to your range. 

By using an inventory tracking system, you can make better inventory management and informed business decisions. 

Challenges of Inventory Tracking

Inventory tracking can be easy when your business is small, and you are not tracking very many orders at a time. But as your company expands and grows, inventory tracking can become much more complex and time consuming. The more inventory you have, the more difficult it can be to track, and the more important it will be for you to use an automated inventory tracking system. 

Inventory does not hold still either. It is constantly moving throughout the retail supply chain, and you need a robust inventory management system to keep track of where it is at all times. 

Lastly, inventory tracking can be very time consuming and take away from other necessary business concerns that deserve your attention. 

Inventory Tracking Solutions

There are a variety of inventory tracking systems and solutions out there, ranging from manual to automated and highly technological. The stage your business is in can play a role in what kind of inventory tracking solution will be best for you. 

Spreadsheets

An easy option for a smaller business, spreadsheets can help you track low volumes of inventory for products that are all housed in the same location. Your spreadsheet can contain columns of information, including these:

• SKU
• Quantity
• Storage location (such as bin number, shelf number, or room)
• Order information

However, as your business expands, it is easy to outgrow spreadsheets and require a more dynamic inventory tracking method that can give you a clearer picture of where your inventory is in real time. 

Card System

Card systems are rarely used today, as they involve manually tracking inventory and writing the information down each time inventory moves. This is extremely time consuming and prone to human error. More technological inventory tracking methods are generally used.

Apps 

Inventory apps are often a generalized solution that can help you to track inventory in a specific way. They can commonly integrate with your e-commerce sales platform for inventory tracking in real time. While this can provide a less tedious option for inventory tracking, it is also not very customizable and has some limitations.

Inventory Tracking Software

Inventory tracking software is a part of an inventory management solution that can integrate with your various sales platforms and channels to keep track of your inventory at all points in the retail supply chain. Inventory tracking software can range in complexity and what it offers. It is important to choose one that will suit your specific business needs and be able to scale up with your business as it grows.

Third-Party Logistics (3PL) Providers

You can outsource your order fulfillment logistics to a 3PL, which will then include inventory tracking processes and solutions. A 3PL will provide you with the ability to see and monitor your inventory at any point in the retail supply chain, providing you with visibility into your business. 

A 3PL can save you time and money, utilizing advanced technology and systems that can integrate with your platforms for seamless inventory tracking in real time. 

Benefits of Partnering With a 3PL Provider

Partnering with a 3PL can leave order fulfillment and all of the inbound and outbound logistics of your inventory, including tracking, to the experts. The entire inventory tracking system can be automated, integrated, and help you save money and time as well as predict future demand and reduce shipping costs and delivery times.

Integrated Inventory Solutions 

3PL providers often use advanced technology and software. They will commonly offer you a centralized and easy-to-read dashboard that you can access to see where your inventory is and how it is moving at any point in time. Their software will connect directly to your online stores for better visibility. 

Automated Tracking

The e-commerce fulfillment process can be fully automated when you partner with a 3PL provider. They can offer you real-time inventory reports, send orders directly to customers, and provide e-commerce order tracking that can be passed on to the customer to monitor the status of their order at all times. 

Cost-Effective Inventory Management

Using a 3PL provider, you can keep better track of your inventory, set automated reorder points, and optimize your shipping routes and inventory management options. A 3PL can help you to recognize what inventory is in high demand and what might need to be retired to save you money on warehouse costs. 

A 3PL provides you with better visibility into your inventory and the ability to make more informed business decisions. 

Demand Forecasting

Using order history data from an inventory tracking system with a 3PL, you will have the ability to better predict demand and understand seasonality (when sales are likely to spike). Recognizing these patterns and trends ahead of time can help you to keep up with future demand and optimize your inventory management processes. This can prevent stockouts as well as overstocking issues.

Split Inventory

Distributing your inventory among multiple fulfillment or distribution centers can optimize your shipping costs and routes. The closer your product is to the customer, the faster and more affordable shipping will be. 

3PL providers often have multiple fulfillment centers they can split your inventory between to save you money and enhance customer satisfaction. Packages will have a shorter distance to travel to customers when your product is distributed in this way, resulting in shorter shipping times and cheaper shipping costs.

References

Why Is Inventory Management Important? (August 2021). Business.org.