Storage adds a profitable revenue stream
Fulfillment revenues have grown 68.2 percent for printers over the last three years, and are expected to increase profitability 57.9 percent over the next
two years.
Source: NAPL Printing Economic Research Center, www.napl.org
Mark Iorio, president of The Mega Group, has a suggestion for fellow distributors this year: consider offering warehousing services. The Ewing, N.J., company jumped into the process overnight with a big customer and discovered warehousing adds value to customer relationships and makes it difficult for them to go elsewhere. He shared his story with more than 20 distributors on the Print Solutions show floor.
“We were already into marketing and database management, but our customers started to ask if we could store items for them,” Iorio said. When a Fortune 100 company came knocking, The Mega Group knew it was an order they couldn’t turn down. “It almost put us out of business. I was scared to death,” Iorio admitted, detailing how the company scrambled to change from a 6,000-sq. ft. storage space to a 25,000-sq. ft. space processing 150-200 merchandise orders per day.
“We can’t look at warehousing as a single strategy. An order like this will never come from a procurement department. The fact that we were creative first and database management second gave us the credibility we needed,” he says. Warehousing makes sense as part of an overall strategy to keep customers and even out revenue streams.
Do you charge to receive merchandise? What’s the right amount to charge for storage? What kind of structure do you have for other charges?
“Of course, we charge for everything. We track time and charge in quarter hour increments for all staff time – customer service, fulfillment, project management, receiving. We have an hourly rate schedule for staff time that is based on the cost of each position. For storage, Amazon charges $36 per skid per month to warehouse, by the way. We charge between $12 and $20 per skid, depending on the customer. It depends on where you are in the country and what the real estate and shipping charges are.”
How do you charge for CSR time?
For customer service, Iorio charges by the hour instead of percentages. “It’s hard to train people to get used to that, but in the end is a better strategy. Nothing is a surprise for our customers; it’s understood that our time is valuable and they know that up front.
“That’s how your nickels and dimes of profit disappear,” he continues. “People come to me and say warehousing is a loss leader for them. It’s not! It’s a good business. But if you’re giving that service away, no one will value it.”
How do you know the warehousing part of your business is paying for itself?
Iorio recommends investing in software, such as an SQL database, that will accurately track the time to receive, warehouse and ship a given item. “One of the reasons we got into this work is because it flattens your revenue stream,” he said. “Cost can vary a little bit, but your system can help get a new customer, and it’s fairly steady income. But you want to keep an audit trail for everything.”
Do you ever struggle with less-than-full pallets?
“Irrespective of what’s on it, or how high it’s packed, we’re charging for a full pallet of storage space. Essentially, no, we do not struggle with that.”
Is there a flat fee for shipping and handling? What about freight?
“We break out every item on the invoice, but you will rarely get burned on this. We have a method that weighs the product when it comes in and the customer knows how much shipping will cost.” Iorio investigated a few backend systems, including storefront.net and asp.net.
How proactive are you about the length of the shelf cycle?
“This can get into a bad business model—you don’t want to be the party to own the inventory unless you absolutely have to. Because all of a sudden, you’re in the retail business whether you like it or not, and that’s a difficult market to predict if you’re in the print business. Again, have the client own the product if you can.”
How rigid are you about shipments showing up unannounced?
This is more common than you’d think, Iorio says. “One client would not listen to us about this issue at all. They never informed us when a skid was coming in, even though they know they’re supposed to use the notification forms.” Of course, Mega Group always takes the shipment from this client in the medical device industry, but the surprise will disrupt workflow at the warehouse. “In fact, next week I’m having a meeting with one of their executives to get this settled.” Again, he stresses that the company must charge for its time. “So you attach the expedited fee, or the service fee—make it up if you have to.”
How do you handle the difference in insurance costs for different merchandise, client-to-client?
“You have to base the insurance on the total dollar amount for the merchandise. All of it—everything in your warehouse—has to be insured. Get your customer to carry off-site insurance as well.”