When you’re running an online store, one of the most important aspects of your business is ensuring that your customers receive their orders in a timely and satisfactory manner.
This is where ecommerce fulfillment comes into play. In this article, we’ll take a look at what ecommerce fulfillment is and how it can help your business run smoother.
We’ll also discuss some of the different fulfillment options available to online store owners. By the end of this article, you’ll have a better understanding of what ecommerce fulfillment entails and how to choose the right fulfillment option for your business.
- What is Ecommerce Fulfillment
- How does Ecommerce Fulfillment work
- Ecommerce Fulfillment Models
- How to Choose an Ecommerce Fulfillment Provider
Fulfillment in ecommerce is the series of steps that a merchant takes to prepare an online order for shipment. Once the items in your customer’s order have been acquired, they’re typically sent to a warehouse where they are gathered together with other orders, a process called picking.
Once all of the orders have been picked, they are then packed and prepared for shipment. At some point before the order is actually shipped, a label is attached to each package that contains all of the pertinent information about its contents and destination.
Once the order is picked, packed, and labeled for shipment, they are sent to a shipping company who delivers them to your customer. There are many different companies that provide fulfillment services.
An ecommerce fulfillment center is a warehouse that specializes in providing ecommerce fulfillment services.
These warehouses usually offer warehousing, order packing and order shipping (for merchants who cannot afford to actually own a warehouse and outsource warehousing).
These fulfillment centers may charge you per order you ship or have a different pricing model.
Any service, like a 3PL or a logistics service or warehouse services that allow you to outsource part or whole of your ecommerce fulfillment needs, is called an ecommerce fulfillment service.
Merchants often choose an ecommerce fulfillment services provider depending on their unique needs.
For instance, if you are only starting out with a small product catalog but an enormous potential market, you might want to opt for a fulfillment service provider that allows you to grow with your business.
On the other hand, if you have an existing product catalog and a strong customer base, you might want to focus on finding a fulfillment service provider that has expertise in the type of products you are selling.
Ecommerce Fulfillment is a complex process that involves 5 key steps.
Receiving – In Ecommerce, merchants generally stock inventory beforehand as it gives them more control over the supply chain. In this case, the first step of fulfillment is receiving the inventory at the warehouse. The warehouse manager is responsible for receiving physical items from suppliers and putting them away in the appropriate location.
In case of dropshipping, which also is an ecommerce business model, receiving refers to receiving the order details and forwarding them to the supplier.
Picking – Picking is the action of gathering individual orders from the pallets/storage and bringing them to a packing station. The warehouse worker who completes this task is called a picker, while the list that they use to track what inventory needs to be pulled is also known as a pick list or picking ticket.
Packaging – After products are picked, they are then packaged for shipping. Ecommerce merchants usually hire someone to do this task since it requires attention to detail and good organizational skills. The packaging department at the fulfillment center is responsible for all aspects of packaging including selecting materials, designing custom boxes, addressing labels, and more.
Shipping – Once items are packaged they are ready for shipping. The warehouse supervisor is often responsible for sending out shipments to the carriers for distribution and last mile delivery.
Returns – If an order needs to be returned, it is sent back to the fulfillment center where it is then processed for a refund or exchange.
As you can see, there are several reasons why ecommerce fulfillment is a complex process that requires the right team in place.
Inventory management is one of the most important aspects of ensuring a smooth fulfillment process. You need to ship your inventory into the warehouse that’s closest to your customers and keep a good inventory of the products you sell. Many times, a single order may contain products stocked in different warehouses.
This is where an efficient fulfillment service comes in, as it helps you easily manage your inventory and shipping. That said, outsourcing fulfillment is not a cakewalk either. Most reputed service providers are expensive.
There are many different ways that an online merchant can handle ecommerce fulfillment. Here are some of your options, along with their advantages and disadvantages:
Dropshipping is a subset of the ecommerce business model where the merchant never touches the product that is being sold. Instead, when a sale is made, the merchant purchases that product from their wholesale supplier and the supplier fulfills it on their behalf.
This is the most basic dropshipping business model that’s generally preferred by beginner entrepreneurs with little experience. A great example is dropshipping from Aliexpress where you can easily find suppliers and start your dropshipping business within a few hours.
No need to stock inventory, no need to ship products yourself. It allows you to offer hundreds of thousands of different types of products with just a few clicks. The main downside is that since you never stock inventory, you do not have control over most part of the supply chain.
This model has its limitations and disadvantages that will become more evident as your business grows. For this reason, many experienced dropshippers stock inventory and outsource fulfillment.
- Low Overheads since you do not need to stock inventory or ship products yourself.
- Easily scale your business up by adding new suppliers to your network.
- Allows you to sell thousands of different types of products without worrying about logistics and fulfillment.
- Beginner friendly business model
- Excellent for testing and finding a winning product
- There’s software that automates the entire fulfillment workflow
- You do not have control over critical aspects of the supply chain because you do not stock inventory, nor control shipping, warehousing and logistics.
- You have to pay a substantial amount in commissions to the supplier who dropships for you.
- The supplier may run out of inventory with no prior notice.
- Lack of inventory control may lead to product quality issues.
- It’s not the ideal business model for those looking to scale
As implied by the name, in house fulfillment refers to a fulfillment model where the merchant stocks inventory and fulfills the orders themselves after each sale.
This is the most ideal business model, especially for enterprise Ecommerce stores. However, it requires a significant amount of investments in order to set up. You need in-house staff for every touchpoint in the supply chain. This includes inventory management, warehousing, packaging, shipment and more, all of which will be handled by your team.
In House fulfillment is the most costly model to implement since you need to invest heavily in people, processes, services, software, infrastructure and warehousing. While it allows you complete control over your supply chain, this model is not beginner-friendly and cannot meet the needs of a company that’s just starting off.
- Complete control over the supply chain
- Customer service is not affected by an external third-party.
- Allows you to manage inventory more efficiently, using data analysis tools to understand customer demand.
- Higher Profits since you do not pay commissions or fulfillment fees to dropshippers.
- You can get inventory for much cheaper
- High overheads since you have to stock inventory and handle warehousing, packaging and shipping.
- Requires a large amount of investments to begin, including staff.
- Managing fulfillment workflow can be time-consuming and overwhelming especially for companies that are just starting out.
- Can lead to customer service issues if you’re not able to fulfill efficiently
A lot of ecommerce entrepreneurs who are looking for a more efficient yet cost-effective fulfillment model, often go with 3PL (Third Party Logistics) services. This refers to a model where you outsource all aspects of fulfillment, including warehousing and logistics to 3PL providers, who will stock your inventory on their own premises.
A 3PL provider offers fulfillment services for many clients at once, eliminating storage costs because of their economies of scale. This works out to be quite cost-effective for startups who are looking to implement a profitable ecommerce business model.
3PL providers also have sophisticated software and a network of warehouses, processes and workforce that enables them to offer excellent fulfillment services.
- Eliminates the need to invest in warehousing, thus keeping overheads low.
- You can easily manage multiple suppliers through your 3PL provider.
- Third party logistics companies maintain a network of warehouses that they own or lease, enabling them to offer fulfillment services at very low costs.
- Brings efficiency to the entire supply chain.
- Allows you to focus on more value-added aspects of business.
- 3PL services are not exactly pocket-friendly. There are different pricing models, many of which include multiple fees at every touchpoint.
- From receiving inventory, to unloads, loading to pallets, picking, packing and shipping, pricing tiers may be tricky to get a hand on
- While you are engaged in a professional business agreement, you will still lose control of certain aspects of the supply chain, which can pose problems when it comes to customer service.
- Poor service by a 3PL has a direct impact on your brand reputation.
Fulfillment at origin is a relatively-new fulfillment model that’s gaining a lot of popularity due to its cost-effectiveness and a more efficient fulfillment workflow.
In a nutshell, it means handling fulfillment close to the manufacturing location, which gives you the flexibility to stock less inventory, save on import duties since you are shipping each order rather than a massive container of inventory, and better control over inventory management.
For instance, if you are shipping from China to America, you can ship parcels of up to $800 value duty free. Fulfilling from China close to the product manufacturer will give you greater control over warehousing, inventory management and delivery time.
That said, there are a few challenges too that you will face.
- Flexibility to control your entire supply chain at origin
- Brings down overhead massively, saving you time and money
- Can be an excellent choice for small teams who are just starting out, or businesses that do not want to expose themselves to huge commercial risk by stocking inventory that may be unsold
- Shipping times can increase exponentially since you are not stocking inventory close to your fulfillment warehouse. Also, you may end up having to ship more often and make multiple shipments depending on the size of your product catalog
- Shipping can be more expensive if your parcel weighs more than 1 kilogram, as compared to shipping from a domestic (local) warehouse.
- Returns can be cumbersome and you will have to outsource returns to a 3PL because the customer will find it tough to send it back to the country of origin
Coming to one of the most important parts of the post, choosing a 3PL provider for your Ecommerce business.
Going with a traditional or hybrid fulfillment model is not enough in today’s world. You have to have a competitive edge by offering flawless service along with low fulfillment costs.
Here are some of the key considerations when it comes to choosing a fulfillment partner:
As much as you or the 3PL wants the fulfillment process to work according to the terms laid down in a contractual agreement, you can never predict what will happen during the course of business.
For instance, a supplier may not be able to ship on time and you will be forced to look for another supplier. In another scenario, a large retailer you are working with may suddenly go belly up.
In those cases, the ability of a fulfillment provider to be flexible with their services and terms will save you a lot of extra time and money. Look for 3PL services who can stretch their services to meet your fulfillment needs. There are many services who will offer custom services if need be, to ensure a hassle-free fulfillment experience.
Remember what we spoke about 3PL and their pricing structures earlier? Ideally, you want to work with a 3PL company that has a clear tiered pricing structure.
Because some 3PL companies have an all-inclusive charge for fulfillment. They consolidate all the different charges internally and give you one simple number to deal with.
Think of it like breaking down all the individual charges and then clubbing it together so that you don’t have to wreck your brains with each and every tiny charge.
And some 3PLs have a complex pricing structure where they break down every individual charge. There’s a cost for receiving, unloading, loading into pallet, storage, time stored, pick, pack and shipping.
There can be additional charges as well, depending on the service you pick. As it would be obvious by now, a pricing structure like this will confuse you. It’s quite difficult to calculate your actual profit margins if unknown charges are going to keep popping out of nowhere.
Regardless of whether you are a one-man operation or a 1000-member team, you are automatically competing against ecommerce giants like Amazon. The customer does not care about your brand or product. All they care about is the value you bring to them in terms of convenience and price.
As an Ecommerce store, you should consider a fulfillment partner that offers 2-3 day shipping in your primary target market. 2-day shipping will not only ensure faster delivery times but also beat your competition which will ultimately lead to more conversions.
That said, it has to be affordable too. For instance, Fedex also offers 2-day shipping, but that will eat into your margin significantly. This is why the best option is to find a 3PL provider that offers lower priced shipping options along with their 2-3 day shipping service.
The warehouse network of a 3PL is as important as their pricing structure and customer service. In fact, the location of the warehouses should be your top priority when choosing a 3PL provider.
This is because the closer they are to your target market, the faster they can ship your product and the more cost-effective it will be.
If your product is a time-sensitive one, you need to ensure the 3PL has a warehouse close to your target market. Similarly, 3PLs with one or two warehouses generally charge you based on shipping zones.
For instance, they may divide the country into two or three shipping zones based on their warehouse locations. If you have orders in a shipping zone that’s at the other end of the country, shipping costs can be steep.
A network of warehouses across the country can help you avoid that. The more warehouses they have across the country, the easier it becomes to distribute inventory and the faster your products will be delivered to customers too.
Every 3PL will have a cloud-based software that allows you to keep track of the entire fulfillment workflow. The idea behind the software is to give you a bird’s eye view of your products and inventory which will allow you to make data-driven decisions on price, quantity, and how often you need to restock.
Look for a software that gives you the ability to work with multiple warehouses, inventory info of each warehouse, the ability to manage pricing on a product-level and more.
But most importantly, it must be easy to use and on-board. If you are struggling to understand the software, chances are you’ll end up spending more time in getting it to work rather than focusing on your product and brand.
Last but not the least, you want to find a 3PL provider that is easy to communicate with and available when you need them.
What communication channels do they have? Phone, email, social media? How frequently are they available on these channels? Do they offer a dedicated account manager to help you with your specific needs?
This is crucial because you never know when you’ll need an answer about inventory, or a status update on your products.
Supply chain management is not just about price and efficiency. It’s also about convenience, availability and customer service.