In this post, we will help you understand what fulfillment services are all about, the roles they play in helping an eCommerce business function smoothly, and how to find the right fulfillment service for your business. Stay tuned.
What is a Fulfillment Service?
A fulfillment service is any service that helps you fulfill your online orders. Fulfillment is a term that’s used to describe a series of steps that an online business takes after an order is received. It starts with sending inventory to the warehouse, entering it into the inventory management system, storage, picking, packing and shipping.
That description made it sound like a fast and simple process. But it’s anything but simple. Each one of these steps require a specialized skillset, experienced workforce, software and technology to fasten it, and reduce errors.
That’s why a lot of brands do not fulfill orders themselves these days. Of course, there are always the eCommerce giants who can afford in-house fulfillment.
What is a fulfillment service provider?
A fulfillment service provider is a catchall phrase used to describe companies that specialize in handling fulfillment. For instance, a 3PL or 3rd Party Logistics Company like Shiphero or Deliverr. The latter is a 4PL to be honest. But let’s not get hung up over semantics now.
What’s important to understand is that a fulfillment service provider handles all aspects related to fulfillment or part of it. For instance, if you are looking for end-to-end fulfillment support, then a 3PL can handle everything from shipping inventory to their network of warehouses, picking, packing and shipping.
But if you only want to outsource pick, pack and ship, then a 3PL can do that part, while you handle inventory management yourself. There are numerous ways that a fulfillment service provider can fit into your business model.
Then there are services like Amazon FBA (Fulfillment by Amazon), which lets you leverage Amazon’s massive fulfillment network for an extra cost. In this scenario, you generate the sales while Amazon will fulfill it.
What are eCommerce fulfillment services?
As explained earlier, eCommerce fulfillment services are used by eCommerce brands to fulfill orders. These include 3PLs and fulfillment services like Sourcingbro.
There are two models of eCommerce fulfillment that you should be aware of. The first one, is when the manufacturer is directly selling or retailing their own products. In this scenario, a 3PL will help them handle inventory management, receiving, storage, pick and pack, and shipping.
The other model is dropshipping, where the eCommerce business will not, or generally does not store inventory. Instead, the fulfillment is handled by the supplier who stocks inventory and fulfills the orders for a small additional charge.
Some eCommerce brands who dropship prefer to have more control over fulfillment. They generally invest in inventory and outsource fulfillment to a fulfillment company like a 3PL or to a dropshipping agent like Sourcingbro.
This gives them access to better prices, a wider network of suppliers and a more efficient fulfillment network, which suppliers may not have access to.
What are 3PL fulfillment Services?
A 3PL or a 3rd Party Logistics service is one of the most popular services in the eCommerce industry. Each day, 3PL services help thousands of eCommerce business across the world, fulfill millions of orders with efficiency, speed and reliability.
A 3PL generally owns or leases a network of warehouses in selected destinations and then uses their workforce and partner logistics networks to distribute your inventory in those warehouses. It gives you the advantage to be selective about inventory distribution in fulfillment centers close to your target marketplace.
For instance, if you sell primarily in the USA, you can select a 3PL with a warehouse network that covers most of USA. That of course is just scraping the surface of what 3PLs offer. There’s a lot more advantages and some drawbacks.
3PL fulfillment pros and cons
- fulfillment requires massive investments in infrastructure, workforce, warehouses and software to name a few. Most small and medium brands cannot afford the overheads required for such a setup. 3PLs make this investment taking the load off your back. They are specialized to fulfil orders. It’s their skill set. It’s what they do for a living and hence, they are much better at it than anyone else.
- They have a network of warehouses that they lease/partner with or own themselves. This allows them to intelligently distribute inventory, reducing shipping cost and increasing speed. Deliverr for instance, covers 95% of USA with their 2-day shipping service.
- 3PLs offer a cloud-based software dashboard that gives you a bird’s eye view of the entire operation. From using sales data to predict inventory requirements to spotting KPIs for shipping partners, you can analyze data and make decisions.
- Many 3PLs have a flat fulfillment price, which is easier to figure out than working with multiple services. You just need to add the fulfillment price to the product procurement cost and calculate your profit.
- 3PLs allow you to scale your business without being affected by peak season logjams. If you select the right 3PL, chances are that they have a battle-tested logistics network that can handle the peak season volume without getting bogged down.
- Not all 3PLs are cut from the same cloth. Some, have limited warehouse reach and cumbersome pricing plans with separate charges for every step of the fulfillment process.
- Since they are a large organization, you rarely get one-on-one attention from a 3PL fulfillment company. If you are a small to medium sized brand, you might be better off working with a small team of individuals who can handle fulfillment just as efficiently and give you the personalized attention you seek during challenging phases.
- You should analyze a 3PL for fulfillment efficiency. Do they match up to their claims about delivery speed? Do they offer an affordable alternative to in-house fulfillment?
That brings us to the trickiest of questions that most eCommerce entrepreneurs will face at some point during their business journey.
At what point should they consider outsourcing fulfillment? When does an eCommerce business switch from say, dropshipping by the supplier to stocking inventory and fulfillment by a 3PL? We have listed some best-case scenarios below for your consideration.
The toughest part of eCommerce now is to generate consistent sales. Regardless of whether you use paid ads, or social media influencers or organic traffic or a mix of all these, you will have to constantly be at your best to generate consistent sales. Keep split testing advertisements, content strategies and social media promotions. But once you find the winning recipe, then it’s a matter of time before you start to generate a steady volume of sales.
Once you do that, it’s time to consider switching over to a more efficient fulfillment system. You cannot afford to rely on slow and inefficient systems anymore, be it fulfillment by the supplier or a hybrid fulfillment strategy.
When you are dropshipping, then you have little to no control over the fulfillment process. The shipping methods you can offer to your customers will be limited to what the supplier offers. But if you are losing out on customers because of slow shipping times, then it may be time to consider outsourcing fulfillment.
Any 3PL will offer you multiple shipping methods to choose from. Many of them will be expedited and allow you to offer 2-3-day shipping nationally.
Let’s say your winning item is large and heavy. In this situation, fulfilling orders from China or any part of the world for that matter will be expensive. What you should consider is stocking inventory in a warehouse close to your target market. That’s what a fulfillment service can do for you.
There can also be situations where the item requires specialized packaging. For instance, it is temperature sensitive. Even picking and packing the item takes a fair bit of time for the supplier. In this scenario, it will be in your best interest to outsource to a 3PL that’s specialized in handling fulfillment for such items. They will bring speed and efficiency, that cannot be matched by the supplier’s in-house fulfillment team.
Related Reading: What is the Best Fulfillment Service (Top 9 List) Top 7 Fulfillment Companies in China
What does the Fulfillment Process Generally Look Like?
Since we have been talking incessantly about fulfillment from the beginning, let’s take a brief look at what the fulfillment process actually looks like.
There are three steps in the fulfillment process.
Receiving – The 3PL team or the warehouse management team will receive the inventory in the warehouse, verify the quantity, quality and inspect for damage. This is then logged into the warehouse management system(WMS) and stored in the appropriate location for pick and pack. Now, some 3PLs have separate charges for receiving, unloading and storage. But others just have a single receiving charge, or even better, a single fee for the entire fulfillment process.
Pick & Pack – Once your order is received, a picker, or an employee who specializes in picking items from the warehouse for storage, will pick every item in hundreds and thousands of orders they handle each day. They receive, something called a picking list, which amongst other details, also contains relevant information about the packing material to be used.
The picker picks the item and brings it to the packing station, where it will be packed as per the instructions in relevant packaging material. It is then forwarded to the logistics department where it will be sent out to the carrier.
Many large warehouses and 3PLs now use a fully automated system with picking robots to increase speed and reduce manual error.
Shipping – Shipping is the last leg of fulfillment. Your 3PL will dispatch the package to a shipping provider of your choice.
How much do fulfillment Services Cost?
One of the most important aspects of fulfillment service selection is the price. We already spoke about how some fulfillment services have cumbersome pricing patterns. Some are guilty of sneaking in hidden charges that are not so evident when you sign up with them.
That said, here’s an overview of what to expect cost-wise when you outsource fulfillment.
1.If you dropship
Dropshipping is considered to be a beginner-friendly eCommerce business model because it is cost-effective and does not include a separate fulfillment charge per-sell. The only cost that you will pay is the product cost and the shipping cost.
For instance, if you dropship from Aliexpress, you will pay the product cost and shipping may be free. Alternatively, you can choose one of the paid shipping methods. In either scenario, there’s no fulfillment cost at all. The Aliexpress supplier fulfills orders for free, or includes those charges in the product cost.
2. If you use a 3PL for fulfillment
The fulfillment cost depends entirely on the 3PL. As we said, some have a simple pricing plan with one single fulfillment charge. You just add that to the product cost and be done with it. Some have fulfillment plus storage charges, which again, is fairly easy to figure out and track.
But there are some 3PL who will break down the fulfillment cost into multiple numbers to do with each step in the workflow. Like this.
Inbound or Receiving charges
The 3PL will charge you for receiving and unloading your inventory based on the hour or on every item. It can be a flat fee for every pallet or bin, or even based on the item dimensions.
Pick & Pack
The fees for picking and packing ranges from $1 to 5 every item. But it can be more or less depending on the service and the item. Many 3PLs offer better pricing on bulk orders.
The rates for packaging will depend on whether your item is packed in a standard envelope, a poly mailer, or a specialized box.