Talking Points for Negotiating with a Third-Party Order Fulfillment Facility

Law On The Runway’s Report from the Supreme Court (Star Athletica v. Varsity Brands)
November 4, 2016
Should You Add Licensing To Your Business Plan?
November 22, 2016

Talking Points for Negotiating with a Third-Party Order Fulfillment Facility

Shipping is a crucial part of customer service and can greatly impact your customers’ satisfaction towards your company. As your business grows, it becomes very easy to get overwhelmed by the logistics surrounding the way your products will get to your clients. Managing your inventory and shipping in-house might therefore not be the most time-efficient solution if you are currently scaling up. In many cases, opting for a third party fulfillment facility could be a very wise business decision to make.

Here are a few things to consider and keep in mind as you search for the perfect facility to do business with and try to negotiate with them. As with all Law on the Runway posts, this is meant to be taken as general information, not legal advice. You should contact an attorney to help you draft and review your agreement.

Expertise Before you start talking about numbers, it might be a good idea to look into facilities that are used to working with fashion brands. Working with a facility that has relevant experience and knowledge will be useful in all aspects of your partnership, especially when it comes to determining your needs.

Price The main element you will most likely enquiry about is the cost of such a partnership. Ask your potential third-party fulfillment facility what the monthly storage costs are. Is there a monthly order minimum? How flexible are they in terms of warehouse space? What does the price include? When negotiating, make sure to bring your sales figures as well as your projected numbers for the future to help you determine how much space will actually be needed.

Inventory checks As your business scales up, it can become very easy to lose track of your inventory, especially when you are not managing it in-house. It is therefore essential to make sure the shipping facility has enough inventory to cover your orders at all times. How often will the facility be checking your inventory? How and when will you be notified if there’s a low stock item or no stock whatsoever?

Visiting the facility to see new merchandise and products delivered As you decide who you will be doing business with, touring the facility before you make your choice is obviously essential to understand what their day-to-day operations look like. Visiting your third-party fulfillment facility is however a habit you need to keep up even after you start a relationship with them. Try to visit their site as often as you can, not only to keep track of their operations concerning your inventory, but also to see any new merchandise they will be receiving. Try to determine beforehand how often you will be physically checking up on your shipping facility (monthly, quarterly, etc.)

Returns and exchanges Ask your potential third-party fulfillment facility whether or not they handle returns and exchanges (most do). If they do, make sure to discuss with them your return/exchange policy and how certain items will be treated once they are sent back to the facility by the customer (what is returnable or exchangeable and what isn’t? Can certain products be integrated back into the inventory? If they were damaged during the return or faulty upon receipt by the customer, will they be sent back to you or should they be fully discarded?) It might also be a good idea to ask for a detailed report on returns so you can determine if there are issues in other parts of your operations you should be taking care of.

Packaging Many companies use packaging as another way to build a complete brand experience for their customers. However, not all fulfillment facilities will allow you to step outside their usual packaging standards. It is therefore very important to make sure beforehand that your potential partner can fulfill your needs. Ask whether or not they offer package customization services. If not, would they allow you to provide your own packaging in exchange for a discount? What would the logistics surrounding that option be? How much would customizable packaging cost as opposed to regular packaging? Is there a way to make shipping more cost-efficient for you and the customer?

As with all Law on the Runway posts, please use this as general information, not as legal advice. If you have any questions, please email