Fulfillment Services: Are Printers Getting It?

INCREASINGLY, PRINTERS are entering the fulfillment business sector to make their operations more viable in the future. However, most printers are not reaping the rewards of establishing a fulfillment operation. Here are several facts to substantiate this premise:

n 88 percent of printers adopted fulfillment at their clients’ request. Many of those 88 percent admit they were placed in a defensive posture to keep the printing.

n 50 percent of the printers surveyed in 2006 did not know if they were making a profit in their fulfillment operations. And 25 percent did not have a separate P&L.

The cost of entry for fulfillment is very low compared to the printing process. An investment of roughly $200,000 can provide a very well-equipped fulfillment center.

The fulfillment business model is a service model, whereas printing and mailing businesses rely on manufacturing models. The primary differences are that the service model generates revenue through storage, labor and systems, while the manufacturing model generates revenue based on machines.

Fulfillment services should generate bottom-line profits two to three times that of a printing operation. You should definitely be in double digits. If your fulfillment operation is continuing to grow and measuring 10 percent or better bottom-line profits, then you are getting it. If not, read on.

Five Focus Areas

The decision to enter the fulfillment industry is not quite as easy as it looks. Here are five areas on which to concentrate your improvement efforts.

[1] FULFILLMENT SOFTWARE NOT IMPLEMENTED CORRECTLY. Most of the printers I’ve visited have purchased one of the 3PF packages available. They’re very comprehensive software packages able to complete various fulfillment applications—from literature fulfillment to online stores requiring credit card processing. The key element of each of these packages is that they provide clients the ability to order directly from their desktops through a Web portal.

The problem I find most often is that the software is not fully implemented; functions that should be fully automated are completed by hand. The integration with the shipping carrier’s (UPS, FedEx and DHL) workstation is a good example. The systems are designed to communicate automatically through the local area network to the shipping workstation, which means that when a package arrives at the station for shipment the operator need only scan the pick slip bar code, place it on the scale and apply the shipping label.

The shipping information is automatically appended to the order and the 3PF software, and downloaded at day’s end. The alternative is to add the shipping information at the workstation and to manually enter the shipping information into the 3PF software—both steps requiring additional manpower.

The most flagrant failure to implement the software correctly comes during customer implementation. In many cases, powerful tools in the software—Web access to order, inquire and get reports—are not being utilized. The primary reason for this failure to implement is that the customer dictates the implementation, because “that’s the way they have always done it.” The printer and the fulfillment manager should have educated the client on the new and improved utilities of the software. I often find 21st century software implemented in a 1980s method.

THE SOLUTION: Learn the software and let a fulfillment specialist teach the client how to utilize it to improve his/her business model. Insist that the application be completed in the most efficient manner.

[2] TOO MUCH DIRECT LABOR. Most fulfillment centers started in support of a printing operation can be operated with two or three direct employees and temporary labor. The first three employees serve as the base for future growth and should be fully cross-trained in warehousing, fulfillment and customer service operations. The most common problem observed in my visits is too much direct labor in the customer service, warehousing and information technology areas.

The first three hires for a fulfillment operation should include the fulfillment manager, the warehouse manager and a warehouse/fulfillment specialist. The fulfillment manager must be able to thoroughly understand and implement the software; be capable of assisting in the sales cycle by answering technical questions and defining implementation requirements; serve as the initial customer service person; and pack and ship orders, when necessary.

My preference is that the fulfillment manager be hired from within. The warehouse manager will complete receiving and put-away functions; manage the warehouse; implement the warehouse management portion of the software; and also pack orders, when necessary. The warehouse/fulfillment specialist will primarily be required to pull pack and ship orders.

There is a definite need for an IT person in the personnel skills mix, but don’t hire a person full-time. Find an IT contractor and only have the contractor complete work that can be invoiced to the clients. Temporary labor can be utilized for heavy shipping days and handwork and kitting projects. Do not keep temporary employees around when there is no work for them.

THE SOLUTION: Keep a close watch on direct labor head count and do not exceed the guidelines that a fulfillment specialist should complete eight to 10 orders per hour. Until you exceed 64 to 80 orders in a day, do not add any permanent personnel. Also establish a monthly P&L for the operation.

[3] SALES NOT ENGAGED IN BUSINESS. It seems that no matter which printer I visit or how many salespeople the company employs, I usually find only two or three salespeople engaged in providing business to the fulfillment center. I have visited with sales teams with as few as five and as high as 28, and come up with the same very poor percentage of print sales personnel selling fulfillment. These same trends hold true for selling digital printing, variable color printing and mailing services.

The inability of print sales personnel to grasp the importance of the diversification requirements of a business is seen as one of the true impediments for future industry growth. As a 3PF provider, I was always looking over my shoulder, wondering when the printing companies would finally see the benefit of providing a turnkey service to marketing organizations.

The business downturn after 9/11 forced many printers to evaluate their business models. Those that have been quick to adopt the diversification model are now reaping the benefits of their decisions. We know that print clients who also utilize fulfillment services provide increased print volumes, higher print margins and vastly reduced turnover rates.

So why are print salespeople not embracing diversification strategies? My best guess is that they are happy and complacent with their current income and client set, so why risk losing the printing if we mess up the fulfillment or mailing? My observation is that younger, non-established sales representatives are more quick to grasp the concept.

The solution: Sales management and ownership must fully embrace change and demand participation from most, if not all, of their sales personnel. This means that ownership and management must learn the business, as well.

[4] NO FOCUS ON HANDWORK, KITTING AND ASSEMBLY. Very few fulfillment centers have enough order fulfillment activity to sustain their fulfillment operation simply on fulfilling orders. Therefore, the completion of handwork projects is key to the financial success of a fulfillment center. In fact, the highest profit margin opportunities should come from handwork projects for fulfillment program clients.

The requirements to be successful and profitable are simple—space, a good estimate, a great work ethic and someone being responsible. The most common error I’ve observed in my visits is completing handwork projects in the bindery, which usually does not have enough room to accommodate the layout of an appropriate assembly line.

The fulfillment center usually has ample space to complete handwork projects; the ability to receive and store material until the project is active; and the ability to not only ship, but also to track, the shipments involved in the distribution.

Another common error is not involving the fulfillment operation in the estimating process. It’s important to get the input of the people completing the project to complete the estimate; they will add critical information concerning the process that sales, estimating or customer service will not know.

THE SOLUTION: Dedicate someone to manage this important revenue potential. Use an estimating program that includes the overhead required to complete the project and the actual handwork temporary employees. Investigate nearby colleges and universities with industrial engineering departments to find students that can plan and execute effective handwork lines.

[5] OWNERSHIP AND MANAGEMENT NOT ENGAGED. One of the great attributes of fulfillment is the low barriers to entry. For $200,000 you can get a dynamite 20,000-square-foot fulfillment center operational with great software. That’s a low capital investment in comparison to purchasing new presses, equipment and software for your printing business.

Even so, sometimes owners and key managers don’t understand the difficulty of operating a service business within a printing operation. The overwhelming desire is to operate the business like their existing printing business, which has the result of increasing the direct labor requirements of the fulfillment center and slowing some processes, particularly invoicing.

I visited one fulfillment center that had 96 jobs open for the 96 different customers that had material stored in the fulfillment center. Most of these clients had very little, if any, fulfillment activity. How many man hours do you think it would take at month’s end to close out 96 jobs? Some of these jobs would bill $40 or less, which is probably less than the cost of creating the invoice.

Fulfillment is a different business—one that bases its revenue stream on billing for people and systems, not machines. Therefore, it is important that ownership and management understand these nuances.

THE SOLUTION: Get involved and understand the nuances of the fulfillment business by attending seminars at trade shows, participating in Webinars, talking to your peers in other parts of the country and using resources provided by your associations. IPG

Tom Quinn is director of fulfillment services at the Mailing & Fulfillment Service Association (www.mfsanet.org). He can be reached at (770) 632-9253 or via e-mail at tquinn@mfsanet.org.