Outsourcing Product Distribution the Right Way Essay

Chain online magazine Aug. 2, 2000 For Internet companies that piece of assnot afford to buy and stock certificate their inventory or hire an internal logistics staff, startsourcing the product scattering shape can be either a smart avocation last or a disaster. Success or failure in scattering depends on how c arfully and continuously you carry away this business to make authentic your distribution partners are doing the job that is expected.When distribution is not a cell nucleus competency for your company and you do not have the resources to make it one, outsourcing the assist can suspensor your company grow by allowing you to focus on your mission-critical activities. There are two types of outsourcing that are common among start-ups traditional distribution and drop channel fulfillment (DSF). Traditional distribution outsourcing involves hiring a ternary party to store and distribute your products through its national or world(prenominal) distribution network this party provides the staff, warehouses, distribution center and transportation fleet.The snatch type of outsourcing, DSF, has grown in parallel with B2C retailing over the Internet. With DSF, a start-up company sells a product, charges the customer, generates a purchase localise, and sends the PO to the maker or supplier, who then fulfills the order by shipping the product bringly to the customer. Since the start-up neer possessed the product, the company does not incur any of the costs associated with storing or purchase the product. Many Internet start-ups have adopted this streamlined business model.Unfortunately, companies use up to be careful when choosing an outsourcing partner. Outsourcing is not a panacea if your third-party electrical distributors procedures and performance are not carefully monitored, you risk permanently alienating the customers you have worked so hard to attract. The key to a prospered outsourcing relationship includes understanding the proce ss, specifying objectives, establishing internal procedures for evaluating performance against objectives, and deploying dusts that help to manage the function effectively. Watching Costs and ServiceIf the manufacturer or distributor, which may be the same company, fulfills the customers order correctly, everyone is happy. However, in most cases, thither are problems in one or more of these key areas guest service Another company may be distributing your products, but in conclusion you are responsible for the customer relationship. True, your company does not have direct control over the distribution process, but the customer only cares nearly receiving the product not who sent it or how it got there. If something goes wrong, you are responsible and mustiness do what is necessary to correct the situation. Shipping costs Most manufacturers are hatfulup to ship truckloads or pallets of products, not multiple orders of a case-by-case product.There are also manufacturers that require you to purchase more products you strike, others set ridiculously high prices for the service, and some simply will not ship the orders. In some cases, start-ups are kitting a number of products, not because it adds assess for the customer, but because it pushes the dollar value of their order above a door where the manufacturer will agree to DSF the products. Profitability Shipping costs this instant affect your bottom line. Many start-ups are diging along the manufacturers shipping costs to their customers, raising the price of their products and putting themselves at a disadvantage in a competitive market. If the start-up does not pass along the entire cost, the shipping expense cuts into the profitability of every transaction. acquiring Automated Help Successfully managing a third-party distributor requires establishing internal observe processes and requiring that specific employees are responsible for this function.These employees should also be responsible for ontogeny and deploying computer systems to help automate the management function. Here are atomic number 23 critical requirements for your outsourcing relationship with your distributor Establish measurable standards for distributor performance. organise periodic performance reviews. Visit distributor sites to check security procedures (only if the start-up owns the inventory). varan customer feedback and satisfaction levels. As sales mountain grows, periodically revisit the decision to outsource the distribution function.The right computer system can improve your ability to manage the distribution function in cardinal areas Communication To allow you to automate communication with your suppliers and manufacturers, you must establish a back-end system. This means that you should not rely just on basic email, generated by an employee, to track orders. For example, you send the supplier an email to check on a backlogged product, someone then emails you back with a respon se, and lastly you re-key the information into your system imagine a handful of employees checking 500 products.To be more efficient, you need a system that will scale this function as your volume expands and will use automated email, fax, Web portals and/or EDI to communicate order information. Visibility You must know if a product is available forward it is sold, and you cannot know this until you view your suppliers inventory to find out how much product you have been allocated and what is available. To do this, you need an application that provides you with profile into your suppliers inventory tracking system. Track and Trace Customers desire to know the status of their orderWhen was it shipped, where is it now, and when will I get it? If you deficiency to retain customers, you need to be sure your computer system helps you manage returns, exchanges and refunds efficiently. A consulting organization that specializes in distribution and transportation can help you setup effective internal processes and, if necessary, build and deploy the computer systems you need to manage an outsourced distribution function for maximum benefit.Part of a advisers value can be in the area of intimacy transfer, educating your organization on how the distribution and transportation function works at the macro level and helping you set realistic expectations. In the final analysis, outsourcing the distribution function can make perfect sense for your minor company but only if you remember not to outsource the obligation of keeping your customers happy.