The Common Components of Fulfillment Costs

What Are the Common Components of Fulfillment Costs?

Look for several common components when calculating total fulfillment costs. These can include both statistical data and actual cost data. Below is a breakdown of what each component entails.

Statistical Data

• Annual net sales
• Annual number of marketing orders processed and shipped
• Total number of lines ordered on the marketing orders
• Annual number of boxes shipped by the fulfillment center

Cost Data

• Total cost of direct labor for all functions required to fill orders, including receiving, putting away, picking, packing, shipping and returning items
• Total cost of indirect labor, which is any labor function not classified as direct labor, such as supervision, maintenance, clerical and inventory
• Total occupancy costs, including lease amount, utilities, amortization and depreciation for material handling, conveyor and sortation equipment, and the warehouse management system
• Total cost of packing supplies required to fill orders

Fulfillment Cost Calculator

There are four different ways to calculate fulfillment costs. These fulfillment cost calculator equations provide a picture of how much it costs to fulfill orders:

• Total warehouse cost (cost data) divided by annual orders shipped (statistical data)
• Total warehouse cost divided by total order lines
• Total warehouse cost divided by annual boxes shipped (to determine total cost per box instead of per order)
• Total warehouse cost divided by annual net sales in dollars multiplied by 100 (to determine cost as a percentage of net sales)

When you handle your own in-house logistics, the total fulfillment cost per order will directly impact the profit ratio. Depending on costs, you may find greater savings by outsourcing the fulfillment processes to a 3PL provider.

With a 3PL provider, you pay an order fulfillment fee for services, such as receiving, storage, order processing and returns processing. These services are all-inclusive and static over the course of the contract.

Depending on your current fulfillment costs, a 3PL provider could save you money. But in order to weigh the savings, you must first know how much it currently costs to handle your own fulfillment process. Start by using the cost calculator above and then compare 3PL providers.

Learn more about distribution and fulfillment centers and how Prologis can help your company’s needs.