May 21, 2009, 12:00 AM

When outsourcing fulfillment, it pays to demand performance, expert says

Finding the right outsourcing partner for a retailer’s fulfillment needs can make all the difference in an online retailer’s success, but retailers should set performance targets in areas like order-to-delivery times, consultant Marc Tanowitz says.

Katie Evans

Managing Editor, International Research

Finding the right outsourcing partner for either all or part of a retailer’s fulfillment needs can make all the difference in an online retailer’s success, but retailers should hold fulfillment providers to minimum performance levels in areas like order-to-delivery times, says Marc Tanowitz, a principal with consultants Pace Harmon.

“It’s easy to find outsourced fulfillment that’s cheap and ineffective or that’s effective and expensive, but it’s hard to find something that’s both inexpensive and effective,” he says.

Nonetheless, retailers can find good and fairly priced outsourced fulfillment arrangements, he adds, if they do their homework. The key is for a retailer to identify its needs, such as improving customer service and order-to-delivery times, reviewing the capabilities of each potential fulfillment provider, then signing a contract with agreed-upon performance levels.

A performance agreement might establish, for example, a 5% discount if less than 95% of order-to-delivery times fall below a certain average within month, followed by a 7.5% discount in a second consecutive month, and 10% in a third consecutive month, Tanowitz says.

A retailer could also seek terms that would establish larger discounts for low fulfillment performance levels related to its most important product categories-for example, those most popular with customers or with the highest profit margins, he adds.

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