The Cost of E-Commerce Fulfillment – Facility and Labor

Getting items from one point to another—whether through inbound transportation or parcel shipping—is a big part of e-commerce fulfillment, and makes up a significant amount of day-to-day costs. But obviously there’s more to it than simply moving items around. The places from which you store and ship the items, as well as the day-to-day employees who help move items from point A to point B just in the warehouse are also a direct cost of e-commerce fulfillment.

Facility

E-commerce requires different processes and priorities than bulk distribution, and that may require extra space. Whether you choose to build or lease a warehouse and outfit it to your specifications, you’re looking at a big upfront cost. The more practical route may just be choosing an e-commerce fulfillment provider (or 3PL), as long as it falls within the location parameters that best fit your desired proximity to your customers. Buying or leasing a building is a significant expense, and in most cases, general upkeep of the building will be on you. Facility maintenance can require things like fixing leaky roofs and patching holes in the concrete floor.  Along with maintenance, there are cleaning costs to make sure the building stays clean and safe. On top of all this, a building this large is going to require a large sum for heating and cooling, electricity, water, waste, and other utilities. And because your warehouse will be brimming with employees, you’ll have to keep places like restrooms and break rooms stocked with supplies.

If you choose to buy a building, you already know that property taxes will be a cost to factor into your accounting. What you may not consider, though, is Lost Opportunity Cost. Could the money you spend on warehouse space be better employed on marketing or sales or product development? Of course, the warehouse is just a big empty building without storage equipment like racks and bins, which have to be in place before any real work can be done, and those, too, add to your costs.

Labor

A full warehouse is useless without the people to move the product. Your labor—the employees that you and your clients will rely on to get the product out the door—will also cost you, in addition to their wages, in a number of important ways.  Regardless of how many safety precautions and classes you teach, you’ll also have to invest in Workers Compensation and Liability Insurance in the case of an employee accident. If you really want to invest in your best employees, there’s also the cost of benefits, like insurance or retirement funds. Having dedicated employees who work in specific branches (including those whose sole job is to process returns) is costly, but worth it in the long run.

Some warehouses choose to operate using temporary employees from staffing agencies while others prefer to hire direct, but that’s ultimately a choice of the warehouse. In either case, the cost of training new employees, which takes both time and money, as well as the cost of turnover are big factors in e-commerce fulfillment. But with both planned and unplanned volume fluctuations, having a flexible and expandable workforce is critical. Flash sales are commonplace now and though those are planned, sudden and unexplained surges in product orders are also just as common. Having a pool of reliable employees to manage these peaks is critical.

There’s something about labor, though: it’s human and imperfect. Warehouses are complex operations. They have to run seamlessly to ensure that operations are as efficient as possible. The ultimate goal is to eliminate waste: whether that’s wasted product, wasted energy, or wasted labor. In order to help humans be more efficient, we have technology and equipment to help us be faster, stronger, and safer.

So what’s your take? Do you have a handle on your facility and labor costs? How much do they contribute to each shipment you make? For more information on this topic, download our white paper.