An accurate, robust, and highly functioning fulfillment strategy results in positive reviews and happy customers. On the other side of the coin, a fulfillment process filled with mis-shipments, late arrivals of product, and poor customer service will not only tarnish your online reputation but could also result in the failure of your business venture altogether. The stakes are extremely high, and customer’s expectations have blossomed to a level requiring near flawless execution and lightning quick delivery times.
But what exactly is e-commerce fulfillment, and what are the steps involved? Can you do it yourself, or should you outsource it to an eCommerce fulfillment provider? Read on to learn more as this post answers all the above questions and more.
What is eCommerce Fulfillment, and What Steps are Involved?
E-commerce fulfillment refers to the entire process involved in delivering products to buyers after they order them online – whether the purchase takes place on your own website or an online marketplace. From receiving and storing inventory to processing orders, picking products, and packing boxes, to delivering items to the buyer’s addresses, e-commerce fulfillment spans the entire logistics function.
The ecommerce fulfillment process has six basic components, including:
- Receiving product into your warehouse
- Managing inventory
- Fulfilling and shipping orders
- Processing returns
- Supporting customers throughout the process
- Integrating order platforms with inventory and fulfillment systems
Receiving and inventory management are critical steps in the e-commerce fulfillment process. Receiving involves counting all incoming product and verifying whether it matches your inbound purchase order (PO), and ensuring that inventory is safe, secure, and properly accounted for until fulfilled and shipped. If counts are incorrect at this stage in the game, inventory counts will be inaccurate and can lead to unexpected stock outs.
Inventory is safeguarded by have strict controls over receiving and fulfillment, as well as periodically performing cycle and/or yearly counts to ensure accuracy. Most e-commerce fulfillment companies will also have an inventory management system in places that allows you to always check your inventory levels.
As orders are places on your e-commerce channels, warehouse staff must then pick the orders, pack them, and ship them. Modern warehouses utilize technology to pick the orders without error, including bar code scanning and other technologies. E-commerce orders are usually smaller in nature, usually consisting of only one item or a few items total.
The process isn’t complete, however, once your customer receives his or her order. E-commerce fulfillment strategies must also account for returns processing, as well as servicing customers’ questions, requests, and complaints.
What Integrations are Needed?
To successfully compete in the hotly contested online sales marketplace, fulfillment warehouses must employ robust technology. Your e-commerce store must integrate flawlessly with your fulfillment center, whether it is in house or outsourced. That is, orders should reach the people who pack and ship items seamlessly and without manual intervention. Similarly, integrations should be used for all online platforms on which you sell – not just your own website.
Your fulfillment warehouse should utilize one of the following methods for sending orders from the web store (or other marketplaces online) to your warehouse staff:
- Web services
- CSV or FTP uploads
In a similar fashion, shipping tracking information must be relayed back to your customers, and your stock levels and inventory must be trackable. To meet these demands, most companies utilize an inventory and order management system. Outsourced fulfillment providers have robust warehouse management systems (WMS) that they utilize, and they offer the ability to ‘link’ to their WMS seamlessly using a technology integration.
Different Options for Fulfilling E-commerce Orders
There are several options you can utilize for managing your fulfillment function. You can handle the e-commerce fulfillment service by yourself (commonly referred to as “in house fulfillment”), utilize a drop shipping service, or outsource the entire fulfillment service to a third-party fulfillment company. Outsourcing is a popular choice since it makes your business agile and helps reduce expense and risk. With outsourced fulfillment, you can contract or expand your warehouse space depending on your business demands.
Drop shipping is ideally suited for a pure startup company that wants to minimize risks. Under a drop shipping model, the producer of the product, or supplier, handles the fulfillment and shipping of orders from their facility, usually on an order-by-order basis. In other words, when an order is placed for your product, the order information is routed to the drop shipper (supplier) who then ships that order direct to your customer.
With the drop shipping model, you aren’t required to purchase a bulk of product up front. Instead, the drop shipper simply charges you a price per unit for the product itself and for all the fulfillment and shipping related charges. With no up-front investment required for inventory, you can instead invest money in other areas of the business. Furthermore, the drop shipper handles all the fulfillment, so you don’t have to. You can sit back and let the manufacturer handle the entire fulfillment process. Drop shipping is especially useful for testing out product before a full-scale launch.
Alternatively, there are some downsides to using a drop shipper. First and foremost, drop shippers are usually experts in producing products, but aren’t necessarily the best at delivering high quality fulfillment and shipping services. Therefore, you may experience issues such as late shipments. Second, in exchange for the ability to purchase product on a one-off basis, you will pay a much higher cost per unit for the product. For example, your product for a single unit of the product will be much higher than if you negotiated a lower price for a larger set of goods from the supplier (commonly referred to as “bulk pricing”).
Unfortunately, with drop shipping you’ll lack control over the fulfillment process, shipping, and handling of the products. Other disadvantages of drop shipping include lower profit margins, shorter lead times, and lack of bulk pricing.
In self-fulfillment, your business conducts the order fulfillment process through its own labor, assets, and facilities and without the assistance from a third-party fulfillment company. Whether conducted out of an apartment, home, garage, or full-fledged warehouse, in house fulfillment requires a space to store and fulfill orders, at least minimal inventory and shipping software to support operations, and labor to perform the necessary tasks. In cases of bootstrapping, oftentimes founders will do all of the shipping and fulfillment until they can afford to outsource logistics operations.
The self-fulfillment strategy is easy to implement, gives you control over the whole fulfillment process, and has lower startup costs (especially since you don’t necessarily have to pay yourself a wage). However, it has some major challenges and limitations.
The biggest problem with using an in-house fulfillment strategy is that it forces you to invest an enormous amount of time on fulfillment and shipping functions, rather than other potentially more important functions such as product design, sales, and marketing services. In addition, in house fulfillment carries with it the following potential problems:
- Entering a leased space and the risks and fixed costs associated with taking on a long-term lease.
- Managing warehouse and shipping staff
- Lacking the necessary knowledge to avoid fulfillment and logistics issues
Outsourcing your operations to a fulfillment center is a great model that needs supply chain management. A third-party logistics manages various supply chain functions on your behalf, so that you can focus on your core business functions.
Outsourced fulfillment services include:
- Freight forwarding (managing incoming shipments from your supplier to the warehouse)
- Receiving product into the warehouse (counting it, verifying accuracy of quantities and quality of products, loading it into their online system and physically placing it in their warehouse in racks and bins)
- Inventory storage and management
- Pick and packing of orders
- Shipping orders
This model suits e-commerce retailers who do not have the resources to handle the inventory by themselves, or who would rather not deal with the rigors of the fulfillment process. It frees up time, resources and enables your staff to concentrate on other things such as business development and marketing. Furthermore, fulfillment centers will help you achieve cost savings by:
- Changing fixed leased costs into variable costs where you only pay for what you use
- Lower other fulfillment and shipping costs such as packaging and boxes, labor, and technology costs
Furthermore, you can benefit from the data insights, shipping network, value-added tools, and industry expertise of ecommerce fulfillment companies. Because fulfilling orders is the lifeblood of their business, they are experts at what they do. In short, it is like having an expert in-house fulfillment team but without the associated costs and headache of managing it yourself.
Partnering with the best e-commerce fulfillment companies has multiple advantages, including ease of scaling, increased buying power, and reduced operating costs while leveraging industry expertise.
What are the Costs of Outsourcing?
Fulfillment costs depend on the fulfillment provider you choose and their pricing model. Every fulfillment provider differs slightly in terms of how they charge, but most utilize an activity-based costs methodology where they charge a fee for every service they perform for you. Most e-commerce fulfillment companies’ standard picks and packs fees start from about $2-$3 per order.
Generally, you can determine the total fulfillment costs by adding up all the expenses of a whole fulfillment process. These include:
- Warehouse receiving
- Storing and managing inventory
- Warehouse picking and packing
- Standard or custom packaging
- Return management and processing
For more information on the specifics to fulfillment pricing, read our in-depth article here.
Choosing the Best E-commerce Fulfillment Provider
There is a wealth of e-commerce fulfillment companies, so finding a suitable match can be a challenge. Below are some of the factors to consider when choosing a fulfillment partner.
Order Fulfillment Technology
As an eCommerce entrepreneur, you already have a lot on your hands. You are using different applications, platforms, and digital tools throughout your daily operations, so the last thing you would want to do is partner with a fulfillment firm that uses outdated software. Therefore, you should research the fulfillment software a company you are thinking of working with uses.
Shipping Speeds and Fulfillment & Inventory Accuracy
Customers can abandon an online purchase due to slow delivery times. For this reason, you need to choose a fulfillment company with efficient and effective processes that enable your products to reach customers quickly.
Furthermore, if a package arrives early or on-time but doesn’t have the right items, all of the goodwill built with the customer can evaporate quickly. Mistakes will happen from time to time with an outsourced fulfillment provider, but the best fulfillment companies operate with a minimum accepted fulfillment and inventory error rate, and many will back up their quality with a pledge to compensate you if they do make a mistake.
Returns are inevitable in the e-commerce industry. In fact, the eCommerce product return rate stands at around 30% of all items. With such a rate, you don’t want a partner who will be hands-off after shipping the product. Although some of the returns are unavoidable, you want to work with a fulfillment company that commits to mitigating controllable returns.
Customer Service and Reviews
When looking at outsourced fulfillment options for your e-commerce store, it is critical to search for companies that have good Google reviews. Also, obtaining references is helpful.
Finally, one of the most overlooked items in fulfillment services selection is making sure the partner has some form of customer service – both for your questions as well as an ability help answer the questions of your customers. Most fulfillment companies do not offer in house customer care divisions, which is unfortunate and could negatively impact your customer’s satisfaction.
Why Choose OSW eCommerce Fulfillment?
Efficient eCommerce fulfillment sets your business up for growth, and proper packaging and fast shipment improve your customers’ experience encouraging more purchases and online referrals. Luckily, that is exactly what Our Service Works (OSW) provides your business. We are an experienced fulfillment provider with over thirty years in the industry.
Our top-notch order fulfillment software transforms the handling of your fulfillment to meet the needs of today’s online retail. You can rest assured of reliable shipping, unmatched flexibility, dynamic integration, full visibility of the entire fulfillment process, and customized packaging. Contact us today for all your warehousing, fulfillment, and shipping services.