The order fulfilment and e-commerce sector caters to new market
participants more than almost any other, so we get a lot of questions
about how fulfilment and e-fulfilment actually works. We have gotten a
lot of questions lately about minimum order volumes, fees, and storage
levels and how they work in the third party fulfilment market, and I
will try to answer some of those today.
What is ‘minimum order volume’ in third party fulfilment?
Online retailers who are looking into potential third party
fulfilment partners will have to understand how minimum order volume can
affect them. Not all fulfilment houses have a minimum order volume, of
course, but you’ll need to understand what it is before you can really
compare the prices and services offered by different 3PLs.
If you contract with a 3PL for a minimum of 500 orders per month,
there will be consequences if they process fewer than 500 orders from
you in a month. Many will charge a default fee for not meeting that
minimum. Others will charge you as if you had used the minimum number of
orders regardless of actual use. Read the minimum order requirements
carefully when comparing pricing schemes.
What about ‘minimum monthly fees’?
This is a very similar concept. Some fulfilment or logistics
providers have an absolute minimum amount you will pay every month,
regardless of actual activity, usage or order volume. If you have a
monthly minimum fee of £500, and your usage would only result in a £300
bill, you’ll be charged £500 anyway. On the other hand, if sales meet
your expectations, you may never run into a minimum. Just be aware of
what it means, and consider it when choosing a provider.
And minimum storage levels?
Again, the same concept but a different application. Some fulfilment
partners charge for a minimum amount of storage space used, even if you
don’t use quite that much. It may be calculated by square foot, by
pallet, or even by SKU, but if your contract calls for a minimum storage
level of 5 pallets and you pay £20 per pallet used, you’ll never pay
less than £100 no matter how few pallets you actually use. Of course, it
can (and really should, unless something is wrong) rise above the
minimum amount.
So what do I do if I’m paying for these minimums every month?
If you find you are constantly running against these minimum
payments, it is likely hurting your profitability. Try to renegotiate
your contract, of course, but also look at the prices other fulfilment partners offer such as Fairway Fulfilment & Logistics.
Still, you might not have to move. One company’s minimum charge might
even be lower than your actual use at another provider. Just make sure
you do the math.
