Ecommerce fulfillment is a carefully orchestrated logistical symphony that transforms virtual shopping carts into tangible packages delivered to your doorstep. However, just like a musical ensemble requires synchronization and choreography of the highest order, eCommerce demands meticulous planning and attention to fulfill orders as quickly as possible.
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Studies show that 90% of U.S. shoppers expect deliveries within two to three days, and 30% of consumers expect same-day delivery. To cater to this demand, you must run your eCommerce fulfillment like a well-oiled machine. It might not be the fun part of having an online store, but efficient fulfillment is crucial to retain customers and create brand goodwill.
The trick is not to get overwhelmed but to be thorough while identifying, selecting or upgrading your strategy. In this article, we’ll guide you through the process, discuss various models and help you choose the best service. Let’s dive in.
This Article Covers:
- What Is Ecommerce Fulfillment?
- Fulfillment Process
- Types of Fulfillment Models
- Planning Your Strategy
- Cost of Ecommerce Fulfillment Services
- Role of Software
- Software Selection Strategy
- FAQs
- Next Steps
What Is Ecommerce Fulfillment?
Ecommerce fulfillment is a process that starts when a customer confirms an order on your online store and continues till the product reaches the buyer’s doorstep. It’s a part of your supply chain that involves:
- Receiving inbound shipment
- Storing and organizing inventory on warehouse shelves
- Picking and packing items upon order confirmation
- Shipping items
- Managing reverse logistics
Fulfillment Process
Ecommerce fulfillment is a complex process that involves several touchpoints, vendors, and workflows. Let’s closely look at them to understand how you can optimize and streamline your operations.
Sourcing
The first step involves placing an order with your supplier and transporting products to a distribution center. Depending on your fulfillment model and product type, this place could be a warehouse, fulfillment center or personal storage space.
Here are some of the best practices you should follow when sourcing:
- Avoid overreliance on a single supplier to minimize risks and ensure a stable supply chain.
- Prioritize product quality and testing to build customer trust and reduce returns.
- Establish strong supplier relationships through open communication and negotiate favorable terms for your business.
Receiving
This stage is where you take physical possession of ordered products. You must inspect, count and record incoming shipments in your WMS or inventory management systems to catch damaged goods and maintain accurate inventory levels. Here’s how you can ensure a thorough inbound process and avoid errors:
- Provide an advance shipping notice to warehouse staff mentioning the shipment’s content and arrival time for timely undocking and inventory availability.
- Design a thorough inspection and checking process to find damaged goods and ensure the shipment matches the purchase order.
- Maintain a detailed record including item quantities, SKU numbers, arrival time and product condition to power efficient inventory management.
Warehousing
Once the merchandise arrives, eCommerce warehouses scan, log and shelve products. You must ensure that the staff immediately logs all products into your inventory; otherwise, it can lead to lost sales.
You should also be wary of shrinkage allowance policies. These policies protect fulfillment warehouses and 3PL providers from reimbursement if they lose a percentage of inventory due to theft, breakage or damage. Look for these factors when searching for the ideal eCommerce fulfillment warehouse solution:
- The distribution center logs products into inventory within one or two days of receiving them.
- They provide inventory tracking tools for maintaining stock levels.
- The warehousing vendor has a low shrinkage policy, ideally between 2-5% of the total inventory.
Inventory Management
Inventory management helps fine-tune stock levels to meet current demands and trends. Excessive stocks tie up a large amount of your capital in inventory, while low-volume stocks lead to lost sales due to out-of-stock situations.
You must analyze historical data to identify peak seasons, customer locations and market trends. Use this information to proactively reorder products and maintain inventory levels in multiple warehouses. Here are some other steps to improve inventory management:
- Determine places where your customers reside and strategically distribute inventory to nearby warehouses.
- Gain real-time visibility into stock levels in every storage space and warehouse.
- Use quick reorder procedures through a mobile app or portal.
- Leverage business analytics tools to identify patterns and forecast trends.
Order Management
This step involves the broad concept of collecting and managing your orders coming through multiple sales channels, websites and marketplaces. The process includes picking, packing and shipping products for every order.
Once an order arrives, your staff will scan the SKU identification codes to pick the right product, pack them and print shipping labels. A few ways to simplify this process are:
- Consider eCommerce order management software for a centralized view of every order and tracking capabilities.
- Find 3PL service providers who offer short turnaround periods and don’t take long to pick, pack and ship products.
- Look for low error rates because wrong orders and lousy packaging can lead to lost sales and negative customer experiences.
Picking and Packing
Upon order confirmation, the warehouse management system generates a picking slip. Warehouse staff use it to pick items from shelves and prepare them for shipping.
Businesses with specialized products may require you to assemble various components to create a final product before shipping. Or, in the case of subscription boxes, you may need warehouse staff to pick items and curate a bundle. Both kitting and assembly are available as value-added services in eCommerce warehouses.
You can also consider the following practices to streamline this process:
- Group similar orders together for easy and streamlined picking workflows.
- Inspect items before packing to ensure quality and reduce returns.
- Develop smooth integrations between your inventory management system, WMS and eCommerce platform for quick data transitions.
Returns and Reverse Logistics
Ecommerce has a higher rate of return than physical stores. An effective returns workflow can help unsatisfied customers return orders, get refunds or place reorders. It’s an important step in the fulfillment workflow that directly impacts customer sentiments and can boost brand loyalty.
Here’s how you can make reverse logistics a breeze for you and your customers:
- Find fulfillment services that can add returned items to your inventory within a day or two.
- 3PL fulfillment services that handle reverse logistics can let you focus on more pressing issues.
- Consider setting up an ancillary store for selling returned goods at discounted prices.
Types of Fulfillment Models
Essentially, there are four main ways in which you can fulfill your customers’ orders. This section looks at each option and its benefits and drawbacks.
In-House Fulfillment
This model is a common approach for smaller brands and young eCommerce businesses that have more time to spend than money. It’s ideal when you sell a handful of SKUs with low order volumes.
You have to take charge of storing products in your home, garage or personal space; when an order comes in, you pack the product, visit your local post office and ship it to the customer’s location. It’s a simple and cost-effective solution for retailers who sell on Etsy and other C2C platforms and doesn’t need investment in warehousing, labor and 3PL.
Benefits
- You can quickly launch a store and start selling without spending time on setting up a fulfillment cycle.
- Minimal costs for storing and packaging products.
- You have creative control over the packaging and can provide personal touches.
- The entire fulfillment cycle depends on you, and you’re responsible for potential delays or before-time deliveries.
Drawbacks
- It’s impossible to scale operations and add products to your inventory.
- Limited storage space and labor.
- Your customers miss out on discounts provided on bulk shipping.
- It involves a high opportunity cost for the time you spend running around packing and shipping products.
Dropshipping
Dropshipping is when you sell products from a third-party manufacturer without buying or owning an inventory. When an order arrives, you list products and act as a middleman by relaying them to manufacturers.
Your supplier is responsible for storing, packing and shipping products to customers. This model is ideal when you aren’t ready to spend big on fulfillment services but are looking to sell many products or heavy equipment that require specialized storage.
Benefits
- Low overhead costs as you’re only responsible for marketing products and confirming sales.
- Acquire inventory with minimal cost and focus capital on growing and brand building.
- The supplier manages fulfillment cycles, leaving room for you to sell.
- You can adapt to trends and update inventory with new products without worrying about unsold stocks.
Drawbacks
- Lower profit margins as suppliers take a big cut out of every sale.
- Limited control over shipping and handling.
- Heavily dependent on supplier stocks and fulfillment cycles.
- No bulk pricing, custom discounts and personalizations for your customer.
Third-Party Fulfillment Services
Third-party fulfillment or third-party logistics (3PL) is a model where you outsource an external agency to manage your entire fulfillment workflow, including sourcing, inventory management, storage, freight forwarding, packing, customs brokerage and cross-docking.
It’s best suited for growing eCommerce businesses that have outgrown their initial warehouse or in-house fulfillment model. Such companies spend most of their time and resources on marketing and business growth. Outsourcing fulfillment management to a 3PL provider ensures the implementation of best practices, on-time deliveries and secure inventory storage.
Benefits
- You can leverage the provider’s industry expertise, shipping networks, data insights and value-added tools.
- Scale, add products and update inventory easily without upgrading warehouses.
- You can substitute miscellaneous costs like transportation, labor and leases with a 3PL provider subscription fee.
- Reach remotely located customers faster with strategically placed 3PL warehouses.
Drawbacks
- You don’t have absolute control over storage, packaging and shipping.
- Most vendors have shrinkage allowance policies, meaning a part of your inventory can go missing before reimbursement.
- Your supply and fulfillment chain relies on third-party vendors.
Fulfillment by Amazon (FBA)
Amazon offers 3PL services to small businesses that sell on Amazon. They have strategic fulfillment centers worldwide offering receiving, storage, packing and shipping services at a subscription fee.
It also has various value-added services, including international fulfillment, subscription boxes, fragile and lightweight item treatment and inventory distribution. You can also use FBA to fulfill orders from personal or third-party eCommerce websites.
Benefits
- Customers with Amazon Prime subscriptions are eligible for free shipping and two-day or same-day deliveries.
- Amazon offers 24/7 customer support and also takes care of reverse logistics.
- FBA users have a higher chance of winning Amazon’s Buy Box, significantly improving order volume.
Drawbacks
- Various hidden costs associated with FBA fees can lower your profit margin.
- The “no questions asked” return policy may translate to a spike in reverse logistics when compared to other fulfillment modes.
- Amazon has complicated packaging and labeling requirements while receiving inventory in their warehouses.
Planning Your Strategy
Finding eCommerce fulfillment services that fit every business type or size is tough. What might work for others may not be the best option for you. You require a partner who specializes in storing products you sell and can reach every customer base.
Factors To Consider
Planning an e-commerce fulfillment strategy involves considering several critical factors to ensure smooth operations and customer satisfaction. Here are some key aspects to explore:
Location
You can have your business base tucked away in a corner of the world, but your inventory needs to be in a central location for quick deliveries. There are several criteria for choosing the best warehouse location. Determine your customer base locations and proximity to airports and train stations to single out areas for inventory storage.
Business Model
Most eCommerce fulfillment services either specialize in B2B or B2C orders but not both. B2B orders are typically big and require a lot of space, making rural fulfillment centers a viable option. On the other hand, B2C fulfillment is all about speed, and you need to store inventory where customers live.
Specialization
If you sell heavy equipment, you need a fulfillment warehouse that can pack and ship large products. But they might not be ideal for handling small and fragile goods. Therefore, choose a fulfillment service specializing in products you sell.
Shrinkage
Shrinkage allowance is a provision made for inventory loss or shrinkage due to various factors such as theft, damage, spoilage or errors in eCommerce fulfillment warehouses. It accounts for the difference between expected inventory levels per record and the actual physical item count within the warehouse.
Typically, 1.5-2% is a healthy shrinkage allowance rate. But, you must calculate the total loss based on your inventory size to determine the ideal rate for your business.
Turnaround Time
The fulfillment center is responsible for adding products to your inventory and picking, packing and shipping products. The faster they do this process, the quicker your deliveries are. Make sure the fulfillment center you choose doesn’t leave inventory lying around for more than a day.
Technology
Technology is at the heart of any eCommerce business process, and fulfillment is no different. You must have a strong IT team and infrastructure to receive orders, maintain uptime and offer adequate trackability.
Support
It’s frustrating when you have an urgent situation, and nobody answers your support helpline calls. Avoid such problems by selecting an eCommerce fulfillment service that provides service-level agreements to guarantee quick responses to your queries.
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Key Questions
The foremost step while learning anything is to ask questions. We’ve compiled a list of pertinent questions to help you determine your best fulfillment strategy and pick a 3PL vendor that fits your operations.
For Yourself
- What type of products do you sell? Warehouses specializing in heavy machinery might not be the best place to store china teapots. Find a place built for storing your type of goods.
- Where do your customers live? Look for services that can reach them easily.
- What are your storage and packaging requirements? Your product might need special packaging, or you might be selling subscription-based products that require monthly or yearly special wrappers and assortments.
- How do you manage customer support? Select a fulfillment service that connects with your CRM and supports order tracking and returns workflow. A few services also provide in-house customer support.
- Which integrations do you need? Look for integrations with your PIM, order management, shopping cart and eCommerce software.
For the Vendor
- What’s the pricing model? Find vendors with transparent pricing. Hidden fees can turn reasonable eCommerce fulfillment prices into business-killing expenses.
- Who’s paying for mistakes? What happens when the warehouse packs or ships incorrectly? High-quality vendors waive fulfillment and shipping fees when they make mistakes. Make sure you get a transparent picture of shrinkage policies.
- Do you have shipping discounts? 3PL vendors shipping in bulk get heavy shipping discounts, which they don’t always pass down to you.
- How can I track inventory? The service provider should send real-time package status notifications to you and your customers. Choose vendors that offer software and dashboards to track your inventory from anywhere.
- Do warehouses have power and ISP backups? Customers don’t care if your warehouse had a power outage or the ISP was down. They want their orders on time. You need reliable ecommerce order fulfillment warehouses that can offer uninterrupted services online and offline.
Cost of Ecommerce Fulfillment Services
The cost of e-Commerce fulfillment depends on different models, services and channels. Reliable 3PL centers have transparent pricing and charge merchants for various activities. The main factors affecting the cost are:
- Setup: Vendors usually charge a flat rate for setting up inventory in their ecommerce fulfillment warehouses, which varies between $100-$500.
- Receiving and Intake: It covers receiving, scanning, logging and shelving products into the warehouse. Some vendors charge this fee per hour, while others charge based on the number of units or pallets.
- Storage: This fee is for the storage space required to keep your inventory safe and secure. You have to pay on a per-cubic feet or per-shelf basis.
- Pick and Pack: It includes the fee for staff to pick, pack and get your products ready for shipping. Typically, it’s a combination of per-order and per-item fees. Suppose the vendor charges $2 per order and $0.20 per item, and a customer orders five items. Then you’d have to pay $3 separately for picking and packing that order.
- Shipping: If you have a personal account with a shipping carrier, you need to pay the usual fee that the carrier charges. But if you use the 3PL vendor’s shipping account, you might get discounts due to bulk shipping. Contact vendors personally for a better picture of shipping charges.
- Kitting: This fee is for assembling products before shipping. Vendors usually charge based on the time taken to assemble a product.
- Reverse Logistics: It covers the cost of checking the returned item for defects and logging it back into inventory. It’s generally the same as the picking and packing fee and can sometimes be more if you require additional check-ups.
Role of Software
There are various software to streamline different steps of the fulfillment process. Some improve accuracy and efficiency by automating administrative tasks, while others track productivity and help you design workflows across various departments for a smooth and consistent customer experience.
Here are some of the types of solutions you can use in your fulfillment operations:
Warehouse Management Software (WMS)
Ecommerce fulfillment warehouses have a more fast-paced working environment than traditional warehouses due to the high volume of orders and demand for quick deliveries. Warehouse management solutions help businesses track and optimize every aspect of eCommerce warehouses to improve productivity and save costs. These systems help you:
- Organize warehouse layouts for faster picking and packing.
- Assign tasks, track performance and optimize staff utilization.
- Maximize warehouse space to improve storage efficiency.
- Automate order management processes to reduce errors and save costs.
- Collect and analyze data to track and optimize warehouse performance.
Track orders from multiple channels on a centralized dashboard. Source
Additional Resources
- Warehouse management software features
- Types of warehouse management software
- Warehouse automation trends
Ecommerce Inventory Management Software
These solutions track, manage and publish your inventory’s pricing, availability and storage location in different sales channels. They’re ideal for businesses with large catalogs operating across multiple sales channels.
You can centralize inventory data across warehouses and make changes easily from a single dashboard before publishing on sales channels. It also lets you:
- Automatically update changes in inventory across every channel.
- Send alerts before low-stock situations.
- Predict demand and inventory needs based on historical data.
- Maintain product attributes, categories and bundles.
- Record inbound shipments and outgoing orders to improve stock audits.
Get real-time inventory updates from any remote location. Source
3PL Software
3PL or third-party logistics provider software is a one-stop shop for all your 3PL management needs. These solutions manage and streamline relationships with 3PL service providers by centralizing communications and tracking warehouse operations from remote locations. You can:
- Centralize inventory and order from different 3PL providers.
- Standardize receiving and shipping processes.
- Track the time taken to receive, dock, pick and pack products.
- Collect and analyze data to identify areas of improvement.
Improve visibility across 3PL warehouses and their operations. Source
Ecommerce Platforms
Ecommerce platforms help you design, run and manage an eCommerce website. Depending on your requirements, you can go for intuitive website designers with a shopping cart integration or choose robust all-in-one solutions that can handle inventory, warehousing, order fulfillment and customer management.
Some of the key features enable you to:
- Design websites without coding expertise.
- Create a safe online environment to facilitate financial transactions and payment processing.
- Manage catalogs and product information variations.
- Promote products on social media and improve brand visibility using SEO tools.
- Connect with warehouse and inventory management solutions to avoid data silos.
Design stunning storefronts using templates, WYSIWYG editors and drag-and-drop tools.
Additional Resources
Software Selection Strategy
Choosing the right software for an eCommerce business is like designing a space suit — the success of your journey in the vast eCommerce space depends majorly on the suit’s performance.
But it doesn’t always have to be a strenuous task. It’s all about realizing your requirements and finding the best solution within your budget that fulfills all your needs.
Easier said than done? Not really. Introducing you to our nine-step methodology called lean selection that ensures you do all the right things when selecting software:
- Establish: Determine why you want to get the software and which pain points you’re trying to solve.
- Collaborate: Gather your business’s decision-makers and department heads to discuss and prioritize individual needs.
- Define: Compile the full scope of your business’s requirements from the new platform.
- Distribute and Validate: Send your requirements checklist to potential vendors to test their suitability. Consider sending requests for proposals, information and quotations.
- Justify: Depending on the results, decide if you want to move ahead or stop your search and look for a different solution or an add-on.
- Prove: Shortlist top vendors meeting your requirements and request proofs of concepts and demos of their platform.
- Rank: Develop a scoring system based on prioritized features and rank each vendor based on how well they meet your requirements.
- Negotiate: Analyze the top vendor’s contract according to your rankings and contact a lawyer for a second opinion. If the contract seems right, move on to the next step. Otherwise, repeat this step with the next best vendor on your list.
- Sign: Sign the contract and develop a detailed implementation plan with the vendor.
FAQs
Do I need a fulfillment center close to my home?
It’s better to choose a fulfillment center based on its proximity to your customers rather than one close to your business base or home.
You can use information like customer destination zip codes, average shipping cost and average time in transit to select fulfillment centers in advantageous locations that can offer quick deliveries and low shipping costs.
Will rural fulfillment centers save me money?
Due to lower leasing costs, many new fulfillment centers have warehouses in rural areas. While these 3PL providers offer comparatively cheaper services, choosing them isn’t an economically smart decision if most of your customers are city dwellers. You can end up paying more shipping costs in such cases.
What’s the difference between eCommerce and fulfillment?
Ecommerce is the act of buying and selling goods and services online, while fulfillment is part of an eCommerce business’s supply chain that focuses on delivering orders to the customer’s doorstep. Although these are different concepts, they aren’t mutually exclusive, and fulfillment is an integral part of eCommerce.
Next Steps
All in all, eCommerce fulfillment is the primary foundation for building your online business. It’s a complex process with multiple touchpoints that ensure your customers receive what they order over the internet. Mistakes and delays in this segment can adversely affect your business’s reputation and goodwill.
To avoid such scenarios, you need the ideal software that fits your operation like a glove and helps you track and optimize workflows from any remote location. You can consider using our free comparison report to get started. It lets you compare some of the industry’s best eCommerce platforms based on features, pricing and other criteria.
Did you face any common challenges while fulfilling orders? How did you overcome them? Which software can help you better manage your fulfillment? Let’s start a conversation below.