For any business, one of the biggest challenges to overcome is order fulfillment. It is the foundation stone of any business, and as a business owner or operator, you need a good understanding of what your options are and what advantages and disadvantages are offered by the primary models.
Online shopping has become the international giant that it is because eCommerce giants started offering 2-day shipping, changing the face of internet shopping. Most people do not want to wait for their shopping purchases, so order fulfillment became a focus for eCommerce not long after it was launched.
For most eCommerce operators the costs will be one of the main factors that influence which model they choose – self-fulfillment, third party, or drop shipping. B2B fulfillment focuses on fulfilling orders to other businesses or retailers rather than directly to consumers. Fulfillment costs represent the sum of all the expenses involved in the course of handling products, from receiving to distribution. B2B fulfillment helps other businesses stock up on products so they can resell to their customers through one or multiple channels.
- 61% of shoppers will abandon their cart if shipping, taxes, and other fees are too high.
- 53% of shoppers say that speed of delivery is an important factor when it comes to evaluating their online orders.
- 38% of shoppers will never shop with a retailer again if they had a poor delivery experience.
- 25% of shoppers have canceled an order because of slow delivery speeds.
To make sure that your eCommerce business gets order fulfillment right, let’s first take a look at exactly what the process involves.
What is Order Fulfillment?
Order fulfillment includes storing inventory, picking and packing products, and shipping online orders to customers.
This process is done in one of two ways:
- in-house by an eCommerce company or
- outsourced to a third-party logistics (3PL) provider (this includes drop shipping)
B2B eCommerce retailers also require order fulfillment. Most B2B includes the selling of large quantities of products which are then shipped to big-box retailers. B2C orders are shipped directly to a single shopper’s home and are the end of the supply chain.
For the process to begin, a customer places their order on the website. Once the customer completes their purchase, the fulfillment process begins. (This can be slightly different for B2B whereby larger orders are placed in-house through a sales representative on behalf of the client.)
The Order Fulfillment Process
When you receive a package at your front door, 2 days after making your online purchase, you might not consider how much actually goes into considering cost-saving and efficiency at each step of the fulfillment process.
From routing and managing inventory to choosing the correct packaging for the lowest practical dimensional weight, there are many working parts that ensure packages are sent with efficiency and speed.
To fulfill orders, you need inventory. To have inventory, you need storage. If you choose to fulfill orders in-house, your inventory must be on-hand. If you are outsourcing fulfillment, inventory must be sent to the provider that will fulfill on your behalf.
2. Inventory storage.
Inventory storage, or warehousing, is the organization and storage of your products.
Each unique product or SKU (stock-keeping unit) must have a separate dedicated storage location with a barcode that links the product to the shelf location. These codes are vital for the tracking of products at every stage of operations.
Proper inventory storage helps keep your products secure and protected and improves your stock visibility, so you know what exactly inventory you have to sell.
3. Order processing.
Once an order has been submitted, it is processed.
This involves retrieval of the items from the storage location, and packing the item, and preparing the package for shipment. Packing slips are used to note the quantities and storage locations of each product ordered. The slips also include instructions on which packing materials to use, such as boxes, bubble wrap, poly bags, packing tape, packing peanuts, etc. — or any custom packaging and inserts that are included to satisfy the expectations of the customer.
A shipping label must also be added to the package.
Once an order has been processed and is prepared for delivery, the merchant must get it shipped.
This can include sending items to the post office, using a courier service, or hiring another third party delivery service to deliver items.
On shipping an item tracking information should be made available so that customers can see the expected arrival date or even time of their purchase, and know when to make contact should anything go wrong.
5. Returns processing.
As an eCommerce merchant, you need to have a clear returns procedure that customers can easily access.
You might offer to ship directly back to you or to the fulfillment provider for evaluation.
Depending on the return reason, item quality, and your returns policy, the product might be restocked as available inventory or disposed of due to malfunction.
Your Order Fulfilment Strategy
ECommerce order fulfillment requires an effective strategy so that your business can succeed and grow.
You need to plan well in advance to ensure secure infrastructure, systems, and processes to complete orders and retain customers.
You should consider some of the following key elements when planning your fulfillment strategy.
1. Location is key.
Physical location still matters in eCommerce.
Customers want their purchases fast and their delivery cheap (or free), so choosing your order fulfillment location is key to your operational success.
Delivery times can take significantly longer, and cost more if they are from an international distributor. For example, a customer buying in the EU from the US can expect to wait up to 2 weeks for delivery.
Even within national borders, delivery times vary if a product is traveling interstate or to a regional area, and often the costs associated with delivery will rise.
Reducing shipping zones, or the distance packages travel, typically reduces the cost of shipping and time in transit. Solutions such as urban fulfillment centers allow merchants to quickly and affordably ship purchases in big cities with large populations.
Another strategic step in optimizing fulfillment is to distribute inventory to multiple locations in close proximity to your core customer base.
If you have locations near common shipping destinations you can make use of ground shipping, which is significantly cheaper than expedited air delivery and faster than shipping delivery.
2. Technology integrations matter.
You will need software that integrates seamlessly with your eCommerce platform to help manage orders across sales channels without manual uploads or duplicate data entry.
Having an integrated system will alert your fulfillment team to pick, pack, and ship the items to the customer. In the case of Amazon and other eCommerce giants, even this step has been automated and bots do the warehouse work.
Once the order has been accepted, tracking information can then be sent back to the platform or marketplace and shared with the customer.
Your technology should also provide automatic inventory tracking so that your website and other channels are always showing the correct inventory available for customer purchasing.
ECommerce businesses need to leverage their integrations to connect the upstream activities of purchasing and manufacturing to the downstream activities of sales and product demand. This helps for more accurate purchasing and production forecasting, saving your business money.
3. Free 2-day shipping.
Fast and cheap shipping appeals to customers, but the logistics for eCommerce merchants can be troublesome.
Shipping is expensive, and it is not free for the merchant, so strategic eCommerce order fulfillment is essential to achieve higher conversion rates without reducing margins.
To ensure profitable shipping options, most online merchants will do one or both of the following:
- Bake the cost of shipping into the product price using an average shipping cost.
- Require a minimum spend threshold for free shipping to increase the average order value
Free shipping influences customers’ behavior. Free 2-day shipping offers increase site traffic and reduces cart abandonment rates. However, finding a balance for cost absorption is difficult.
For inexpensive products, absorbing the cost of shipping can cost your business money, while increasing product prices could turn shoppers away.
Free expedited shipping tends to only be a viable option for eCommerce giants, or for those stores that sell high-end products.
Choosing an eCommerce Order Fulfillment Model
To decide which order fulfillment model will best suit the needs of your eCommerce you need to consider several factors, including:
- Order volume
- Inventory management
There are three common methods of order fulfillment, and choosing the right one for your eCommerce could mean the difference between stagnation and growth.
1. In-house order fulfillment.
In-house order fulfillment, or self-fulfillment, means that you as the merchant complete each step of the fulfillment process internally, without third-party logistics providers or dropshipping.
This model can be applied to small scale and large scale operations as merchants choose. For small eCommerce enterprises that are just starting out, many will store, pack, and deliver purchases from their homes.
In-house fulfillment does take much time which could otherwise be used creating more products, marketing, acquiring customers and generally upgrading the business.
Many eCommerce businesses reach a point where they are unable to fulfill orders alone and need to outsource their order fulfillment or create an in-house team to complete the work.
For eCommerce merchants who keep operation in-house they need:
- Secure warehouse space.
- Warehouse staff.
- The necessary equipment.
- Warehouse management software.
And other considerations that ensure the smooth operation of the distribution and delivery of goods to customers.
|100% control of inventory and the pick, pack, and ship process.
|It is time-consuming. Packing products takes time, and as orders increase, it can take most of the day.
|Low-cost for small businesses as you store, pick, pack, and ship items yourself.
|As a business grows, costs can be excessive and prohibit scalability.
|No contacts are required, as long as you have space to store products, address labels, and packing resources such as packing slips.
|When your business reaches significant shipping volume, negotiated shipping rates through various private courier companies can create a competitive advantage.
2. Third-party fulfillment.
Many eCommerce merchants need to use third-party fulfillment when a business grows to a certain level. Some business models include third-party fulfillment from the launch of the business, depending on what the seller is intending to achieve.
When you outsource fulfillment, the company you hire takes care of the entire process — from receiving your inventory from your manufacturer to restocking returned products.
Such companies work with many merchants and typically operate a number of fulfillment centers. They have the logistical expertise, capacity, and technology resources, and are able to negotiate substantial discounted bulk shipping rates with carriers due to the volume of shipments they send daily.
When you choose a third-party fulfillment business to handle your shipping, they take care of:
- Returns processing.
- Quality control.
- Other specialized projects.
Each company is unique and offers various services. Depending on your needs, such companies can perform kitting, custom packaging, B2B orders, FBA prep, temperature control or refrigeration, and many other specialized functions.
|Buck purchasing of inventory can improve profit margins.
No outlay for warehouse space/real estate, WMS software, or a workforce to pick and pack orders.
|Quality can be compromised.
|Outsourcing the process to a trusted professional can help your business in the early stages of development, especially in establishing trust.
|Shipping discounts can be much better than if you were to negotiate on your own.
Dropshipping means that the eCommerce merchant never holds the products they sell. All products are produced, stored, and shipped by the manufacturer. The eCommerce merchant is simply a storefront for a manufacturer.
When a customer places an online order, the order is forwarded either manually or automatically to the manufacturer, which drop ship the product directly to the end customer.
The shipping process is completely in the hands of the manufacturer, which is often in a different country to the place of purchase, meaning that delivery times can be extended.
Dropshipping does not always give merchants control over inventory, quality control, and order fulfillment.
|It’s easy. Dropshippers provide the products and the shipping, so eCommerce merchants can focus on sales.
|No customization of products.
|Minimal business development: You’re leveraging the network of your drop shipper, rather than building relationships with suppliers.
|Lower quality control. You’re entrusting your brand’s reputation to another party while maintaining accountability, so if there are issues with quality or delivery, customers blame you, not the drop shipper.
|You can scale your eCommerce faster by adding more products quicker. Integrating a drop shipper’s products with your business is simple. Links allow more people to discover your brand and increases the number of touchpoints by which interested shoppers can encounter your brand.
|You don’t produce your own products, you are a seller for others and if you have an established brand, it can easily damage your reputation if quality controls are not met.
|Low overhead costs make dropshipping an attractive start point. You only pay for inventory when a sale is made, so you avoid operational expenses such as warehousing.
|You have a competitive disadvantage. Low barriers to market entry mean it’s hard to establish a competitive advantage over other businesses.
|A hands-off product fulfillment approach gives you time to focus on other priorities.
|Logistics can become challenging if you are coordinating with multiple drop shippers as you scale your business.
ECommerce Fulfillment Process Challenges
ECommerce order fulfillment is not always straightforward. Unexpected challenges can mean that businesses are restricted when scaling or logistics are stalled.
Here are some common logistical pain points faced by eCommerce merchants.
Lack of focus on strategic tasks.
When self-fulfilling eCommerce orders, your attention is diverted from growth-oriented tasks.
Fulfilling your own orders means that much of your time is spent packing orders and delivering them to the post office rather than investing in marketing time to grow your customer base, creating new products, and develop your brand voice.
When you focus on marketing and strategy, you are able to grow your business much faster and generate higher returns.
No in-house fulfillment expertise.
There are many complexities involved in fulfillment, and most eCommerce merchants simply do not have the skills and experience to deal with the logistics of warehousing, inventory, packaging, shipping, and returns. Without a commitment to understanding such complexities, your business can stagnate.
You can’t compete with Amazon.
Most customers want fast delivery of their purchase, and they want free delivery. Many brands and eCommerce retailers simply cannot compete with Amazon,
Amazon has thousands of fulfillment centers across different cities, regions, and countries. They have the power to send things fast, and cheap.
However, selling on marketplaces like Amazon can be limiting, as you cannot market directly to customers or build an email list.
You aren’t ready for changes in volume.
Merchants must be ready to ramp up operations throughout the holiday season. As sales improve, eCommerce merchants often find themselves short-handed and unable to fulfill orders at the usual time.
Scaling your workforce to manage a greater number of sales and returns, are challenging. Hiring seasonal workers can help to ease the pressure, but predicting volumes is difficult for newer businesses. It is critical to find a balance to maintain business growth and preserve your brand reputation.
Using the wrong technology.
Many eCommerce businesses use outdated or manual systems and software with limited technological capabilities. Without supportive software, you lose speed, automation, and data that drive decisions and transparency.
The right software can help you with everything from understanding cart abandonment to managing inventory.
Your brand voice is weak.
ECommerce brands need to focus on creating a connection with their customers. This can be done by providing distinguishable packaging. The unboxing experience is very important to customers. This replaces the in-store experience and provides packaging that is unique, appealing, or and ‘Instagramable’. This showcases your brand in a cohesive way and encourages people to share images of your brand on social media.
Without the proper order fulfillment process in place, your eCommerce business will struggle to grow, develop a brand reputation that supports your business, and deliver on promises.
You need to provide excellent shipping fulfillment. Without such services, your cart abandonment rate will be high, and your online business will flounder. It is important to understand your capabilities, and what models work for your ambitions.
To meet customer expectations, you must understand:
- The overall eCommerce order fulfillment process.
- Which fulfillment model makes the most sense for your business.
- How to be strategic in your operation.
You need to be prepared to adapt your order fulfillment strategies as your business grows. It is important that you investigate all the possibilities before making a final decision about which model suits your business goals.