I use the term WMS (Warehouse Management System) in the title, but I’ll use FMS (Fulfillment Management System) going forward. WMS is a common industry term and why it’s used in the title of this post. Direct To Consumer order fulfillment is very different than a “warehouse” and has it’s own unique set of needs.
Once the orders start rolling in, and inventory levels begin to grow, it’s critical to choose the right order fulfillment strategy. Most startups have three options.
- Keep order fulfillment in-house and develop your FMS (Fulfillment Management System).
- Keep order fulfillment in-house and purchase a third party FMS.
- Outsource order fulfillment operations (using 3PL’s FMS).
My choice? Option 1, and here’s why:
1.) Flexibility – Your business is growing rapidly and you’re still figuring out who you are going to be. Developing your FMS in-house will allow you to create the appropriate tools for each stage of your operations growth.
Your business is unique and will require features that off the shelf systems just don’t offer. You can pay for the “go live” modifications (mods), but be prepared to keep paying. If you look at the price of the mods combined with the cost of the operation not having the tools when first identified, you could have easily paid an on-staff developer to code those changes.
WMS/FMS vendors speak poorly of “legacy” systems (systems designed in-house). If your business is growing, you will certainly outgrow the processes in your current FMS. That’s why it’s critical to treat your FMS as a product that you’ll continue to develop as your business changes.
I was speaking with a coworker a few weeks ago, and we both agreed that companies that are innovative and are actually disrupting their industry were active at operations technology very early on.
They chose not to use a third party system because of how it would impact their ability to provide the service that sets them apart from their competition.
Why not use a 3PL?
You can use a 3PL to get started, but I would strongly encourage having an understanding of what it would take to bring your operation in-house. There’s something to “eating your dog food, ” and it will only make you a better partner to the 3PL company you choose.
There’re a lot of ways to partner with a 3PL in a long-term arrangement; you just need to understand the trade-offs.
And don’t worry, building your WMS will cost less in the long run.
2.) Real-Time Inventory – Developing your FMS in-house will ensure the inventory in your FC and on your website are always in-sync. It’s critical that inventory adjustments are updated on the website as they happen. If it doesn’t happen real-time, it should happen as soon as possible. I’ve seen hundreds of thousands of dollars in orders canceled due to inventory discrepancies.
And notice that the paragraph above says “in your FC’s picking locations.” You can show inventory on the books when received, but I would recommend not making it eligible for sale until the item is in a saleable location.
But what about reserve inventory? If possible, stay away from it. If it’s needed, having your own FMS will allow you to develop a process that’s will eliminate replenishment. Direct to consumer order fulfillment is very different than product distribution from a distribution center, so be aware of what application your FMS is designed for and ensure it meets your needs.
3.) Quality – Developing your WMS will allow you to create a process that has built-in quality checks where it matters the most. You also have control over how to correct errors and other exceptions.
Exception processes are a typical “black hole” for many off the shelf systems.
Inventory control modules in a third party system seldom meet the needs of a direct to consumer operation. You may be forced to use a storage medium not appropriate for your process because cycle counting tools only support one storage method.
Oh.. If you’re still doing a physical inventory, consider developing a quarterly cycle count program that your auditors will approve. Physical inventories are a thing of the past and will eventually have an adverse impact on your ability to serve your customers.
4.) Reporting – Your operation is unique and needs more visibility than “canned reports” will provide. Standard reporting will probably give you 80% of what you need, but the last 20% allows you to provide the extraordinary service that sets you apart from competitors
5.) Continuous Order Flow To The FC – If your operation has a goal of same-day processing, it’s critical that the FC receives orders immediately once the customer submits them. A continuous workflow will also increase your operations capacity and reduce the need for material handling equipment and other forms of automation ($$).
Keep in mind there are always exceptions to every rule and your business has its unique set of needs