Ecommerce Fulfillment: The Unappreciated Yet Vital Strategy Brands Use to Win Loyal Customers
Thanks to Amazon Prime, and other retail giants who have followed suit to offer free 2-day shipping, customer expectations around the speed and cost of shipping are constantly shifting.
As consumers, when we want something, we want it now.
As sellers, fulfilling those demands is easier said than done.
While order fulfillment may not be the most glamorous aspect of running an ecommerce business, it is a function that directly impacts an online merchant’s bottom line.
Did you know:
- 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.
Getting ecommerce order fulfillment right has never been more important.
But before your online store can master order fulfillment, you need to understand how it works.
What is Order Fulfillment?
Order fulfillment is the process of storing inventory, picking and packing products, and shipping online orders to customers.
This process can be completed in-house by an ecommerce company or outsourced to a third-party logistics (3PL) provider.
Ecommerce order fulfillment applies to both business-to-business (B2B) orders — where large quantities of product are shipped to big-box retailers — as well as business-to-consumer (B2C) orders that are shipped directly to a single shopper’s home.
For B2C orders, the end consumer may place the order on the merchant’s website or through an online marketplace.
After the customer completes their purchase, the fulfillment process begins.
Understanding The Order Fulfillment Process
If you are new to the fulfillment world, you may not have put much thought into how an online order ends up at your doorstep.
However, there are many moving pieces — from routing and managing inventory to choosing the correct packaging for the lowest practical dimensional weight — that make up the entire fulfillment process.
There are nuances of each step of the fulfillment workflow, including receiving inventory, warehousing products, picking and packing items, and shipping orders.
Before you can fulfill orders from your online sales channels, you need inventory.
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, also known as warehousing, is the organization and storage of your products.
Each unique product or SKU must have a separate dedicated storage location.
For larger operations, this will be on a shelf, in a bin, or on a pallet.
Proper inventory storage will keep your products secure and protected and help give you visibility into what is available to ship to your customers.
3. Order processing.
Once an order has been submitted, it will get processed.
These steps involve picking, or the retrieval of items from where they are stored, and packing, or getting the order ready to ship.
Often a packing slip is used, which notes the quantities and storage locations of each product ordered.
This may also include instructions on which packing materials to use — boxes, bubble mailers, poly bags, packing tape, bubble wrap, airfill, etc. — or any custom packaging and inserts to create the intended unboxing experience for the end customer.
Finally, a shipping label must be added to the package.
Once the order has been processed and is ready to send, the merchant must get it shipped.
This may involve a run to the local post office or UPS Store, or having a carrier pick up the orders from the fulfillment location.
Once the order ships, you should receive tracking info that can be shared with customers to keep them up-to-date with their deliveries.
5. Returns processing.
If a customer returns an order, you must be prepared to process it.
They may ship it directly back to you or the fulfillment provider where it will be evaluated.
Depending on the item quality, return reason, and your returns policy, the product can either be restocked as available inventory or disposed of due to malfunction.
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Planning Your Order Fulfilment Strategy
Ecommerce order fulfillment requires a sound strategy behind it — especially if you plan to grow your business.
Good planning is necessary to secure the infrastructure, systems, processes, and team you’ll need for success.
Let’s dive into some important considerations to think through before scaling your fulfillment operations.
1. Location is everything.
Even if you don’t operate a brick-and-mortar store, physical location still matters in ecommerce.
Aside from the size of your storage space, where you fulfill orders from is one of the most important factors in meeting customer expectations around delivery costs and speeds.
Since both affordable and fast shipping options are important to consumers, optimizing your fulfillment operation based on where your customers reside will help you reach the most people in the most cost-efficient manner.
For example, shipping orders to US customers from overseas can take significant time unless they are willing to pay significantly more for expedited delivery.
Even domestically, if you ship orders from rural areas or from one side of the country to another, you are shipping to higher shipping zones.
Reducing shipping zones, or the distance packages travel, will typically reduce the cost of shipping and time in transit.
Urban fulfillment centers are on the rise as they allow merchants to quickly and affordably ship to customers in big cities with large populations.
Another strategic step in optimizing fulfillment is to distribute inventory to multiple locations that are within close proximity of your customers.
The more fulfillment locations near common shipping destinations, the more ground shipping can be leveraged, which is significantly cheaper than expedited air and faster than shipping from a greater distance.
2. Technology integrations.
This means that as soon as an order is placed online, fulfillment staff can quickly be alerted to pick, pack, and ship the items to the customer.
Tracking information can then be sent back to the platform or marketplace and shared with the customer.
Another important piece of the fulfillment puzzle is visibility into inventory quantities on hand across fulfillment locations.
This helps online retailers understand when to proactively order more inventory to prevent stockouts.
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 to make more accurate purchasing and production decisions. For example, if you need customer signatures to close sales, you can use electronic signature software to increase close rates by 28%.
3. Free 2-day shipping.
With fast shipping speeds like 2-day and even same-day becoming more prevalent, keeping transit times down and costs low will appeal to customers.
However, pricing your shipping can be challenging as there is no one-size-fits-all approach or magic formula.
And shipping is expensive — and certainly not free — for the merchant.
Strategic ecommerce order fulfillment can achieve higher conversion rates without hurting your margins.
Ecommerce Order Fulfillment Strategies For Profitable Shipping Options
- Bake the cost of shipping into the product price using the average shipping cost.
- Require a minimum spend threshold for free shipping to increase the average order value
Offering free shipping has a major impact on shoppers’ behavior.
Offering free 2-day shipping helps lessen cart abandonment rates and get more shoppers to your checkout page in the first place; but the goal is to do this without increasing your returns rate.
For inexpensive products, absorbing the cost of shipping will make you lose money, while increasing your product price may turn visitors elsewhere.
A free 2-day shipping strategy often works best for more expensive products or stores with shoppers that generally spend more on average.
Deciding Which Ecommerce Order Fulfillment Model to Use
Making the right choice for how you fulfill orders will depend on several factors, including your order volume, your products, what you’re willing to manage yourself, and more.
There are three common methods of order fulfillment — see which might be the best for you.
1. In-house order fulfillment.
In-house order fulfillment, also known as self-fulfillment, occurs when the merchant completes each step of the fulfillment process internally, without the help of a dropshipper or third-party logistics provider.
This model ranges from small order volumes fulfilled from home to investments in a larger scale operation and more extensive facility.
It’s common for merchants that are just starting out to manage inventory and pack orders in their home.
In-house fulfillment at this stage typically takes up a lot of valuable time that could otherwise be spent on acquiring more customers, developing new products, and launching marketing campaigns.
Once merchants grow to a certain point and can no longer manage fulfillment alone, they are faced with either outsourcing fulfillment or building out the fulfillment infrastructure themselves.
The DIY route entails:
- Securing warehouse space.
- Recruiting and staffing it.
- Purchasing the necessary equipment.
- Licensing warehouse management software.
- Getting workers’ comp and liability insurance.
- And more.
- It offers 100% control of inventory and the pick, pack, and ship process.
- It can be low-cost when the business is small because you are just paying for shipping (and doing the work yourself).
- Anyone can do it. You don’t need any contacts (as long as you have space to store products, address labels, and packing resources such as packing slips).
- For businesses shipping significant volume, negotiated shipping rates through FedEx, UPS, and/or USPS can become a competitive advantage.
- It is time-consuming. Packing all of the products yourself will take time. As orders increase, this can take up most of your day.
- It is costly as the business grows and can be very burdensome for a young business. You need the following:
- Warehouse space.
- Warehouse equipment.
- Additional staff.
- Order fulfillment software requirements.
2. Third-party fulfillment.
Handing off ecommerce fulfillment to a third-party often occurs when a merchant is spending too much time packing boxes and shipping orders, has run out of space to store their inventory, needs more time for strategic projects, and has no interest in managing their own distribution infrastructure.
When you outsource fulfillment to a 3PL company, they handle the entire fulfillment process for you — from receiving your inventory from your manufacturer to restocking returned products.
Because 3PLs work with many merchants and typically operate a number of fulfillment centers, they have the logistical expertise and capacity and are able to negotiate substantial discounted bulk shipping rates from carriers due to the pure volume of shipments they are shipping out each day.
The 3PL’s staff will complete all tasks of the order fulfillment process within their fulfillment center:
- Returns processing.
- Quality control.
- Other specialized projects.
Each 3PL is unique and has their own services that will vary depending on your needs, including kitting, custom packaging, B2B orders, FBA prep, temperature control or refrigeration, and more.
- Inventory can be purchased in bulk in order to improve profit margins.
- No investment is required for warehouse space/real estate, WMS software, or a workforce to pick and pack orders.
- There is an added convenience of outsourcing the process to a trusted professional.
- Shipping discounts can be much better than if you were to negotiate on your own.
- i.e: Your business ships 5,000 packages per month, but the third-party ecommerce fulfillment company may be handling 150,000 orders per month. They’re going to be able to get better shipping rates with FedEx/UPS than you can alone.
- Quality can be compromised.
- You have to do your due diligence: a third-party ecommerce fulfillment company controls your ecommerce businesses’ final handoff of value to your customers. In other words, they have the opportunity to make or break your customer satisfaction levels, which affects the lifetime value of these customers on your business.
Dropshipping means that the merchant never holds the products they sell in their online store; instead, the products are produced, stored, and shipped by the manufacturer.
When a customer places an order on the merchant’s online store, the order is forwarded either manually or automatically to the manufacturer.
Then, the manufacturer dropships the product directly to the end customer.
With dropshipping, the shipping process is completely in the hands of the manufacturer, who is often overseas.
This means that your customers might have to wait for a product to be shipped from across the world.
In addition, dropshipping does not necessarily allow you full control over inventory management and order fulfillment.
- Easy to start: Dropshippers provide the products and the shipping, so all you need to do is focus on sales.
- Minimal business development: You’re leveraging the network of your dropshipper, instead of personally building the relationships with every supplier. Essentially, every new partner allows you to grow by a significantly large number of new products.
- More products, faster: Growth in ecommerce begins with adding more products to your website. Integrating a dropshipper’s products with your business is simple and straightforward because all you’re doing is supporting the links and learning the prices—not lining up any other part of the logistics.This allows more people to discover you and increases the number of touchpoints by which interested shoppers can encounter your brand.
- Affordable: Low overhead makes dropshipping a great starting place for online retailers. All you do is pay for inventory when a sale is made, so you avoid operational expenses like warehousing. Profitability is not guaranteed, though, which we’ll get to in the next section.
- Test before committing: Since you don’t incur overhead, you can test out the viability of new markets for existing products anywhere you can establish a drop-shipper service.
- Focus on what you do well: The convenience of a hands-off product fulfillment experience thereby enables businesses to focus on other priorities, which is especially advantageous to new companies.
- No customization: Dropshipping usually means virtually no support for custom products. To achieve this type of support and customization, your dropshipper would have to function as a warehouse. Unfortunately, this is not likely unless their margins on custom products were worth the time and effort — in which case, the margins would likely not make sense for you.
- Lower quality control: Since the seller is removed from the fulfillment process, you’re entrusting your brand’s reputation to another party — while maintaining accountability. Buyers usually don’t think about fulfillment models or dropshippers. If a defective product arrives or there is a miscommunication about the shipment, your customer doesn’t want to hear that it was out of your control; all they care about is the overall experience.
- Reduced brand power: Your products are produced by others, so it’s more difficult to establish a unique brand. The reduced quality control only increases the risk to your brand.
- Competitive disadvantage: Low barriers to entry mean it’s hard to establish a competitive advantage over other businesses. You’re competing on price, and that can easily become a losing game.
- Scale: Logistics can become challenging as a business scales up, especially when coordinating with multiple dropshippers.
Ecommerce Fulfillment Process Challenges
Ecommerce order fulfillment is not always as straightforward as it seems.
Unexpected challenges may arise that can prevent a business from scaling and orders from getting out on time.
There are several common logistical pain points faced by ecommerce merchants.
1. You don’t have the fulfillment expertise in-house.
Becoming a fulfillment expert is not typically the main reason that someone starts an ecommerce business, nor is it the best use of an individual’s time who already wears many hats.
Very few businesses have their distribution network as a core competency or have built out their own supply chain.
With all the complexities of shipping, understanding the ins and outs of it can be overwhelming. Many ecommerce teams find that they don’t want to be setting up and running operations in a warehouse — or even know where to start.
2. You aren’t prepared for changes in volume (or the holidays).
With Q4 around the corner, merchants must be ready to ramp up operations throughout the holiday season.
However, it can be challenging to keep up with unprecedented demand.
As more orders are placed, more people are required to help ship them out.
From scaling the workforce to managing a greater number of returns, changes in volume are challenging.
Additionally, you may not be able to anticipate a larger number of staff quitting during peak season or you needing to lay people off during a lull due to seasonality.
It can be difficult to plan for and afford future infrastructure needs on your own, especially major expenditures associated with managing logistics in-house.
3. You’re unable to focus on strategic tasks.
When self-fulfilling ecommerce orders, you don’t spend as much time on growth-oriented tasks that improve your business.
Packing boxes and running to the post office takes you away from growing your customer base, creating new products, marketing to your audience, and more relevant growth tasks.
Making use of limited time means focusing on the higher-dollar tasks that will generate more revenue and scale your business much more quickly.
4. You can’t compete with Amazon.
If your customers are like most consumers today, they expect a fast turnaround for their deliveries after they check out online.
When you are limited to fulfilling orders out of a single location, you can’t offer affordable options for all customers as Amazon does with the use of their fulfillment centers across different cities and regions.
Furthermore, selling on marketplaces like Amazon can be limiting without the ability to market directly to customers or build an email list.
5. You struggle to strengthen your brand.
Online business owners need to focus on translating their online brand into an in-person experience beyond the product itself.
Yet, very few create a memorable experience through branded packaging.
While some sellers may use generic packaging, or must even conform to packaging that elevates a brand that is not their own, others aim to enhance their brand during the unboxing experience — which is often your customers’ first in-person experience with your brand.
And before your customer sees your product, they first see the package it’s in.
Not only does this showcase your brand in a cohesive way, but it may also result in customers sharing photos of your unique packages on social media.
6. You are not using the right technology.
Many ecommerce businesses are stuck using outdated or manual systems and software with limited technological capabilities that lack insight into the business.
Without modern, connected technologies, you lose speed, automation, and data that drive decisions and transparency.
Instead, you’re stuck using guesswork around everything from inventory planning to cart abandonment.
Offering fast and affordable shipping options to your customers helps prevent any surprises at checkout.
Yet, without the proper order fulfillment process in place, ecommerce businesses won’t be able to deliver on their promise — and making your customers wait can be costly.
The reality is if consumers can’t get the shipping speed and price they want from you, they will look elsewhere.
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.
Then, you should be able to overcome any challenges you face along the way.
And as your business grows, your ecommerce order fulfillment strategy will shift over time.
If you’re looking to offer Amazon-level logistics, you’re in luck — there are modern, tech-enabled 3PLs that can help you compete.
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