Rise of the Fulfillment Industry

In the past, the traditional business model was such that every step of the business process was performed ‘in-house,’ meaning from a Fulfillment perspective that Companies owned and maintained their own ‘Fulfillment Houses.’ However, the rise of the Internet, computerization and growing integration of database systems, has not only made it possible, but in many ways attractive, for Companies to outsource their Fulfillment needs to specialized Fulfillment Companies. These dedicated Fulfillment Companies make it their business to provide a wide range of customizable fulfillment services that meet the specific needs of each of their client companies. There are many advantages for companies to outsource their fulfillment requirements to a dedicated Fulfillment Company. Below is a Pros and Cons list, which highlights the points that are factored when a company is making the decision to outsource:

Pros

• Fulfillment Companies are able to generate more volume then a single company by itself, simply because they are performing the fulfillment needs of multiple companies. By virtue of this greater volume a Fulfillment Company is able to provide fulfillment services cheaper than if a single company invested in their own Fulfillment House.
• The cost/benefit ratio is typically better when a company outsources to a Fulfillment Company simply because of the ‘shared’ resources factor. A Fulfillment Company is singularly responsible for investing and maintaining the Fulfillment infrastructure, while the client companies are mostly paying for the Fulfillment output or benefit, meaning more benefit for monies spent on Fulfillment services.
• Allows companies to focus more time and resources on their product development and business models as opposed to the operation of a Fulfillment House.
• Fulfillment Companies allow small companies who do not have the financial resources to invest into a Fulfillment House of their own, to compete with bigger companies who maintain their own Fulfillment Houses. Similarly, Fulfillment Companies also enable new companies to quickly get their product to market without the time and resource consuming need to develop a Fulfillment infrastructure of their own.
• Although it may seem that outsourcing could put the quality of a company’s fulfillment process at risk, there is also the potential that the quality would actually be much better than if the company had chosen to develop their own fulfillment infrastructure. The reason for this is because the Fulfillment Company, in order to maintain its competitive edge against other Fulfillment Companies, will want to be continually improving on how they perform their fulfillment services, which in turn would improve the quality of these services.

Cons

• Touching again on the point above, a Company by outsourcing their Fulfillment House services, will lose control over the fulfillment process and in turn the ability to maintain their own quality standards. Without this control it is feared that this could result in a drop in the quality of a Company’s Product Fulfillment. However as mentioned earlier, this is not necessarily the case.
• There is the possibility of a slight performance hit when a company outsources to a Fulfillment Company. A Fulfillment Company in servicing the fulfillment needs of multiple client companies will as a result be required to queue each fulfillment task typically on a FIFO (First In First Out) basis.
• The line of responsibility regarding product damage or shrinkage can often become blurred between the Fulfillment Company and the Client Company.