Any ecommerce merchant will tell you, if more than a few of your customers receive broken, missing, late, or wrong merchandise from you, your days as a successful product company are numbered. Consumer expectations have risen in conjunction with the rising volume of products that are ordered online each year. Ecommerce merchants need to have their order fulfillment processes exactly on point to keep up with demand.
Ecommerce fulfillment isn’t one-sized-fits-all. Your company size, product type, and customer needs factor into the type of fulfillment you choose. Here are the most important factors when choosing your fulfillment model, and the top three most common fulfillment types in practice.
What is Ecommerce Fulfillment?
Ecommerce fulfillment is the process of receiving orders, packaging, and distributing products or to the consumers who purchase them. This may mean products might be packed and shipped to stores for retail fulfillment (also called business-to-business or B2B fulfillment) directly to individual people (called business-to-consumer or B2C fulfillment).
No matter where the products go, fulfillment requires putting strategic systems in place to ensures that all customers’ orders are accurately fulfilled.
The Stages of Ecommerce Fulfillment
All ecommerce fulfillment processes include the following steps:
- Receiving the order(s).
- Storing and counting the products (also known as inventory management). Note, there is a big distinction between a fulfillment center and a warehouse, choose wisely when setting up your inventory flow.
- Retrieval of goods from the warehouse (called picking) and packaging them in preparation for shipment.
- Shipping the goods to their final destinations through various shipping carriers or services.
- If the customer does not find the order satisfactory, there is the opportunity to call for a return where the goods will be shipped back to the merchant or fulfillment provider for evaluation. Once the returned goods are shipped back to the merchant in the same condition as it was delivered, the merchant has to make a refund to the customer within a specific duration of time. However, it all depends on the return policy of the fulfillment provider.
Factors to Consider When Choosing Your Ecommerce Fulfillment Model
Because there are many aspects of fulfillment, it’s important to assess your business needs before choosing (or changing) your fulfillment model. Look at the following four areas, not only to choose the best model now, but one that can grow with your business.
The kind of product you sell plays an integral role in your fulfillment. Is your product a raw material, or finished good? Is it something that can be ordered directly by the consumer, or a business that will eventually process it and sell it to individuals? The answers to these, and other questions will inform the type of warehouse, timing, packing materials, and specialty infrastructure you might need to process your orders.
If you are a product manufacturer, you’ll likely deal with a large volume of orders which requires more warehouse space and automated processes to increase order throughput. On the other hand, if you are a new ecommerce merchant, with only a few products, and very low order volume, you may want to consider self fulfilling in-house to start.
Your order fulfillment location can go a long way in determining your ability to meet your customer’s expectations and fulfill orders in a timely fashion. It will also determine your shipping rate and its affordability for your customers. It’s best to situate your fulfillment location close to your customers. Look to have your fulfillment done in an area where you can guarantee one- or two-day shipping to many urban areas, where carriers and transportation are abundant.
Order Processing & Inventory
The flow of your inventory is another crucial factor that you must consider. How long does it take to package and process your products? Do you need to update your products often, for example, re-flash software? Do you anticipate getting many returns (e.g. an apparel company), or need to institute a refurbishment program (e.g. an electronics company)? Understanding your products from an inventory flow standpoint is huge when it comes to fulfillment.
The Three Most Common Ecommerce Fulfillment Models
In-house fulfillment is basically a do-it-yourself model where the merchant will package and delivery products to customers themselves. It is a model that works best for small-scale businesses, with minimal volume. In-house fulfillment can be done out of a home, or rented storage facility.
With this model, the merchant is solely responsible for all aspects of fulfillment.
This model eliminates the cost of outsourcing fulfillment, which can include paying for storage fees, peak season charges, and other associated costs.
- Benefits: This model eliminates the cost of outsourcing fulfillment, which can include paying for storage fees, peak season charges, and other associated costs. In-house fulfillment allows businesses that are highly specialized or have limited daily orders or cash flow to use their funds for personnel, product iteration, and quality packing materials.
- Challenges: As order volume grows, in-house fulfillment can take a lot of time and resources away from other aspects of the business. It may become overwhelming for an individual to handle. If your marketing efforts, fundraising, or product iteration start to go unattended, you may think about looking for outside help with your fulfillment. In-house fulfillment may mean you don’t have the oversight and experience of industry professionals when seeking the most optimized packing materials, or getting high-volume shipping discounts.
Third-Party Logistics (3PL)
Third-party fulfillment is a model that allows you to outsource or hand over the management of your distribution infrastructure to a specialized logistics company that will handle your entire ecommerce fulfillment flow within its own fulfillment center.
- Benefits: With a 3PL you will have more free time to focus on other areas of your business. Your fulfillment provider will fully take over all your inventory management and distribution. If you find an experienced 3PL they will help you get into new sales channels. A great fulfillment provider will be the catalyst for business growth.
- Challenges: You’ll be giving up a lot of the control that comes with packing and distributing products yourself. Finding a reputable 3PL is imperative as you’ll be trusting a very important aspect of your business with them entirely. Outsourcing incurs a cost, but once you start growing it becomes worth the money to scale your business efficiently.
A newer fulfillment model rising in popularity, dropshipping means the flow of products is very different from manufacturer to customer. The seller does not keep products in storage like in traditional fulfillment, instead the manufacturer keeps them until orders are placed. Products may come into the fulfillment center or distribution center but be processed immediately and get shipping out quickly. In short, when the consumer makes an order from your store, he or she is in essence ordering directly from the manufacturer.
- Benefits: This model is very quick to set up and may lower your overhead costs (no storage fees). Merchants often report an uptick in order volume when they switch to dropshipping due to more products being available; the quick turnaround time gives them the ability to sell more products in a shorter window of time.
- Challenges: Dropshipping requires the ability to process orders quickly. You must have a very close relationship with a reliable manufacturer in order make dropshipping a success. Customization of the product and quality control could be lacking, which might have an adverse effect on the order fulfillment in most cases. And since the customer interacts with you (through your store/website), you’ll be blamed for any problems with the delivery or product itself, instead of the manufacturer.
With all that has been discussed so far about ecommerce fulfillment model, there is no gainsaying that it is an integral part of any ecommerce transaction that must not be taken with levity. For any online business to thrive successfully, the customer or consumers’ satisfaction should come first. And this can only be achieved if a business or ecommerce merchant adopts the right ecommerce fulfillment model. Therefore, we hope that the aforementioned models have been able to effectively guide you when taking a decision about the best ecommerce fulfillment model to adopt for your online business.