10 Steps to Providing Fulfillment Services

by: Tom Quinn, Mailing & Fulfillment Service Association (MFSA)

In the Summer 2008 issue, I discussed the potential benefits that might be realized through the addition of mailing and fulfillment services to a bindery operation. This article outlines the “How To” – a step-by-step process to starting a fulfillment operation. The following steps are presented in what is considered the optimal order. However, the incorporation of fulfillment services in non-fulfillment operations is very seldom orderly and optimal, so using the data as a guideline or checklist is suggested.

Step 1 – Type of Fulfillment

It is my recommendation that a bindery should focus its fulfillment activities on specific applications. There are many types of fulfillment, but the last two surveys completed in conjunction with the annual MFSA/NAPL Fulfillment Conference substantiated that fulfillment projects (handwork) and literature fulfillment are the top applications completed by printing companies and are therefore suggested for bindery operations as well. These applications are a natural extension of print and bindery work and represent basic fulfillment. It is important to understand that a literature fulfillment program, which requires the printer/binder to store and ship material for an infinite time period and maintain world-class inventory accuracy, also will bring other applications. These additional applications include database management, returns processing, tradeshow and special events support, premiums management, print-on-demand applications, lead inquiry fulfillment, and others. These applications are all a natural extension of “capturing the sales collateral material”.

There is a tendency for companies that are new to the fulfillment business to find fringe applications, which require either special software or additional capabilities. These applications would include product fulfillment, e-commerce, and other applications not associated with the material printed for the customer. The primary reason for a bindery operation to enter the fulfillment business should be to keep the bindery equipment running and – secondarily – to develop the customer as a partner. The survey previously referenced also provided important data illustrating that customers on fulfillment programs show a growth in volume and at higher margins. This is a good reason to keep your sales personnel focused on the literature fulfillment projects and programs.

Step 2 – Selecting the Right Software

It is extremely important that companies entering the fulfillment market select the correct software for their applications and company strategy. The fulfillment industry is fortunate to have five very competent and experienced vendors providing fulfillment software. Each of these vendors understands the back end of the business. The true test of fulfillment software lies in the ability of the software to guide the management of inventory and to provide the correct tools for world-class inventory accuracy for fulfillment customers. Listed below are the names of the five fulfillment software vendors that also are MFSA members. Each of these software packages has specific strengths, and I suggest having the companies provide detailed demonstrations. More information can be found on each vendor by browsing the MFSA web site at www.mfsanet.org.

Step 3 – Fulfillment Facility

If at all possible, the fulfillment facility should be located separately from the bindery facility. The primary reason is that bindery operations can function very efficiently in buildings with 8-foot ceilings and several dock doors. A fulfillment facility should have at least 20-foot-clear ceiling heights to allow installation of racking, which will stack up to 4 pallets high. Think high and don’t be afraid to consider large footprints for the building in the beginning. Once you get started in the fulfillment business, you will find it is quite easy to get up to 1,000 pallets in a hurry. A good migration strategy is to find a local developer of office/warehouse space with excess inventory. This developer will be glad to provide additional or temporary space for you in the future. See the diagram below for an excellent start-up 17,500 sq. ft. facility with the potential to provide up to $2 million in revenue. Please note on the diagram the number of dock doors (4), the material flow, the lighting in the aisles, the space for handwork, and the accessibility of telephones, computers, and electrical outlets. These factors are all important to the successful operation of a fulfillment center. Remember to “think high” when researching fulfillment facilities.

Step 4 – Equipment

The equipment requirements for a fulfillment facility are as follows: pallet racking and shelving, forklift, electric pallet jack, pallet jacks, hand trucks, picking carts, counting scales, floor scale, pallet wrapper, computer workstations, shipping workstation, receiving workstation, hand pallet strapper, work tables, and several sections of adjustable and expandable conveyors. Based on your individual fulfillment facility, you also may need a dock plate for receiving. Individual applications, such as large point of purchase materials, may require specific equipment. Most of this equipment can be purchased second hand, without fear of premature failure. It is important to start simple and to master the basics of warehousing and inventory control with the essential tools of the trade before proceeding into something more sophisticated. A start-up approach that keeps things simple and efficient has always worked in the past.

Step 5 – Supplies

The supply requirements for a fulfillment facility are as follows: packaging materials and tape, boxes, pallets, cleaning supplies, strapping materials, and specialized shipping containers for special applications. These are materials that are already available in the shipping department of most binderies. The only difference is the large variety of packaging materials that may be required, such as padded envelopes, Tyvex envelopes, and special corrugated boxes for kits.

Step 6 – Networks and Phones

The amount and type of computer hardware required will be dependent on the software vendor selected. Several software vendors require fully hosted applications in your facility, which require the procurement of servers and the installation and maintenance of software in your facility. Other software providers (Applications Service Providers or ASPs) are accessible through a web browser and store the operational program and software in a central location. In either case, make sure you follow the manufacturer’s suggested configurations for optimal operation. This is not the place to skimp. Sharing servers and telephone lines with bindery operations will slow the operation of your program down and adversely affect customer operations. This is a high-tech business and you need to respond in a high-tech fashion. Do not try to cut corners in providing the right access to web sites and operational equipment.

Step 7 – Personnel

Most fulfillment centers can be started with two or three people, namely a fulfillment manager, warehouse manager, and a warehouse/fulfillment specialist. The fulfillment manager should be a fulfillment industry expert and have a very thorough operational understanding of the fulfillment software package being utilized. This fulfillment manager also should have the ability to make sales calls and to guide clients through the fulfillment set-up process, serving as the initial customer service person. The warehouse manager should be hired at the onset of the operation, because that person will be responsible for installing the most important part of the fulfillment system – the warehouse management system – and will be responsible for writing all back-end procedures and training new personnel as the center grows. The warehouse/fulfillment specialist need not be a full-time employee, but can be a bindery person who can be trained and utilized as necessary. Fulfillment projects can be completed by temporaries with the warehouse manager or specialist providing needed supervision. Please note that there are no direct IT personnel assigned to the center. If you have in-house IT staff, they should only be utilized as necessary and not assigned directly to the operation. All IT time spent with the fulfillment center should be billable to the customer. A beginning fulfillment operation is just not profitable enough to sustain a full-time IT employee. The most common mistake made by start-up operations is over staffing – and that affects bottom line performance.

Step 8 – Sales and Marketing

Most companies are dragged into the fulfillment business by their customers. In fact, 88 percent of the companies responding to the last MFSA/NAPL Fulfillment Conference survey stated that as the primary reason. Getting into the business is not as hard as growing it and making it a profitable entity. It is imperative that company ownership and management make a concerted effort to market and sell the fulfillment capability to current customers and to use the fulfillment capability to add new customers. Utilize existing sales personnel to open doors, and then have management or the fulfillment manager drive the sale from that point forward. More sophisticated, larger operations may need a specialist in the business to provide establishment selling skills to the organization. The ownership also must provide a basic marketing campaign to take the new service and new company message forward to existing and potential client bases. Do not depend solely on existing sales personnel to develop their accounts, as there is often a general reluctance on the part of sales personnel to offer new services to their clients.

Step 9 – Pricing

Establish a pricing matrix for the fulfillment operation that includes all services completed. Some of these parameters, such as storage and customer service, will not have been charged by bindery operations in the past. Justification to the customer will have to be developed and presented by sales personnel. Following are basic pricing parameters that may be specified:

• Storage – $/pallet/month
• New Product Set-up – $/set-up
• Warehousing – $/hour
• Receiving – $/receipt
• Cycle Counts – $/hour
• Order Receipt – $/order
• Fulfillment Cost – $/order
• Shipping Materials – Cost + %
• Reports – $/report
• System Usage Charge – $/month
• Customer Service – $/hour
• Initial Set-up Charge – Total $

For more information on how to establish the values of these parameters, watch the MFSA web site for the How to Price Fulfillment webinar.

Step 10 – Commitment

A bindery can easily enter into the fulfillment business with a $200,000 investment. This is much less than the cost of most pieces of equipment utilized in the bindery business. However, there is an investment required in time and dedication to understanding, driving, and growing the fulfillment operation. A business can increase run size, improve margins, and decrease turnover (by up to 300 percent) by incorporating fulfillment into your service mix. So do it right – the first time. I wish you good selling.

Tom Quinn is the director of fulfillment services for the Mailing & Fulfillment Service Association. Quinn was a featured presenter at the BIA Mid Management Conference in May of 2008. This article is the second in a series of two which address the addition of mailing and fulfillment services to bindery operations. For more information, contact Quinn at tquinn@mfsanet.org.