If you’re already running your online store, you know just how crucial efficient fulfillment is to a successful business. And if you haven’t started yet, you’ll soon find out.
When you have a solid fulfillment plan, all the logistics behind the scenes run smoothly and orders get delivered on time. A strong plan also protects your costs and minimizes liability.
The result is that your customers are happy because they get their products quickly and in good condition, and your bottom line is happy because your costs line up perfectly with your budget.
Whether you’re just starting out on your ecommerce journey or are looking to refine the processes you already have in place, understanding the fundamentals of fulfillment is key. In this post, you’ll learn the basics, find out how to choose a fulfillment partner, and discover some incredibly-helpful fulfillment optimization tips along the way.
What is ecommerce fulfillment?
From most people’s perspective, ecommerce fulfillment starts the moment your customer places an order and ends when the product hits their doorstep.
The reality, however, is that ecommerce fulfillment really starts the moment you initially source items to sell and store them in your warehouse, and it only ends once there’s no chance of a product going through the returns process.
Effectively managing ecommerce fulfillment matters a lot for business success. When products are delivered on time, you build trust and increase customer retention. You also reduce costs associated with processing returns.
What is the order fulfillment process?
Order fulfillment is an involved process with many steps. Between procuring products and delivering them to customers, there’s a lot to do and plenty of room for missteps.
Let’s take a detailed look at order fulfillment from the very first step, before customers even place an order — possibly before you even set up your online store.
1. Procurement and sourcing
Before you can sell any products, you need to find a supplier or make a manufacturing plan. This step involves identifying and negotiating with vendors who can provide high-quality products consistently. Even if your business makes its own product, you’ll still need a recurring source of raw goods.
The goal is to maintain an adequate supply of inventory without overstocking. It’s a delicate balancing act to always have enough to meet demand, but not so much that you have to spend unreasonable amounts of money storing unsold goods.
Strategic sourcing also helps in managing costs, ensuring product quality, and establishing a supply chain that can adapt to changing demand or disruptions.
2. Warehousing and inventory management
Once products are sourced, they need to be stored in a way that allows for efficient retrieval when you receive an order.
This may involve items being received at a distribution center, a type of warehouse where goods are stored and sent to the appropriate fulfillment centers when needed. From there it moves to a fulfillment center, like your business warehouse, where items will be picked, packed, and shipped.
Depending on the size of your business and the type of fulfillment you choose, this process may look very different. You may have a third party handle fulfillment at their warehouses, or products may simply come to your small business office (even your house!).
3. Order processing
Order processing starts when a customer places an order and ends when the product is ready for shipment.
Stock availability is checked, customer info is verified, and the payment is processed. All of this is done using automated systems. After that, the fulfillment center gets a notification and the next steps of the fulfillment process begin.
4. Picking and packing
Once an order is placed, items need to be found in the warehouse (picking) and prepared for shipping (packing).
For larger operations, automated software is used to help warehouse employees navigate and find the products they’re looking for, and the warehouse is organized so products are grouped in intelligent ways.
If you’re starting from home, you may have shelves dedicated to certain products or bins with various SKUs. But one way or another, you need to have products organized and easily accessible for quick processing once you receive an order.
This step must be handled with care to avoid errors, such as sending the wrong item or the wrong quantity, which can upset customers and cause excessive returns to clog up your supply chain and eat away profits.
5. Shipping and delivery
The final step in the fulfillment process is shipping the order to the customer. After the product is packed in the warehouse, it’s handed over to a carrier who brings the item to the customer.
This process includes selecting the right carriers, paying shipping costs, and providing customers with tracking information. Balancing fast shipping and cost-effectiveness is the key here. Customers are happy to get their items sooner, but it can result in unreasonable shipping costs.
If you’re just starting out, you can buy a small label printer and use WooCommerce Shipping to save on costs. From your WordPress dashboard you can purchase and print labels for quick, seamless processing.
Once the product is delivered, fulfillment is over — or is it?
Returns
Even if you have super efficient warehouses, flawless automation systems, and the fastest carriers in the world, something will still inevitably go wrong. Products may arrive damaged, people receive the wrong item, or maybe the customer just decides the product isn’t for them.
Sending a product back through the supply chain is known as reverse logistics, and it can be a burden on unprepared systems.
On the front end, this requires stellar communication from your support agents to understand the problem and set up the returns process. On the back end, you’ll need to receive the returned item, assess the condition, restock it if it’s still usable, and issue a refund or replacement.
There’s a tendency to get hung up here, as many supply chains aren’t designed for reverse logistics and can fail. Be proactive and ready for inevitable returns.
Ecommerce fulfillment service models
Determining the best ecommerce fulfillment strategy for your online store is one of the most important choices you’ll make. This determines how your products are stored, managed, and delivered to customers.
There’s no one best model here — it’s all about how you want to design your business. From managing all orders within your own facilities to outsourcing entirely, each of these has its advantages and challenges.
In-house fulfillment
Do you want to handle the entire logistics process yourself? Run your own warehouses and/or distribution centers, pack your own orders, and pick your own shipping carriers? In-house fulfillment involves managing the entire process using your own resources and facilities.
While you’ll need to use your own warehouse space and hire staff (or operate as a one-person show as you grow!), this model allows complete control over inventory, branding, and the customer experience.
Pros:
- You have total control over the fulfillment process.
- Store owners can maintain direct oversight of inventory, potentially leading to better inventory management.
- Merchants have the ability to customize packaging and inserts to enhance branding.
Cons:
- An investment in infrastructure, technology, and staffing is required.
- It can be resource-intensive, diverting focus from core business activities.
- Scaling operations is challenging and costly as order volumes increase.
Best suited for:
- Large businesses and enterprises with specific handling or branding needs that are not easily outsourced.
- Companies that maintain high margins and can absorb the costs of managing warehouses.
- Businesses with a stable order volume that does not fluctuate.
- Small businesses and solo-preneurs with no warehouses at all and minimal startup capital.
Third-party logistics (3PL)
When the size of your business rests somewhere between “tiny home-based shop” and “sprawling enterprise with dozens of warehouses”, third-party logistics (3PL) is what most businesses elect to go with.
A 3PL provider is a type of ecommerce fulfillment company that specializes in handling the logistics of inventory storage, inventory management, and shipping for other businesses. When you outsource fulfillment to these companies, you can focus more on product sourcing and marketing, and spend less money on warehouse space.
Pros:
- It reduces the need for significant capital investment.
- Logistics companies are more experienced, make fewer mistakes than new companies, and have access to advanced fulfillment technology.
- It’s a scalable process capable of handling inconsistent influxes of orders and company growth.
Cons:
- You have less control over the handling and shipping process, which can impact the customer experience.
- There is potential for service issues if the 3PL ecommerce fulfillment provider’s processes are not aligned with your business’s standards.
- It can be costly, especially if order volumes are low, as 3PLs often charge for storage space and other services.
Best suited for:
- Growing businesses experiencing increasing order volumes and that need to scale quickly.
- Businesses looking to expand into new markets without the need for investing in physical infrastructure.
- Any business that doesn’t have the time, workforce, or money to run its own fulfillment center.
Dropshipping
Dropshipping is a fulfillment model where you don’t keep the products you sell in stock. Instead, when you sell something, you then purchase the item from a third-party — usually a wholesaler or manufacturer — who then ships it directly to the customer.
This model eliminates the need for handling and storing inventory, so it’s much cheaper. But it’s important to choose your suppliers wisely and ensure that you’re selling high-quality items. Low-quality dropshipping has a negative reputation among consumers.
Pros:
- Minimal investment is required to start a dropshipping business.
- There’s no need for physical storage space, which significantly reduces overhead costs.
- It’s straightforward to scale up as there is no inventory to manage directly.
Cons:
- You have less control over shipping times and packaging, which can lead to poor customer service.
- There’s no direct quality control, potentially leading to low-quality products and angry customers.
- There are lower profit margins due to competition and reliance on third-party suppliers, and potential stock issues if suppliers fail to manage inventory properly.
Best suited for:
- New entrepreneurs who want to start an ecommerce business with minimal risk and investment.
- Businesses that want to test new products without committing to large inventory purchases.
Hybrid fulfillment
You don’t have to stick to solely in-house, 3PL, or dropshipping models. You can combine elements of each to create a flexible fulfillment strategy and scale based on your business’ needs.
Businesses might manage some products in-house while outsourcing others to a 3PL company, or mix in dropshipping for particular items. With a hybrid model, you optimize your fulfillment and tailor it to the types of products you sell.
Pros:
- The flexibility to choose the best fulfillment method for different products or markets.
- Businesses can enjoy potential fulfillment cost savings by leveraging the strengths of each method.
- The ability to scale specific segments of the business as needed without overextending resources.
Cons:
- This is a more complex strategy that requires managing multiple fulfillment methods and ecommerce fulfillment company partners.
- It requires careful coordination and integration of automated systems.
- There’s potential for inconsistencies in customer experience if not managed properly.
Best suited for:
- Businesses with a diverse product range or varying customer demands.
- Companies looking to gradually transition between fulfillment models without disruption.
Ecommerce fulfillment challenges: How to optimize ecommerce fulfillment
Ecommerce fulfillment poses a variety of challenges that can significantly impact your efficiency and customer satisfaction. But by optimizing ecommerce fulfillment, you can tackle these challenges head-on and keep everything operating smoothly.
Whether you choose in-house fulfillment, 3PL, dropshipping, or a combination of all of these, check out these common fulfillment challenges and their potential solutions.
Expensive fulfillment costs
Ecommerce fulfillment can get very expensive very fast. The increased operational and overhead expenses can really drag down your business, and that’s true for startups, enterprises, and everything in between.
Here are some elements that contribute to high costs:
- Warehousing. Storing your products with a fulfillment company or distribution center can be very expensive. That applies whether you lease out the space yourself or work with a 3PL provider.
- Packing and shipping. Expenses for packing materials can get costly, especially as many 3PLs charge picking and packing fees. Shipping can also cut into your earnings, especially if you go with the fastest carriers.
- International shipping. If your business expands globally, you may find that shipping costs are higher than expected. Items that cost $10 to ship in the U.S. may turn to $40-$100 to ship to another country.
- Labor. Staffing a warehouse requires hiring people to manage inventory, process orders, pick, pack, and ship products — and it’s not cheap.
- Free shipping expectations. These days, many consumers expect free shipping on their orders. But that means you eat the costs yourself.
Solution: Strategic cost management
As a seller, there are multiple strategic measures you can take to significantly reduce the costs associated with ecommerce fulfillment. While this may be easier for larger businesses with more leverage, there are still options for small businesses.
