It’s March Madness, and for most of us that means one thing: Brackets.
According to many reports, 70 million people filled one out this year, including some of us who have already had our hopes dashed by early tournament upsets.
Imagine if there were a similar process for narrowing down your company’s network of warehouse and fulfillment centers. How would you go about choosing your final contenders, and what criteria would you use?
It’s easy to believe that your DC network needs to match the reach and speed offered by Amazon’s logistics arm, Fulfillment By Amazon. But that’s not always true – or economically feasible. In fact, a lot of choosing the optimal fulfillment center network configuration comes down to your customer base and the kinds of products you sell.
With that in mind, here are seven important questions (taken from Amware’s free eBook, How Many Fulfillment Warehouses Do You Really Need?) that every company should ask before it fills out its ultimate DC bracket.
1. How much do your customers care about fast delivery? If you operate a single warehouse, it will enable you to reach most of your U.S. customers in three days or less, on average, provided it’s located near the middle of the United States. The question is, is that order fulfillment process timeline competitive enough for your customer base? Or do your customers expect faster turnaround times?
2. How does your product stack up against the competition? Consumers are more tolerant of longer delivery times if your product is a one-of-a-kind or hard-to-attain item. In contrast, if your product isn’t unique or doesn’t carry the cachet of a strong brand, faster delivery speed (and the additional DCs that enable it) may be a competitive lever you need.
3. Which is higher – the money you stand to save on transportation or the cost of expanding to an additional warehouse? Generally speaking, adding fulfillment centers so that you can be closer to end customers will result in significant parcel delivery savings. For example in our experience, adding a second fulfillment center will result in a total savings of 5% to 10% once inventory and labor costs are factored in, while adding a third center can bring parcel savings of 25% or 30%. It’s important to run the numbers to make sure you’ll actually realize those kinds of gains. These savings can then be compared to the added facility, labor and inventory costs required for facility expansion.
4. How many SKUS does your company offer? Variety is the spice of life. But it’s also the bane of many logisticians’ existence, because as SKUs multiply it becomes increasingly expensive and difficult to accurately spread inventory across multiple locations. The more streamlined your SKU count is, the easier it will be to seamlessly add fulfillment centers to your distribution network.
5. What additional facility costs and responsibilities are you equipped to take on? If adding another fulfillment location or two seems like the right choice, think carefully about whether or not your company is prepared to handle all of the start-up activities that will be involved. For example, are you ready to take on the work of choosing the right region of the country, finding a building, negotiating a lease, buying equipment and hiring workers – all while still serving your expanding customer base? Just as important, are you prepared to handle ongoing costs such as lease payments and a bigger payroll? If not, it’s still possible to move forward with an expansion. However you may want to consider bringing an experienced, asset-based 3PL into the mix before moving forward.
6. Would expanding your fulfillment network increase your revenue? As a general rule, expanding into additional warehouses might be a profitable move if at least one of the following three statements are true:
- A large portion of your customers insist on shipping that is free and fast and might not buy from you if you don’t provide this level of service.
- You’re convinced that a lot more consumers would buy from you if you could deliver faster.
- You can charge enough for your products to cover the extra costs you’ll incur.
If none of these statements fits your situation, it may make more sense to stick with your current configuration and then partner with a 3PL that has a nationwide network of fulfillment centers and can help you scale when the time is right.
7. How far has your company evolved? There are many advantages to operating more than one fulfillment center. But a single location has advantages if your business is in the early stages of growth. Among other things, this single-center approach allows you to develop a good operational baseline and to identify key patterns in your customers’ demand – things like which SKUs move the fastest and how order volumes rise and fall throughout the year. Once you’ve established this solid operational foundation, it’s much easier to consider geographic expansion.
For more information about these questions – and other key criteria that you could use to put together your “dream team” of fulfillment partners, we encourage you to download our free eBook today. Or if you’d like to bounce some ideas off of an experienced fulfillment services partner, drop us a note. We’re always happy to help.
We hope these questions offered some insight on “Bracketology” as it relates to choosing a winning fulfillment center. Enjoy the Final Four!