Fulfillment Services -- Benefits, Challenges Of Fulfillment

When the National Association for Printing Leadership (NAPL) asked participants in an economic survey which service areas they expected to grow fastest over the next two years, fulfillment topped the list, cited by 59.6 percent of respondents. Not surprising: The association's research shows that, perhaps more than any other area of service diversification, fulfillment is customer-driven.

As more and more print customers seek to limit the number of suppliers they deal with, they're calling on one or two key providers to supply a wide array of fulfillment services.

According to NAPL's working definition, fulfillment entails the storage, management and timely distribution of a client's materials (literature or products, for instance) to the client's distribution outlets or end users. Fulfillment services can range from basic pick-and-pack operations to sophisticated, Web-enabled programs that provide client interfaces and order and inventory management.

When implemented properly, fulfillment can have a positive impact on the sales and profit performance of the entire organization. According to the NAPL 2005 Survey of Fulfillment Practices:

* 76.2 percent of survey respondents reported an increase in overall print volume from clients using their fulfillment services.

* 61.9 percent said overall client profitability increased as a result of offering fulfillment services.

* Fulfillment decreased client turnover from 13.1 percent for customers purchasing printing only to 5.7 percent among clients buying both print and fulfillment.

But there are several challenges for printers seeking to establish a successful fulfillment operation. For instance, graphic communications industry analyst Heidi Tolliver-Nigro, author of NAPL's "Diversifying With Value-Added Services: Unlocking Hidden Profit Potential," and project manager of NAPL's upcoming book on fulfillment, notes that many printers have been doing a form of fulfillment for years for free by storing customers' printed materials and not charging for it.

Nothing Is Free Anymore

"The first challenge in setting up a profitable fulfillment operation is transitioning from a 'free storage' business model to a revenue-based model," she notes.

A key part of developing a revenue-based model is to implement an appropriate pricing strategy. "Understanding the full costs of fulfillment can be difficult, but you need to understand the costs in order to price at a profitable margin," adds Tolliver-Nigro. "Fulfillment is an entirely different business from printing or prepress, with different rules, requirements and cost structures."

Part of the challenge for printers is that most of the costs incurred by fulfillment services do not arise from producing something, as they do with printing. "When you offer fulfillment, you're charging for your time, space on the floor, and the tracking, monitoring and reporting associated with the service," she says. "These are things printers are notorious for under-valuing. But there are costs associated with these activities and, to make a profit, you need to know what they are."

Being successful with fulfillment service entails a level of engagement with the customer that goes beyond the typical print transaction. That's both good and bad news for printers.

On the one hand, this deeper level of engagement can increase customer loyalty, making clients who are satisfied with your services less likely to shop around for other vendors.

"Offering fulfillment programs can set up a long-term revenue stream for a graphic communications company and help make the client slightly less price sensitive," she contends. It also, however, requires the printing company to gather a lot more information from the customer in advance of setting up the fulfillment solution for a specific client.

Some Solid Questions

In "Diversifying With Value-Added Services," Tolliver-Nigro recommends that salespeople ask customers the following questions to lay the groundwork for a customized fulfillment program:

Who is ordering your materials (sales offices, distributors, retail outlets, etc.)? How often?

What is the volume of pieces requiring storage? Generally, how many units are being ordered at a time?

How should items be organized in the warehouse to make picking most efficient?

How long does it take your current fulfillment provider (or your international operation, if done in-house) to fill your orders?

What bottlenecks are occurring in your current fulfillment program? Do you have any recommendations on how that can be resolved?

Will kitting and/or assembly be required?

Not gathering enough information about the customer can wreak havoc on a fulfillment program down the line, so making a commitment to thorough "prep work" is key.

Printers that currently have no e-commerce capabilities will most likely have to implement at least some Internet-based services if they intend to offer fulfillment services. "Fulfillment orders, tracking, inventory management and reporting are all rapidly migrating to the Web," says Tolliver-Nigro.

Selling fulfillment services is another challenge. As with other value-added services, the sales cycle for fulfillment can be long (sometimes a year or more) and the time from when the sale is made to when the merchandise is in the warehouse can be months. The printers that have had the most success with fulfillment services generally have come up with new ways of compensating their sales staff for selling fulfillment projects.

"Effectively selling fulfillment services requires finding the contact within the customer organization with a 'pain point' that fulfillment can address and following up with a consultative sell," she advises. "What must be emphasized is how you can solve the customer's problems and help their business—not what your capabilities are."

The potential benefits of offering fulfillment services are substantial, but so are the challenges. "Some printers think fulfillment sounds like too much hassle and too high an investment. In that case, it's probably not for them," Tolliver-Nigro says. "But for printers that are serious about diversifying beyond print, and seeking to develop long-term partnerships with customers, fulfillment is one of the best ways to diversify."

To order the NAPL 2005 Survey of Fulfillment Practices or NAPL's "Diversifying With Value-Added Services," call NAPL at (800) 642-6275, Option 3; e-mail orders@napl.org; or go online to www.napl.org/store/. zz

A Word To the Wise

Respondents to NAPL's 2004 and 2005 Survey of Fulfillment Practices offered the following advice to printers considering entering fulfillment services:

Visit peers, learn about the intricacies of fulfillment. Military precision is required to make a fulfillment operation work, not starting it up as a "back shop" operation.

Don't limit your visit to printing companies. High-end fulfillment services outside the industry can provide valuable insights.

Have a long-term commitment. Fulfillment isn't something you can "do on the side."

Consider up front how to motivate and train your salespeople.

Present solutions to senior executives in the customer organization—there is too much turnover at the lower levels to develop the long-term, stable relationships that support fulfillment.

Price for profit. Make sure you understand your costs and price accordingly.

Choose software designed specifically for fulfillment instead of using existing accounting software and "making it fit."

Research, research, research. You can't know too much.

Cutting corners is not always the way to go. An investment now may save costs going forward.

Always have a dedicated internal IT person to support fulfillment. That's a must!

Fulfillment is not as easy as some printers think it is. It can be profitable, but there are substantial challenges involved that must be resolved effectively.

Making the Investment

The investment required to start a fulfillment program depends on the level and sophistication of services provided. For instance, basic fulfillment requires little more than space on the warehouse floor, some pallets, and an extra hand here and there. At the most sophisticated level, however, it requires fulfillment software, material handling aids, barcoding and other inventory management devices.

In terms of fulfillment software, inexpensive programs such as FileMakerPro can be sufficient for basic, relatively low-volume programs. Higher volume programs need specialized software and systems, which can cost anywhere from $50,000 to $200,000.

Some printers choosing not to handle fulfillment software and systems in-house have opted for an application service provider (ASP) model. This service starts at about $250 a month for 25,000 records. Each company must determine which is the most efficient and cost-effective approach for its own operation.

Source: NAPL's "Diversifying With Value-Added Services."