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Product Part 4 - Warehousing

Multi-Level Marketing Warehousing and Fulfillment

When selling a physical product, order fulfillment becomes a major concern. Do you run an internal warehouse or contract a fulfillment company, do you use courier or post, do you allow order consolidation to team leaders? Each of these decisions will have their pros. In this post, I will outline the options.

Running an MLM warehouse

There are definite advantages to running your own warehouse, especially if you already have the infrastructure and staff in place.  It will allow you to control every aspect of the fulfillment process with little additional cost. There is no pricey integration and if you have effective procedures, you can limit shrinkage. For many years, I ran an in-house warehouse and for the most part, it was very effective. The downsides were what ultimately prompted a move to a professional fulfillment company.

My father always told me that if it wasn’t for staff, computers and customers, business would be fun and he was never sure which of those were worst! My experience is that staff is the number one headache. Now, don’t get me wrong, I have had some amazing staff members over the years but finding the good ones is a tough process. I battled with my warehouse staff. If they were not coming in late, they were off sick. If you happen to be blessed with an obnoxious shop steward, your life can be a living hell. Endless strikes and wage negotiations can bring any business to a grinding halt and I certainly acquired my share of grey hairs along the way. The ultimate frustration for me was trying to stem shrinkage. It seemed that every time I turned my back, the stock would march out the door.

Furthermore, the warehouse and related staff are fixed overheads. If sales dip, your overheads remain the same. The effects on the bottom line are amplified. Sales drop reducing the GP and overheads remain the same, reducing the already reduced profits. If sales dip low enough, you can go out of business fast.

Multi-Level Marketing fulfillment companies

During one of my more frustrating staff negotiations, I was approached by one of the major fulfillment companies. They went through my numbers and proved that using them would not only reduce my stress levels but would also save me money. We ditched our warehouse, reduced our staff and moved into a small admin office. We integrated our Multi-Level Marketing Management Software with their systems and automated the process. This is how it worked:

The system placed an automatic order with our suppliers based on a forward planning algorithm. The stock was manufactured and delivered directly to the fulfillment company. They receipted the stock and their systems updated our system with the stock on hand 3 times per day, at 6 AM, 9 AM and 11 AM. Our system pushed all the paid outstanding orders to their system for delivery. They then picked, packed and shipped the products to the customer. As the stock levels dropped, the algorithm kicked in a reorder. They guaranteed zero shrinkage and charged a percentage of the invoice value for managing the entire process. 4 Hour Work Week, here I come!!!!

When sales were up, we would pay more and when sales were down, we would pay less. The net result was an average saving of around 30%. So, no headaches, no fixed overheads, variable fulfillment costs and a net improvement to the bottom line. The best part was that they had thousands of square meters of warehousing. No matter how big I grew, they could accommodate me. Another plus was that as my volume grew, the costs came down making the company even more profitable.

By automating fulfillment, eliminating collection and processing all orders online we were able to run a multi-million Rand business with a staff of 5. Two support personnel to deal with delivery and billing issues, a trainer, an accountant and me. 

Consolidated orders

Even if you are in a first-world country such as the US or the UK, postal and courier services are relatively expensive. In a country such as South Africa, the postal service is not an option and courier costs are prohibitively expensive. These costs can often wipe out the distributor's profit and cause them to stop trading. The consolidation of orders is one way to solve this issue and make your network more profitable. Here’s how it works:

Each distributor registers with their team leader for order collection. The IT system consolidates all orders by Team Leader. Once a week the courier company ships a single consolidated order to each Team Leader and the distributors collect their stock from the leader. The courier company only sees a single order going to a single destination. This radically reduces the courier fees making the distributors more profitable. It works especially well if you are selling small light items, but you will be able to reduce your delivery costs even if you are shipping liquids. Obviously, you need effective IT systems to deal with this type of consolidation, but the investment will be worth it in the long run.

Dropshipping for Multi-Level Marketing

Finally, let's talk about dropshipping. This is the process of getting your supplier to ship your orders directly from their premises.

We have a client with a network marketing company that sells wine. The wines come from numerous estates around the country. Each order is split by estate, and the various estates are instructed to deliver to the customers directly. The delivery costs are built into the price of the product eliminating the need to calculate delivery costs.

There are so many advantages to dropshipping. The supplier carries the stock and thereby reduces your capital requirement. If you have tight agreements with them, they will ensure that you always have enough stock. If they don’t perform you can simply drop them and pick up other products, you can have an unlimited number of suppliers, you can get them to manage their own products on your multi-level marketing software, you can pass the fraud risk to them and most importantly, you can get a network marketing, Multi-Level Marketing or Direct Selling business up and running in a very short space of time.