Neill Cartage and Warehouse recognizes that the decision to out-source key operational functions is not always an easy one. When assigning product fulfillment, warehousing and/or customer care to a third party, companies can feel vulnerable and exposed. These are valid emotions, yet these concerns can be addressed by thoroughly assessing the rationale for outsourcing, then most importantly finding a proven outsourcing partner that is properly aligned with your company objectives.
There are a myriad of potential reasons for outsourcing operational functions, but the majority of those reasons can be grouped into the following main areas:
- Core Competency
- Service Enhancement
- Capital Investment
- Efficiency and Cost
- Information Systems
At the root of the outsourcing decision is the concept of core competency. Companies seeking to outsource warehousing, fulfillment and/or customer care need to first assess if these core competencies are already embedded in their business, and if so are they executing these functions in an effective and efficient manner.
For some companies this is an easy decision. They have either not yet established these functions, or they recognize that these functions are not what they do well or cost effectively. They may also recognize that the value their company adds may come from areas such as marketing, retailing or product development, and functions such as distribution and call center management become “necessary evils.” In these circumstances, they should willingly look for a third party to improve their performance in these areas.
For others they may recognize that distribution and/or customer care are essential functions for achieving their company mission. This recognition does not necessarily mean that they should seek to build or maintain these functions in-house. Actually, it could mean quite the opposite. Utilizing a respected third-party provider, companies can gain “instant” core competency in these functions by leveraging the embedded and proven skills in their chosen service provider. If, however, a company views these functions as critical to their mission, already supports these functions in-house, and operationally exceeds customer expectations at the lowest cost…they probably shouldn’t seek to outsource these functions.
Closely aligned to the concept of core competency is that of service enhancement. Often companies begin by providing their own fulfillment or customer care services, yet they eventually realize that they do not have the experience or structure to consistently deliver a customer experience that they can be proud of. Such poor performance can stem from a variety off issues ranging from simple experience to a lack of systems and infrastructure.
Outsourcing to the right third party can be an effective means for quickly dealing with these inadequacies. A third party provider should have the people, processes, systems and support infrastructure to rapidly improve service levels, and in turn improve the customer experience and company profitability.
To deliver excellent service in warehousing, fulfillment and/or customer care requires a significant investment on behalf of any company. The infrastructure required for a call center includes a significant investment in phone systems, computers, servers and networking, queue management, customer relationship management systems, and facilities. An even greater investment can be required for a distribution center considering the cost of racking, forklifts, conveyors, automated material handling equipment, warehouses, computers, management systems, and shipping/manifesting systems. Not only do companies face the up-front investment in these functions, they must also constantly maintain and improve on these investments to remain at the forefront in their respective industries.
In addition to this asset-based capital investment, companies must also consider the working capital implications of running these functions themselves. Cash availability for payroll, benefits and insurance for customer care and warehouse employees can prove to be a major hit to working capital. In addition, this working capital investment is only semi-variable…if sales or orders are light in a given month, people and their related working capital requirements cannot be easily jettisoned.
When a company chooses to outsource, the up-front capital investment related to these functions is truly eliminated. A respected third party provider has already made the investments (and continues to make Investments) necessary to support its clients’ business. Ultimately, these costs will be recouped by the third-party provider in its billing to clients, but these investments will be spread over many clients making the expense very affordable. Furthermore, these costs are generally imbedded in a provider’s “per order” (fulfillment) or “per minute” (call center) pricing, allowing clients to pay for these investments as a function of their volume. In essence, using an outsourced solution allows companies to pay for their capital requirements in a cost effective and “pay-as-you-grow” manner. In doing so, capital is preserved allowing companies to strategically redeploy their cash for items such as marketing, sales or product development.
Efficiency and Cost
Not only must a company make a capital investment for their fulfillment and customer care operations, to be competitive they must also carefully manage these functions on an on-going basis to ensure they are delivering the required service at the lowest possible cost. To do so, companies need the management, systems and hardware expertise to wring costs out of their operation. Furthermore, volume, either in terms of calls or orders processed, is inherently a key driver of unit cost. If a company is not working with sufficient volumes they will be incapable of delivering a true low-cost solution.
A proven outsourcing partner on the other hand is inherently focused on the day-to-day operation of these functions. All time, attention, and investment is geared around the efficient and cost effective delivery of these services. They have to provide this focus and attention… it’s not just another corporate function, it’s their business. In addition, these third-party providers are working for several clients and processing thousands of orders and calls per day. As a result they can truly streamline their operations to deliver highly efficient solutions.
On the fulfillment side, efficiency and cost reduction can also be garnered by utilizing the multiple warehouses and the freight clout of a third-party partner. With multiple warehouses, products can be positioned closer to the customer and in-turn can reduce overall freight costs while improving delivery time-in-transit. In addition, third-party fulfillment companies ship a significant amount of freight with a wide range of small parcel and less-than-truckload (LTL) carriers. As a result of their volume they are able to garner significant freight discounts that are generally available to only the largest companies. These discounts are often shared with their clients, thus further reducing the cost of product delivery.
Flexibility comes in many forms. It can be maintaining the staffing to meet the variability in daily orders and customer care inquiries. It can be having the resources to support specific marketing or sales campaigns that generate back-end operational “spikes” in the business. It can be the ability to get in and out of product segments or markets without incurring large set-up or termination costs. It can also be maintaining an organization that tests concepts, learns as it goes, and modifies operational approaches based on this learning. Flexibility in itself can be a key strategic component and can even create a sustainable competitive advantage. However, when pursued, this flexibility is not free. It can carry a significant cost for any company that wants to remain truly flexible.
To counteract the high cost of flexibility, companies can seek an out-sourced solution that is billed on a variable basis. Rather than having dedicated staff for the sake of flexibility, companies can literally buy this flexibility “as-they-go” by working with a third-party partner. Peak workload, either on a daily basis, or tied to a specific program, can be handled very incrementally by any out-sourced operation of sufficient size and scope. Trusted out-sourcing partners are also expert at the rapid deployment of new programs or products…they do this each and every day as they work to meet the needs of their clients.
In addition, purchasing flexibility does not need to be an all-or-nothing proposition. Working with a third party, companies can outsource individual programs or even peak demand to meet their flexibility goals.
Often overlooked, but vitally important, companies must maintain robust yet flexible information systems and networks to meet their fulfillment and customer care needs. This is no small task. For customer service and sales, comprehensive CRM and phone systems must be deployed to capture all relevant customer data and customer interactions. To be truly effective these systems must include every customer touch point including phone, e-mail and fax correspondence (inbound and outbound). Furthermore, these systems must be well integrated with the sales order and shipping processes to ensure that customer care agents have the necessary information to respond to customers on a real-time and fully accurate basis.
On the fulfillment and warehousing side, not only must the systems meet the basic requirements of inventory control and order processing, they must be flexible enough to respond to changing markets, product configurations and technology requirements such as RFID. To generate true productivity in the distribution center, they must also be more than an extension of an accounting system. Ideally, these systems should support a range of automation technologies that streamline the fulfillment process and ensure the highest standards of order accuracy.
To support these systems companies must also make the investments in their server and data centers to ensure the required up-time for their operations. Even small outages can generate negative customer experiences ultimately impacting the bottom line.
To address, or avoid, these system issues a company can seek an out-sourcing partner committed to information technology. In doing so they can avoid the cost and ongoing headaches of managing their technology and can instead focus on the value added activities within their business.