If you operate an ecommerce business it is important to understand how order fulfillment systems and operations work, even if you plan to outsource to a third-party logistics provider (3PL). Knowing the necessary components of an efficient order fulfillment system can help you make the best decisions in choosing how to structure the order fulfillment arm of your supply chain. This post describes the basic aspects of order fulfillment, and three ways to set up your order fulfillment systems.
What is Involved in Order Fulfillment
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 a 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). 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.
Storage and Organization
In order to streamline your order fulfillment process, you need an organized solution to store products before they are ready to be shipped to your customers. An accountable organization system should be implemented no matter if products are stored in a spare room or garage, or 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, to a dedicated room or workstations 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.
When an order enters the shipping stage of order fulfillment, it will be determined what the best shipping method for the order is. 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 method has 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.
For online consumers, the ability to easily return purchased items is an important part of the buying decision. For ecommerce businesses, 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 fulfillment provider how returns will be handled once they arrive back at the warehouse.
Order Fulfillment Solutions
Now you understand the basics of what is involved in order fulfillment, 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 fulfillment provider, 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 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 drop shipping, your suppliers handle your order 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. These are the most time consuming tasks involved in an ecommerce businesses fulfillment operations, and sometimes it is simply best to outsource all of these to a logistics company. It is very common for many small and growing ecommerce businesses turn to order fulfillment partners to manage some or all of the order fulfillment side of their business. What you will get in return is their expertise and efficiency. You often receive savings on shipping, as a 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.
Accurate and timely order fulfillment is essential to any successful ecommerce business. To stay ahead of your competition, you must understand the entire order fulfillment process, adopt efficient habits, and manage costs end-to-end. There are many ways to get orders into the hands of your customers, and it is important to have knowledge of all of them so you can figure out which is the best option for you.
If you are looking for help with your order fulfillment we would love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.