Outsourcing Product Distribution the Right Way Essay

range of a matter online magazine Aug. 2, 2000 For Internet companies that chiffonier non afford to buy and store their muniment or demand an intimate logistics staff, outsourcing the overlap dissemination function cease be either a smart business decision or a disaster. Success or ruin in distri bargonlyion depends on how cautiously and continuously you succeed this function to provoke sure your distri exception partners atomic number 18 doing the antic that is expected.When statistical dispersion is non a centre competency for your comp whatever and you do non have the resources to attract it one, outsourcing the function do-nothing help your club grow by allowing you to focus on your mission-critical activities. There are two types of outsourcing that are common among start-ups handed-down distribution and drop ship fulfilment (DSF). Traditional distribution outsourcing involves hiring a one-third party to store and distribute your products finished it s national or international distribution network this party provides the staff, warehouses, distribution fondness and transportation fleet.The second type of outsourcing, DSF, has grown in parallel with B2C retailing all over the Internet. With DSF, a start-up company sells a product, charges the customer, generates a purchase golf-club, and sends the PO to the manufacturer or provider, who then fulfills the put together by transferral the product drop downly to the customer. Since the start-up never feature the product, the company does non incur any of the costs associated with storing or purchase the product. many an(prenominal) Internet start-ups have adopted this satiny business model.Unfortunately, companies pauperisation to be wary when choosing an outsourcing partner. Outsourcing is not a panacea if your third-party distributers procedures and performance are not carefully monitored, you risk permanently change the customers you have worked so hard to attra ct. The appoint to a successful outsourcing relationship includes correspondence the process, specifying objectives, establishing internal procedures for evaluating performance against objectives, and deploying frames that help to manage the function effectively. Watching Costs and dish upIf the manufacturer or distributor, which may be the same company, fulfills the customers order correctly, everyone is happy. However, in most cases, there are problems in one or to a greater extent of these key areas Customer service another(prenominal) company may be distributing your products, but ultimately you are creditworthy for the customer relationship. True, your company does not have direct control over the distribution process, but the customer only cares about receiving the product not who sent it or how it got there. If just aboutthing goes wrong, you are responsible and moldiness do what is incumbent to correct the situation. Shipping costs nearly manufacturers are setup to ship truckloads or pallets of products, not multiple orders of a one product.There are also manufacturers that bespeak you to purchase more products you need, others set ridiculously high prices for the service, and some simply testament not ship the orders. In some cases, start-ups are kitting a number of products, not because it adds apprize for the customer, but because it pushes the dollar value of their order above a doorsill where the manufacturer testament agree to DSF the products. profitability Shipping costs directly alter your bottom line. Many start-ups are passage along the manufacturers merchant vessels costs to their customers, raising the price of their products and putt themselves at a disadvantage in a competitive market. If the start-up does not pass along the entire cost, the shipping disbursal cuts into the profitability of every transaction. Getting machine-controlled Help Successfully managing a third-party distributor requires establishing int ernal monitoring processes and requiring that specific employees are responsible for this function.These employees should also be responsible for developing and deploying estimator systems to help automate the management function. Here are fin critical requirements for your outsourcing relationship with your distributor draw measurable standards for distributor performance. Conduct biweekly performance reviews. Visit distributor sites to interference security procedures (only if the start-up owns the bloodline). Monitor customer feedback and enjoyment levels. As sales volume grows, periodically revisit the decision to outsource the distribution function.The right computer system can improve your ability to manage the distribution function in three areas conversation 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 primary 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 response, and final examinationly you re-key the information into your system call up 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 machine-driven email, fax, Web portals and/or EDI to communicate order information. Visibility You must get along if a product is available before 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 operation that provides you with visibility into your suppliers inventory tracking system. Track and Trace Customers compulsion to know the status of their orderWhen was it shipped, where is it now, and when will I get it? If you want to check customers, you need to be sure your computer system h elps you manage returns, exchanges and refunds efficiently. A consulting establishment 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 level best benefit.Part of a consultants value can be in the area of knowledge transfer, educating your organization on how the distribution and transportation function works at the macro level and luck you set realistic expectations. In the final analysis, outsourcing the distribution function can make perfect sense for your small company but only if you remember not to outsource the responsibility of keeping your customers happy.