Distribution and Fulfilment Agreements: The Comprehensive Guide

If you’re not entirely sure about the meanings behind distribution and fulfilment agreements, then you’ve come to the right place. This article aims to give you a full and comprehensive understanding of distribution and fulfilment agreements, a highly important topic to be in the know about when delving into the world of third-party fulfilment services. 

parcel delivery fulfilment operations at a distribution centre

What are Distribution and Fulfilment Agreements? 

To start getting your products to market, you need to work with the right people who can make the process easier for you. A distribution and fulfilment services agreement is a legal contract between the manufacturer of a product and a distribution company that brings a full definition to the nature of that relationship, the fees, and a wide range of other details. 

This may sound like a simple process, however, these contracts can involve a huge amount of different factors; meaning that your order fulfilment agreement needs to be specially designed and defined so that every detail within is laid out in fully understandable language. 

Although it is highly recommended to acquire the aid of someone who is knowledgeable about contractual law so that there are no loopholes within the contract, the document shouldn’t be so complicated that you need a doctorate in law to understand it. 

What to Look for From Distribution and Fulfilment Agreements

There is a wide range of important details that you need to look for from the best distribution and fulfilment services agreements. When a distribution and fulfilment agreement is the highest possible quality, it should contain the following: 

Error Rates

Error rates are an important guide for working with order fulfilment providers, as it is one of the best ways to gauge the performance of a company for themselves; and for potential clients. How accurately products are picked from the shelves in their fulfilment centres is essential to the success of their clients, so third-party fulfilment providers need to maintain a superbly high level of picking accuracy if they want to remain a sought-after third-party fulfilment service. 

A Defined Outline of Annual Increases

As the life of the contract goes on, there may come a time where the need to gradually increase the cost of services is necessary. These annual increases should be clearly outlined within the distribution and fulfilment agreement so that there will be no nasty surprises for the client on the receiving, and paying, end.

A good fulfilment and distribution agreement will have these increases fully laid out so that they can be easily understood by the client, and so that they don’t have any surprise increases in cost. 

The Length of the Contract

Each and every distribution and fulfilment contract will be available in various different lengths, so being able to find a program that meets the specific needs of the fulfilment company and the client is essential.

Over half of commercially available third-party fulfilment providers offer month-to-month contractual agreements which will allow for a greater level of flexibility for clients’ shipping contracts.

Other fulfilment services offer multi-year contracts, and some providers won’t even require any agreement terms at all. 

Inventory Shrinkage

Whilst most customers will understand that a small amount of inventory shrinkage may be allowable, shrinkage typically around .5% of throughput, can sometimes become an issue for those that have little to no experience with distribution and fulfilment agreements, and even corporate attorneys. Inventory shrinkage can occur outside of the warehouse, where a su[pplier could be short on an inbound shipment, or even inside the warehouse due to a 3pl error. Most third-party logistics companies won’t hide behind contract language to skirt around responsibility for a loss traceable to their negligence, such as product damage; they will typically do the right thing. 


Multiple different factors, such as volume levels, product types, and location, as well as currently available numbers being unreliable, can make it difficult for clients to know exactly what to expect with pricing. As a guide, however, pricing for third-party fulfilment services in highly populated areas, such as London, can significantly vary in price from less populated areas such as Chichester. 

There are also fees to store your products within the fulfilment company’s warehouse, and information relating to these fees should also be found within the distribution and fulfilment agreement. In most cases, warehouses will charge by pallet, however, cubic footage, square footage, and bin storage fees may be offered by various different companies on the market. 

Another consideration will be how the price of shipping will be calculated. Whilst some companies offer a discount off of published rates, which can help to keep shipping cost-effective, some companies also allow customers to utilise their own freight account whilst offering cost-plus pricing. 

Insurance, Damages, and Liability

The best kind of distribution and fulfilment agreements will also feature details based on insurance, damage, and liability in order to protect the manufacturer from ruined products; as well as other issues where the fault lies with the distributor. In this area of the contract, a few different aspects about procedures for handling loss and damage, and the required timing of customer and client claims, should be included. 

Insurance for the contract should also include multiple different aspects, such as the compensation owed to workers, liability insurance, and cargo liability. All of these essential sections should be described in full in the distribution and fulfilment agreement. 

Responsibilities and Service Level

Although it can be easy to assume that the service level and specific jobs are clearly laid out, and fully understood, a natural component of distribution and fulfilment agreements; the specifics of their exact duties should be completely defined within the contract. This is due to the fact that there are far too many forms of service that could go wrong to leave this area unaddressed. 

In essence, the contract should feature, in wording that is completely clear and understandable, what fulfilment services will be performed by the third-party fulfilment company. Services including things such as the receiving of products, storage of items, and shipping your goods at the facility or the agreed period of time, will also include who will be responsible for selecting the locations for storage of items. This also involves whether or not these goods can be moved with or without notice or permission on the owner’s part. 

Complications with operating procedures may also pose an issue, so if the client has specific standards, the distribution and fulfilment agreement will need to define whether or not these standards will be implemented if they will be used, and how the fulfilment provider will implement these standards. 

Some other services that should be defined in the contract can include duties like the process for submitting written instructions, as well as the desired schedule of delivery appointments. 

Examples of the Best Fulfilment Agreements

You may be wondering what the ideal fulfilment agreement looks like. What should you expect as your final result for the provision of this agreement? 

The best types of fulfilment agreement will be including but not limited to these terms:

  • 99% of customer orders will be shipped the same business day
  • 100% of rush orders received by the 3:00pm cut-off point will ship that day
  • There will be a pick accuracy of over 99%
  • 100% of customer returns will be processed in a timely manner within 48 hours
  • 100% of all inventory should be processed and received in 48 hours

Contact The Delivery Group Today To Begin Your Fulfilment Journey

If you’re looking to begin getting your business involved with outsourcing order fulfilment, why not get in touch with the UK’s leading third-party fulfilment service? Our independent contractors can help through every aspect of the creation of the distribution and fulfilment agreement, ensuring you get the best deal possible. Interested in outsourcing fulfilment?

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