Entrepreneurs´s Journal


July / August 2004
How to Select a Distribution Center
By Emily McHugh

Selecting a distribution center (DC) or fulfillment center to ship your products is akin to selecting a day care center for your children. You want to be comfortable knowing that you are dealing with reputable people with a solid track record. Handing over your products to “strangers” can be a scary thought. How the DC executes order fulfillment directly impacts your clients’ perception of you, so it is imperative to choose carefully.

Most entrepreneurs are understandably reluctant to cede responsibility for shipment of their products to unknown third parties. However, It is time to select a distribution center when you spend most of your time packing boxes and not doing much else (see last November’s article where we began this discussion). We will review how to actually select a DC and the steps involved in the process. Doing your due diligence is a vital step to evaluate the DC.

Research
Once you have determined that outsourcing order fulfillment is an efficient, cost effective way to do business for your company, the next step is to start searching for DC’s that can meet your needs. Do an all points outreach, online searches, ask people who might have insights on DC’s, for example, your customers, suppliers, or your local UPS or FedEx delivery agents can be good sources. Then set out to contact various DC’s to request quotes and references.

Ask about the types of clients they service to make sure that your company fits into their client profile. You want to be a priority for them not an afterthought. Have a good sense of the type of services that are offered and keep in mind that you may not need all of them at once. But it is good to have a company that you can grow into than one you will outgrow quickly. Take your time to make the decision. Selecting a DC can usually be a long-term proposition with the minimum contract of at least one year. So make sure your DC is enthusiastic about doing business with you and you with them.

Request quotes for scope of work and customer references. Call all the references and be very upfront with the information you want to know, such as: how long have they worked with the DC, why did they select the DC, is the pricing competitive and negotiable, are they easy to communicate and work with, are they responsive to your needs, do they have any complaints, what is the DC error rate, and is there anything that they would like to see improved about the DC’s service. Once you are armed with this information, you will be in a good place to evaluate the DC and to make an educated decision.

Visit
After you have selected which DC seems suitable to you, then plan to visit the locale. An in-person site visit is a crucial step in this process – observe cleanliness, organization, and the general condition of the facilities. Make sure it is a fully bonded state-of-the-art warehouse facility with modern equipment. This is indicative of the DC’s high level of attention to detail and suggests that the DC will offer you the best service possible.

Location, location, location – the mantra of real estate, is especially a propos for your DC. Find out if the DC is near a major airport or port? Is it in a transport hub with easy access to major highways? Is the area safe, or it is in a dilapidated part of town that you are scared to visit? Also, take into consideration if the DC is located in an area that floods, has hurricanes, or prone to any other type of hazard.

Negotiate
Review your price estimate line by line and ask all the questions necessary to your satisfaction. Make sure that you are not overpaying for services that other facilities offer for less, this is the time to negotiate. Ask for what you want, you will probably be surprised what you will get if you just ask. Make it clear to the DC that you will be a valuable long-term client and by working with you now they are ensuring your future growth as well as theirs. The DC should act as a transparent business partner, not an adversary.

Remember that prices for DC services vary widely so you need to understand price ranges for different facilities. Compare apples to apples and understand all your monthly costs. Know what you don’t need. Most DC’s want you take on all their services, but be selective as to what is truly necessary for your company.

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