Orders In Stuff Out

July 15, 2005       Craig Causer      

The Save the Children (STC) gift shop at the nonprofit’s Westport, Conn., headquarters has been hawking everything from t-shirts to jewelry and holiday cards for 20 years. Total retail sales reached nearly $400,000 last year, 49 percent from its on-site store; 38 percent from online sales; and 13 percent via its catalog.

Despite that, the organization has decided to replace the store with a Children’s Discovery Center. When the store closes, all STC branded promotional items will continue to be available through its online shop at shop.savethechildren.org.

With the transition has come the decision to move from an in-house fulfillment operation to outsourcing the work at some point this summer. STC is taking a more cost-effective approach in making the switch.

“Historically, Save the Children has handled all aspects of fulfillment in-house,” explained Brian Sobelman, associate vice president for Internet and direct marketing at STC. “We bought the items, warehoused them and brought them to the store. Our staff handled all credit card processing and shipping — whether it was for the retail shop, catalogue or on line sales. The greatest costs were incurred by handling fulfillment in-house for us: salaries, postage, printing, bank and credit card fees and rent for the warehouse.”

STC prepared a financial forecast for both in-house and outsource scenarios and determined it would be less expensive to hand over the operation to a third party. It is currently reviewing potential fulfillment firms, but has not yet selected a company.

Prior to the Internet, a print catalogue was STC’s main source of advertisement, Sobelman said. It eliminated its print catalogue nearly two years ago when it noticed a fledgling trend in the sales growth at its online shop. At that point, the cost of producing and mailing a catalogue was not equal to the revenue it generated. With the shift in how its retail items are being purchased, the organization has begun to shift its fulfillment process as well.

The fulfillment process is the “marketing moment of truth,” whether it’s a premium or something a person purchases from an online store, said Charlie Cadigan, consultant at MINDset direct in Arlington, Va. “It can really damage the relationship if it takes four weeks for an item to arrive. When you’re able to turn it around and do it in a reasonable amount of time that helps to build relationships. But it’s not just slapping a label on it and throwing it in the mail.”

Among the items that the American Lung Association (ALA) sells at its online store are ALA-branded hats, mouse pads, tote bags and stuffed animals in addition to its annual sale of items related to its Christmas Seals campaign. When an order is placed it goes directly to a fulfillment house. The ALA does not handle the order data, nor is it involved in the direct interaction with the customer.

“It’s a core business decision,” explained Rusty Burwell, assistant vice president of development at the New York City-headquartered ALA. “It’s a question of whether the American Lung Association is in the business of running a warehouse. My guess is that if the volume were high enough, if the process were such a significant part of our business, then it might make sense to develop that expertise and capacity in-house. But the reality is that it’s a relatively small part of what we do and not related to our core mission.”

The Web store, located at lung.usptgear.com, brings in less than $100,000 per year, according to Burwell. As a $170 million organization, the sales are not significant in terms of dollars but the rationale is not simply, “Does it make a profit?’ It is an issue of brand extension. The store is a way for supporters, staff and volunteers to proudly display the American Lung Association name, he added.

Like Cadigan, Burwell extolled the importance of rapid delivery, which also influenced the ALA’s decision to outsource its fulfillment process.

“To speed up processing, we actually have the order go directly to the warehouse, they fulfill it, they ship it, they bill the credit card and then they send the money to us,” Burwell said. “They bill us separately for processing and those types of things. So, 100 percent of the money comes to us and then we pay them for their services.”

The ALA receives all of the data — names, addresses, items purchased — following the transaction. The information is in then input into the nonprofit’s database as “supporters.” The professionals in the fulfillment business have software systems in place to track orders and watch inventory levels, Burwell said. It’s those types of things that would be prohibitively expensive for the ALA to do overall, he added.

Self-fulfilling prophecy

Booming sales of the trendy nonprofit wristbands makes keeping stock a challenge. The Autism Society of America in Bethesda, Md., first introduced its blue “Autism Awareness” wristband via an email announcement where they were promoted for “pre-order.” The initial stock sold out in five hours and sales have continued to be hot to the tune of 55,000 units sold. ASA sells the wristbands for $3 each and in discounted packs of 10, 50 and 100.

Along with the wristband, the ASA raises awareness through the sale of merchandise such as lapel pins, bumper stickers and car and refrigerator magnets. Merchandise sales of its awareness products account for nearly 15 percent of ASA’s 2004 revenue stream, according to Carol Folsom, director of development.

The majority of its orders are processed online and through its 800-number, said Folsom. After reviewing several fulfillment companies, the organization decided to put a call out to its chapters.

“The popular and rigorous demand (for items) required the society to consider the tremendous growth we’ve seen and continue to expect,” Folsom said. “And joined with our Information and Referral department, which provides large quantities of printed materials/educational materials for sale, ASA sought to secure an outside vendor to provide fulfillment management support. The result was a new relationship with one of our very own, the Autism Society of North Carolina (ASNC). ASNC has an established fulfillment operation that employs individuals with autism to fulfill orders, and it was an ideal solution.”

At the National Wildlife Federation (NWF) in Reston, Va., the fulfillment process is performed in-house. NWF’s Nature Educational Material catalog provides 6 percent of the total net revenue and online sales represent 20 percent of total sales. With an in-house operation, the NWF typically incurs costs for its facility, equipment, insurance, maintenance, labor, postage, telecommunications and credit card processing fees.

“NWF initially started with a small startup operation,” explained Dulce Gomez-Zormelo, vice president of finance and chief financial officer at NWF. “ As the operation grew we developed/acquired the internal expertise to run a fulfillment center. We benchmark our operation against other in-house and outsource vendors and continue to consider all available options.”

The organization’s nature educational material catalog is one of the components that it uses to foster its members’ appreciation and affinity with nature. Each item is accompanied with educational material on the wildlife depicted and what the customer could do to protect the species. Information is also provided on NWF, its purposes and programs. All of the proceeds from the catalog sales are used to fund NWF’s conservation program.

Whether it’s a print catalog or online store, Gomez-Zormelo said that there are a few things that nonprofits should keep in mind when considering fufillment.

  • Does the organization have the expertise to operate any or all of the components of a fulfillment operation (telephone order processing, cashiering, Internet infrastructure, order processing and shipping facility and equipment, catalog system, financial management and legal support services, etc.)?
  • Once an organization determines which areas from above they can handle internally, they will need to develop the cost analysis and obtain comparative bids from outside vendors.
  • Determine the order volume. This will give you an indication as to whether an outsource vendor can handle your volume of activity. Consider the size and capacity of the vendors and if they can handle your business during seasonal peaks.
  • Determine the cost per order to do a comparison of internal fulfillment costs versus those of an outsource vendor.
  • One main point to factor when considering outsourcing is the amount of time and costs associated with managing a vendor. It is not often that an organization can do a turnkey operation of its fulfillment function especially in the first few years of outsourcing.
  • Continue to do periodic reviews and bid out the processes to assess internal versus external costs while making sure that all true costs are included.

Tempered optimism

“Our experience has been that most nonprofits have been wildly optimistic about the volume they’re going to do,” said Robert Auman, president of Peak Fulfillment, Inc., in Lyons, Colo. “They think they’re going to be the Amazon.com of the nonprofit world. ‘We’re going to sell 57 products, each in 14 different sizes,’ and they just go hog wild with a product line that is inappropriate for their market or the volume. That’s when you run into problems with managing inventory and storage space.”

Auman said he has worked with nonprofits including National Public Radio’s Car Talk program and public television and radio station WHYY in Philadelphia. He suggested that whenever a nonprofit starts a retail venture, whether it’s online or a physical space, it complete as much of it in-house as it can in the initial phases. At least until it realizes if there is a viable market for its goods.

It doesn’t make much sense to pay somebody to warehouse and fulfill your items for you if you aren’t doing the volume, Auman said. There are a lot of ways to set up a retail presence as a test. An organization can do it with a limited product line or it can open it up to a limited selection of your membership, he added.

There are some advantages to outsourcing operations, Auman said, including offering more shipping options and a quicker turnaround time. But you have to weigh that against your mission as a nonprofit and how you’re spending your money. Even some large nonprofits will find that they’re doing 25 to 50 orders per month. If that’s the case, you’d be better off storing your stuff in a closet at the office and bring in a volunteer once a week to pack and ship it, he added.

Nonprofits must also play close attention to potential security concerns. In addition to “doing your homework” on the various fulfillment houses, there are ways of ensuring that your data is safe and accurate.

“If you’re doing an online store, it’s possible that the organization hosts the store on its own Web site and the orders just get sent to the fulfillment house,” Auman said. “In that case you have a record of the orders that are placed. If you are completely outsourcing it, where your supplier is hosting the store and doing everything, then you are subject to some potential dishonesty. You need to do your homework and build a level of trust.”

The Autism Society of America’s Folsom offered that nonprofits should not only have the necessary programs in place but that it should plan for the best.

“(You should) have a solid marketing program for launching new merchandise, a strong data processing and reporting system to track and support orders, create a backend customer service system so individuals can easily make inquiries about their orders — or changes — and be prepared for exciting success,” Folsom said.