The majority of firms tick along nicely for most of the year and do not fluctuate much, making it easy to keep control of overheads. Firms know how many staff they need, how much warehouse space to rent and what level of raw materials they need to stock. However, problems can arise when demand for products suddenly soar – for example, when a new product is launched and it is an immediate success. At this point firms need more of everything and need it quickly. However, finding extra warehouse space and the staff to pick, package and deliver the extra orders that are pouring in from the company’s website is not easy.
Flexing down when things slow down again can also be difficult. Firms can find themselves with long-term contracts for warehouse space and equipment that extends beyond their peak in orders. Profits made from a peak in sales can quickly be wiped out by extra overheads.
Third party order fulfillment
Fortunately, there is a simple solution and that is to use a third party fulfillment It is possible to use a third party firm to store finished products, as well as to pick, pack and deliver goods to customers. The third party fulfillment firm takes all the risks.
The companies who use their services just have to a fee for each pallet stored and another for each item picked, packed and delivered to customers. This approach ensures that a company has a distribution system that is extremely flexible and responsive without generating huge overheads.