Outsourcing Product Distribution the Right Way

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Outsourcing Product Distribution The Right Way
By Gregory Wick of Quovera

As seen in: Logistics and Supply Chain online magazine
Aug. 2, 2000

For Internet companies that cannot afford to buy and store their inventory or hire an internal logistics staff, outsourcing the product distribution function can be either a smart business decision or a disaster. Success or failure in distribution depends on how carefully and continuously you manage this function to make sure your distribution partners are doing the job that is expected.

B2C Drives DSF Growth
When distribution is not a core competency for your company and you do not have the resources to make it one, outsourcing the function can help your company grow by allowing you to focus on your mission-critical activities. There are two types of outsourcing that are common among start-ups - traditional distribution and drop ship fulfillment (DSF).

Traditional distribution outsourcing involves hiring a third party to store and distribute your products through its national or international distribution network; this party provides the staff, warehouses, distribution center and transportation fleet. The second type of outsourcing, DSF, has grown in parallel with B2C retailing over the Internet. With DSF, a start-up company sells a product, charges the customer, generates a purchase order, and sends the PO to the manufacturer or supplier, who then fulfills the order by shipping the product directly to the customer. Since the start-up never possessed the product, the company does not incur any of the costs associated with storing or purchase the product. Many Internet start-ups have adopted this streamlined business model.

Unfortunately, companies need to be careful when choosing an outsourcing partner. Outsourcing is not a panacea - if your third-party distributor's procedures and performance are not carefully monitored, you risk permanently alienating the customers you have worked so hard to attract....
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