How a Fulfillment Service helped this Company

Fulfillment Service Need – Example Company

Prior to attending the GAMA Trade Show in mid-April of 2009, we were planning on doing the warehousing and shipping for Tasty Minstrel Games ourselves and not use a fulfillment service.  In addition to these duties, we needed to get into the various distributors.  Especially important are the large distributors Alliance,ACD, and GTS.  This meant that we would be calling the various distributors, negotiating terms, sending samples, and waiting for them to bring us into the fold.  We definitely were not looking forward to performing these duties.  Since this would involve a lot of the grunt work of packaging product, making follow up phone calls regarding the receipt of product, and organizing our garage; I selfishly decided that this effort should be led by my wife. Please don’t see this as some sort of honor, because when your company consists of yourself, your wife, and your best friend…  If you lead a project, you are in charge of that project without much assistance.  We anticipated being the worst at shipping and distribution and understood what needed to be done the least, find a fulfillment service company.

The Logistical Facts of Fulfillment Service Distribution

Here is what I knew prior to choosing a fulfillment service company.  Proper board game distribution can be difficult to get into as a new publisher.  Distributors are notoriously cheap.  They need to be, any distributor is typically buying product from lots of manufacturers, aggregating those products, and selling the products to retailers for a small markup.  Typically in the hobby game market, distributors pay 40% of retail and sell to retailers at 50% of retail.   The distributor’s margin on product they sell is 20%.  With this 20% they need to pay all of their employees, rent on their warehouse space, property taxes, employment taxes, unemployment taxes, income taxes, insurance premiums, and still make a decent profit.  Distributors will only buy from you if they get free shipping.  Game distributors will buy quantities they know they can sell, or possibly they have already sold.  If you don’t like it, you can try to sell directly to retailers.  Once I realized that my time was finite and that I am not in fact Superman, I knew the prospect of selling directly to retailers was ludicrous.  Instead of dealing with a handful of distributors, I would be dealing with thousands of retailers if they even want to buy direct.  My crude estimations of shipping costs led me to believe that it would cost me approximately $2.00 per game for shipping to distributors, by using a fulfillment service.

THE LOGISTICS OF A FULFILLMENT SERVICE COMPANY

Fulfillment service companies warehouse and ship your products along with other manufacturers to distributors.  The fulfillment service company also has existing relationships with various distributors, which means that choosing a fulfillment company will automatically get you in with distributors.  Having numerous products to offer, distributors get to leverage their time by using one trusted contact.  They do not have to play nice will potentially unreasonable publishers.  The fulfillment service company loves this relationship, because they get to make money just for having warehouse space, some employees, and existing relationships.  The fulfillment service company that I am using is Publisher Services, INC.  They pay me 34% of retail for sales that they make into the hobby market.  By that calculation, I am paying $2.40 a game for them to warehouse and ship my games that cost $39.95.  I am also paying them to automatically get me into all of the distributors that they deal with.  That may sound expensive, but remember that I was expecting to pay approximately $2.00 a game for shipping in the first place.  Without a larger quantity of games to ship, it just does not make sense to not use fulfillment services.  The other fulfillment companies that I looked at using were Studio 2 Publishing (which better serves role playing games), and Impressions.  For $0.40 a game, I get to keep my entire garage, my wife does not have to burden with shipping logistics, and I automatically get into the distributors I need.  Yes please!  If only more decisions were so easy to make…]]>

What it all means…...

This account is a demonstration of a small business using a Fulfillment service house model to expand their businessThis model is common to internet companies and is actually a subset of the inventory model. A fulfillment service house will handle some or all of t he aspects of getting the product to your customer. The will maintain inventory, order new product, assemble, pick, pull, pack, and ship, all according to your specifications and with your labels. The fulfillment house often can handle the order taking and provide an ordering and customer service call center if one is needed.  The advantage of this method is that all of the logistics are done by the fulfillment service house. All you have to focus on is marketing the product. The fulfillment house will take care of the rest. The disadvantage of this is that the fulfillment service house charges for their services. In conclusion, you should use a fulfillment service house only when the profit margin is large enough to pay the fulfillment service house. And the other requirement is use the fulfillment service house when you can make more money focusing on selling the product instead of managing the logistics.

In summary, you have several different methods to handle the logistics of your business. The fulfillment service house model should only be used when it is the best fit for your business. Usually this is when you have a high enough margin to pay the fulfillment servicehouse and you make more money selling the product instead of managing the logistics.

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