Winery Do-It-Yourself Fulfillment vs. Outsourcing: Things to Consider in DIY Evaluation
April 17, 2013
Outsourcing non-core business activities has quickly become a mainstay in the business world as companies of all sizes strive to find ways of cutting back internal operating costs without hindering service and quality to customers. When examining wine direct to consumer (DTC) order fulfillment services, an overwhelming majority of wineries choose to outsource to a third party logistics (3PL) provider. Those wineries not embracing the practice are typically married to some simple motivations, characterized by the following:
- We can do it cheaper ourselves.
- I don’t want to lose control.
- I have special needs that can’t be addressed by outside providers.
These perceptions are certainly common, but can be properly addressed by taking an unbiased and objective approach to considering outsourcing. Added to the mix are the multitude of intangibles a 3PL provider can bring, which adds up to a compelling argument in favor of working with a 3PL. Let’s look closer at these areas.
Completing a true apple to apple benchmark comparison of your internal cost as compared to outsourcing is the key starting point. It is important to ensure effective financial analyses using true total costs for warehousing, order fulfillment processing, returns processing, freight, administration, and other functions. These costs should be evaluated on a per order and per unit processed basis. To arrive at these numbers, we suggest using actual, fully loaded, direct and indirect costs including labor (recruiting, benefits, payroll taxes, vacation/overtime pay), warehouse space (prorated rent or mortgage expense, utilities, equipment, real estate taxes, insurance), actual freight (including fuel surcharge, trailing accessorial surcharges), software and IT support (including data manipulation, data entry, communications, equipment), and packaging materials. You may find that your internal costs are far higher than you think.
Control & Visibility
You don’t have to lose control when using a reputable 3PL, in fact it should be just the other way. 3PL’s are driven to adopt best practices in IT systems, warehouse processing, and customer service. Wineries can take advantage of these investments to provide real time visibility into on hand inventory, orders, compliance, reporting, and complete customer detail and history to deliver transparency and peace of mind. If you don’t find these services readily available in your review of 3PL capabilities, you need to keep looking.
We hear many reasons why someone feels they can’t outsource. Sometimes they are right, but more times than not they haven’t asked the right question of the right party. Good 3PL’s are in the business of providing value added services. Consider them the “we fix it” people whose job it is to find solutions to simple and/or complex problems. Perhaps they can find a way to solve your inventory availability and local transfer problem, or can integrate your club system with the fulfillment and compliance solutions they already support. Put the burden on them to find a solution tailored to your needs.
Once you have completed these assessments, consider these factors as well:
- Scalability – One of the considerable advantages to using a 3PL for DTC shipping is the ability to scale up when needed, then go away until needed again. The term “scale” of course goes beyond pick and pack order processing capacity. Spikes in order processing create a trail of associated complexities like returns, redirects, address corrections, and the like…activities that fall under the umbrella of customer service and need to be attended to promptly, thoroughly and professionally for the benefit of the overall customer experience.
- Volume Aggregators – One of the financial advantages of using a 3PL for DTC shipping is the ability to take advantage of the provider’s discounts on freight and packaging. As an aggregator of volume, 3PL providers have negotiated aggressive freight rates and packaging costs that create savings that can be passed on to its winery clients. They are typically conducting these negotiations with much greater frequency than are wineries on their own, and therefore should have the best value proposition.
- Gain Their Expertise – Good 3PL’s are experts at what they do so you should be gaining access to all of their experience and wisdom. They will know the best, most efficient and cheapest way to store and ship your products. If you have more than just wine to take care of, find a 3PL that can handle products beyond just alcohol.
- Less Is More – Outsourcing by design is meant to remove headaches, bottlenecks, and allow your internal staff to focus on their core competencies. Your staff is your most valuable asset, so why not have them focused on activities that can move the business forward.
Copper Peak Logistics (CPL) provides flexible 3PL services to the wine industry. We can assist in completing the analysis of in house cost as compared to outsourcing and can provide general logistics consulting advice. We routinely look for out of the box solutions for winery clients, and enjoy sharing our expertise and success stories. A concept pioneered by CPL is Wine Club Mobile Processing, not unlike mobile bottling lines, which is “DIY with help”. In cases where a winery can’t take advantage of a traditional outsourcing arrangement, CPL can provide all the necessary processing equipment, labor, and software systems to complete wine club pack out on the winery premises, where the winery benefits from the integrated technology, volumetric discounts, and the overall reduction in moving parts. Contact us today for more information.