A traditional business plan includes a section that describes the business offering, which is the product or service.

That description normally includes sections to describe the products or services, their main features and benefits, the technology involved, their competition, future products and services, and what I’ve always called “sourcing and fulfillment.”

What are sourcing and fulfillment?

Sourcing or fulfillment are descriptions of where you get the products you sell (sourcing); how you fulfill the services you sell (fulfillment); or how you package, assemble, and ship products you sell online (fulfillment).

For products, sourcing commonly covers how you purchase from distributors, vendors of raw materials, suppliers, and so forth. For services, fulfillment commonly includes how you work with subcontractors, drivers, analysts, research sources, and so on. Fulfillment also applies to assembly, packaging, and shipping for online product businesses.

However, whether or not you include a section on sourcing and fulfillment in your business plan depends of course on the exact nature of your business.

Sourcing is important for most product businesses, but maybe not for the craftsperson selling handmade goods or hand-painted greeting cards at a local flea market. Fulfillment is important for most service businesses, but maybe not for the self-employed management consultant who does the work alone. It’s important for some product businesses—those that take orders and ship, or those that assemble products, might have both sourcing and fulfillment.

Use your common sense as you decide what works for your plan. If you are developing a more traditional plan, then the title of that section is normally “Sourcing” for products, “Fulfillment” for services, and “Sourcing and Fulfillment” if you sell products and services, or if the products you sell need to be assembled and shipped, or if you need to deal with packaging and shipping for online orders.

None of this is an exact science or strictly required. Use your common sense to decide whether or not this section applies to your business and your business plan.

Manufacturing businesses

Sourcing is likely to be important to a manufacturing company. Your vendors determine your standard costs and hold the keys to continued operation. Analyze your standard costs and the materials or services you purchase as part of your manufacturing operation. Include spreadsheet lists, bills of materials, and standard cost breakdowns. Include unit economics.

You may have additional documentation you can copy and attach as appendices, perhaps even contracts with important suppliers, standard cost breakdowns, bills of materials, and other information.

Where materials are particularly vital to your manufacturing, you might discuss whether second sources or alternative sources are available, and whether or not you use them or maintain relationships with them. This is also a good time to look at your sourcing strategy, and whether or not you can improve your business by improving your product sourcing.

Product sales, retail, distribution, resale

The bookstore needs to buy books. The restaurant needs to buy raw foods. The hardware store needs to buy everything it sells to have the goods on the shelves. So, resellers should explain how they work with distributors, if they do.

They can also call out the most important distributors, and explain the discounts and margins involved.

Fulfillment for products includes assembly, packing, and shipping

Some product businesses include a fulfillment function related to assembly, packing, and shipping.

For example, one of the early strategic decisions we took at Palo Alto Software was not to assemble physical products and pack and ship from our offices. Instead, we used an outside vendor, called a fulfillment house, that stored components (disks, boxes, packing materials) and did assembly and shipping on demand, for a fee. That allowed us to focus on the software without having to manage those fulfillment functions.

The per-unit costs were higher, but we didn’t have to worry about capital costs for shrink wrapping equipment or fixed costs of employees and managers.

Services have sourcing and fulfillment too

Sourcing is not just for product-based companies. For example, a professional service company, such as an accounting practice, medical practice, law practice, management consulting firm, or graphic design firm, is normally going to provide the service by employing professionals. In this case, the cost is mainly the salaries of those professionals.

Other service businesses are quite different. The travel agency provides a service through a combination of knowledge, rights, and infrastructure, including computer systems and databases. The internet provider or telephone company provides a service by owning and maintaining a network of communications infrastructure. A restaurant is a service business whose costs are a combination of salaries (for kitchen and table waiting) and food costs.

How to include sourcing and fulfillment in your plan

For a traditional business plan, “Sourcing,” “Fulfillment,” or “Sourcing and Fulfillment” will be a section in the product description. Include details, such as bill or materials, or distributor or vendor relationships, as needed to serve your business plan purpose.

For a lean business plan, you might have sourcing and fulfillment metrics and milestones included in your metrics and milestones lists. Important decisions and tradeoffs related to sourcing and fulfillment might be included as bullet points in the list of tactics, or even in some cases in which your decisions in this area might be included in milestones and metrics or tactics.

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Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.