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If you operate an ecommerce business it is important to understand how order fulfillment services and operations work, even if you plan to outsource to a third-party logistics provider (3PL). Knowing the necessary components of an efficient ecommerce fulfillment process can help you make the best decisions in choosing how to structure the ecommerce fulfillment arm of your supply chain. This post describes the basic aspects of ecommerce fulfillment, several different strategies for ecommerce fulfillment, as well as options to help you decide what is best for your company.
What Services are Involved in Ecommerce Fulfillment?
Order fulfillment describes the general process of fulfilling orders—from receipt of orders, to storing of products, to picking, packing, and shipping orders to their final destination. Order fulfillment differs from ecommerce fulfillment in that it is more all-inclusive; it includes all types of fulfillment of orders, whereas an ecommerce fulfillment strategy only describes the fulfillment of online store orders through an online merchants’ ecommerce platforms and shopping carts. The processes are largely the same when comparing order fulfillment with ecommerce fulfillment, although some of the steps vary depending upon the specific sales channels.
Getting inventory from your manufacturers or suppliers is the first step in getting orders to your end customers. Whether your products arrive at your own house or are sent directly to an ecommerce fulfillment center, the process is essentially the same for either. First you need to count each item that arrives in a shipment to ensure the actual number of items matches the number of items ordered from the supplier(s). You should be able to log into your inventory management system. This real-time data is critical for maintaining stock levels. Next the inventory will be inspected for any damaged goods. If you utilize a warehouse management system (WMS) then you will add SKUs for your individual products in order to keep track of the location, counts, and number of sales. Finally, a bar coded label will be applied to each SKU if they don’t already come with one.
To streamline your ecommerce fulfillment process, you need an organized solution to store products (also called warehousing) before they are ready to be shipped to your customers. An accountable inventory management system should be implemented no matter if products are stored in a spare room or garage, a large-scale stockroom, or warehouse. Products are often stored on pallets, shelves, bins, or boxes based on the number of SKUs that you have. Making sure that your inventory is organized properly enables you to set up your picking operations for the most efficient method which will help you save time during the fulfillment process.
Once an order has been received and stored properly, the individual SKUs that make up an order are then picked off the shelves by warehouse staff and transported to an order packing station. Again, depending on the size of your operation, it can be something small like a kitchen table or counter, or a dedicated room or workstation in a warehouse. At the packing station the products will go through a series of quality control checks to make sure the SKUs match the order and no damaged products are shipped. This is also where the kitting process would occur before you ship orders.
When an order enters the shipping process stage of ecommerce fulfillment, the best shipping rates and method for the order will be determined. Some ecommerce sellers have a small handful of products that require basic delivery from just one carrier, such as the U.S. Postal Service. Others might have orders that come in all shapes and sizes with specific requirements that are sent to customers domestically and internationally, which means shipping becomes much more complex. Once the shipping options have been determined then products will be scanned and packing slips and any inserts will be added before the package is sealed. It is also the responsibility of the shipping department to update the status of an order so it can be tracked by both the sellers as well as the end customers receiving the order. Look for a 3PL provider that offers next-day delivery, or even same-day shipping. At a minimum they should ship to most of your customers within two days or less.
For online consumers, the ability to easily return purchased items is an important part of the buying decision. For ecommerce retailers, the ability to effectively handle those returns is critical to their fulfillment operations, and to the overall success of their businesses. It is important to establish both an internal and external returns policy. An external policy should be listed on the seller’s website and make clear to customers how and where to send returns. The internal policy should make clear to your staff or ecommerce fulfillment provider how returns will be handled once they arrive back at the warehouse.
“In particular DCL’s onboarding process has laid really solid groundwork for the scalability and the relationship moving forward, which gives us a lot of confidence. There’s so much that’s going on with a startup that is ramping up a new product. Having confidence that this really critical component is in the hands of the right partner, a partner that has proven competence, is really important. I know that whatever our forecast is this year, and next year, DCL has proven that they have done that. That’s a really big deal. There are plenty of fulfillment partners out there who can do basic fulfillment, but there’s no way they could do the assembly like DCL, and there’s no way they could scale with us.”
Determining Your Ecommerce Fulfillment Strategy
Because each company has its own needs and goals, there is no simple fulfillment strategy that can be utilized across the board. However, there are many factors to consider when making the decision on which of the various options is right for your company or online business.
1. Business Size and Sales Volume
- How many products do you sell (SKUs)?
- Do you sell products business-to-consumer (B2C) or business-to-business (B2B) or a combination of both?
- How many orders are you fulfilling each month?
- What do you predict as far as growth in products and orders over the next quarter and next year?
The amount of different products you offer as well as order volume constitute an important factor in establishing which order fulfillment solution will work best for your company.
If you are on the low volume end of the scale, it might make more sense to fulfill orders yourself as opposed to outsourcing the process. Selling a limited number of products and shipping only a few orders each month is a good indication that you fall into this category. Self fulfilling can be more cost-effective since your fixed costs are lower—(for example, you don’t need a warehouse or complicated inventory management system to track order flow).
However if you are looking to scale up, and are predicting an increase in product offerings and shipping volume it may be difficult to maintain self fulfillment and you might get past the point of being able to fulfill efficiently and in a timely fashion.
2. Sales Channels & Technology
- What ecommerce platforms are you using?
- Are you using a website, shopping portal, marketplace, another type of ecommerce store or shopping cart, a physical storefront or a combination?
When it comes to a fulfillment strategy, it should be able to support your various sales channels, especially when it comes to technology. Having ecommerce fulfillment technology that can easily integrate across your various channels can be a huge help in managing the entire ecommerce fulfillment process. It can help make it more efficient and cost-effective, as well as enhance your customer support and improve customer satisfaction.
The technology that you implement as part of your order processing strategy should help you to make the process easier, instead of complicating it.
It should streamline the process so that as soon as an order is placed it can automatically be sent to you or your fulfillment provider to then be picked, packed and shipped as quickly as possible.
Ensuring that your fulfillment service and operation has the right inventory management software is also important. You should be able to see your available inventory levels across locations and have a safeguard in place to avoid stockouts. This is an important factor in quality control when it comes to your fulfillment operations.
Ecommerce fulfillment software can help with the time-consuming tasks of inventory and warehouse management, order picking and processing, shipping and tracking and even reverse logistics (also known as returns processing).
In general, sellers need to be able to implement technology that connects purchasing and manufacturing operations with product demand, which enables you to make more informed decisions.
- Are your customers clustered in a single local area, or are they in multiple regions of the country?
Where your products are shipped from and where they are shipped to are probably the most significant factors when determining your ecommerce order fulfillment process.
If you are shipping your orders from a single rural area you are most likely paying significantly higher premiums. If that is the case, it might make sense to think about fulfilling orders from more densely populated and centrally located urban areas.
Distributing your inventory across multiple locations can be a big way to cut costs and shipping times. Using this strategy allows you to use ground shipping more often, which is much cheaper than air shipping.
Ecommerce Order Fulfillment Solutions
Now you understand the basics of what is involved in order management, you need to determine which solution is the right fit for the needs of your business. The main options are: doing it yourself (in-house), dropshipping, outsourcing to a 3PL or other ecommerce fulfillment company, or using some combination of these three options. It is important to consider the factors above and determine if you have the time and space necessary to handle all aspects of order fulfillment yourself—considering also your capacity and room to grow—or if you need to find a fulfillment partner to support your business.
An in-house fulfillment operation can be an ideal starting point for many ecommerce businesses as they get up and running. If you are able to find space such as a garage or spare room to handle your fulfillment, you will have a solid foundation of understanding business and sales channel growth. However, if you don’t have a dedicated space then it can become an issue as you constantly need to relocate everything. Errors can become more prevalent with a less structured order fulfillment set-up, which leads to unhappy customers and negative reviews. Another concern with in-house fulfillment is a sudden spike in business from seasonality or virality of a product. When that happens, there are two main cost considerations you’ll face: space and staff. Both can be great during an initial growth stage, but neither is easily downsized if business drops off.
With dropshipping, your suppliers handle your ecommerce fulfillment. Inventory is stocked in their location and orders are sent to customers directly from their warehouse. One major benefit of dropshipping is that you often don’t pay for your order stock until you make the sale. Managed correctly, drop shipping can greatly extend your selling capacity with little to no added costs. You also save by not having to pay for inbound shipping or inventory storage.
Many ecommerce sellers that use in-house fulfillment extend their capabilities by dropshipping high cost or large volume orders directly from suppliers. Other ecommerce companies use drop shipping as their only order fulfillment method.
Third-Party Logistics (3PL)
3PL fulfillment companies specialize in inventory management, order processing, and shipping. As a seller’s business grows or their fulfillment process has a lot of complexity, sometimes it is simply best to outsource all of these to a logistics company. It is common for many small and growing ecommerce businesses to turn to order fulfillment partners to manage some or all of the ecommerce fulfillment side of their business.
A 3PL can provide can provide fulfillment expertise, better operational efficiency and accuracy, and above all, cost savings. The biggest areas of cost savings, which can be as much of 70% of the fulfillment costs, is 3PLs can provide reduced shipping costs. A large 3PL will get discounted rates based on their volume and can pass that on to your company.
Another added benefit is the fact that many 3PLs operate fulfillment centers across the country so that your products arrive at your customers doorstep in the fastest time possible. Even if you choose to handle the majority of your fulfillment in-house, a 3PL can help with any specialized fulfillment that comes along with product rollouts, seasonal sales, promotions, and other spike in orders. There are costs involved but you need to compare outsourced fulfillment costs against space and staff costs of an in-house fulfillment operation.
“DCL provides all clients access to our own proprietary fulfillment platform, eFactory. It enables users to visualize performance against their goals. And it allows the DCL team accessible data to supplement our meetings and action trackers, to ensure we deliver satisfaction.”
FBA is Amazon’s one-stop-solution for all your storage and fulfillment needs. Their large fulfillment network and experience are ideal for sellers who don’t want to deal with the headaches that come along with managing their own warehouse. Sellers get the benefit of cheaper, expedited shipping services and the Prime badge.
The downside of FBA is that sellers are at the mercy of Amazon when it comes to storage, fulfillment, and other service fees. It’s key for a seller to understand FBA fees as they can be unpredictable and may negatively impact a seller’s bottomline. Also, sellers don’t have physical access to their products so they can’t customize orders and offer branded experiences for their customers.
Seller Fulfillment Prime (SFP) allows sellers to manage storage and fulfillment of their products at their own facilities or at their 3PL partner’s facility, but still reach Amazon Prime members and keep the Prime badge next to their listings. The SFP and FBA experience from a buyers perspective are identical. Sellers have complete control and visibility of their storage and fulfillment processes and costs. Unlike FBA, sellers can use their own custom packaging to make for a more branded unboxing experience.
The biggest disadvantages of SFP is that the seller is held to strict operational metrics which can be a challenge for some sellers or their 3PL partners. Also, the seller is responsible for covering the expedited shipping costs that comes with the Prime membership.
Merchant Fulfilled Network (MFN), also known as Fulfilled by Merchant (FBM), is used by sellers when they want to sell their products on Amazon and manage their own storage and fulfillment. Sellers have complete control of their inventory levels, enabling them to control the customer experience, including their branding and customization of the orders.
The biggest disadvantage that MFN sellers face is that they do not get the coveted Prime badge. This limits their ability to reach and attract the 100 million Amazon Prime members.
You can learn more about the differences between Amazon vendor and seller central.
The cool thing is that DCL supports both approaches (Amazon seller central and Amazon vendor central), and frankly it’s been really transparent with DCL in terms of being able to kind of compare the pros and cons of both of those fulfillment options and be able to figure out what the right solution is for us.”