In today’s world of sophisticated digital commerce, making a purchase online can feel like magic: You click a button, your credit card is charged, and an item appears on your doorstep a few days later. But the process of getting an item to a buyer—known as “order fulfillment”—is a complex part of ecommerce. It concerns everything from the method and manner in which items are pulled from warehouse shelves, to the navigational acumen of individual delivery drivers.
Did you know, for example, that UPS has designed its driver-navigation software to eliminate as many left turns as possible? It’s all to get your package to you as efficiently as possible, without drivers waiting for extended periods to turn left at busy intersections. Ecommerce fulfillment is a massively complex web of events that involves coordination across multiple companies, time zones, modes of transportation, and many different individuals.
What is ecommerce fulfillment?
Ecommerce fulfillment refers to the process of picking, packing, and delivering products to customers. It includes maintaining accurate inventory, tracking down products where they’re stored (either in a warehouse or a brick-and-mortar shop), packaging products, and managing the logistics of timely delivery.
How does ecommerce fulfillment work?
Ecommerce fulfillment is one of the more logistically complex parts of running an online store, and big corporations pour millions into making their fulfillment process more efficient. There are multiple moving parts involved in fulfilling orders, but the six main procedures are:
- Inventory management. This is the process by which an ecommerce business orders and stores raw materials, components of a product, or finished products themselves. Most ecommerce outfits don’t manufacture their own products, so inventory management is a critical part of the fulfillment process. You have to know what products you have on hand before you can fill a customer’s order.
- Warehouse storage. This is the process by which products ready for sale are stored for later shipment. You may store products yourself, if you have the capacity, or outsource this to a third-party warehousing service.
- Receiving orders. At this stage, your company receives orders from customers.
- Packaging. This is the process of preparing products for shipping. This may involve wrapping products in branded packaging, as well as packing products in protective material to ensure they do not get damaged in transit to the customer.
- Shipping. Shipping entails selecting and paying for the appropriate postage or private shipping service to transport products from the warehouse to the end customer. Customers expect to get an estimate of shipping times before they purchase, and for those time frames to be met. One of the biggest upsets to the customer experience is unforeseen delays in shipments. If you can offer two-day shipping, great! But if you can’t, be sure to communicate a realistic time frame to your buyers at the outset.
- Returns. Returns is the process by which unsatisfactory items are shipped from the customer back to the warehouse for processing, cataloging, and possibly resale and reshipment.
Three strategies for ecommerce fulfillment
Ecommerce retailers have several options for fulfillment: You can do it yourself, forward orders to others for fulfillment, or completely outsource to a third party. Each path can be customized depending on the particularities of your own ecommerce business’s needs.
In-house fulfillment involves a business fulfilling orders within its own facilities, using its own labor, technology, and other assets, without help from a third-party fulfillment company. For example, say you own a brick-and-mortar clothing store with a corresponding ecommerce store and you rent a large storefront with a spacious spare room in the back. You might use that spare room to store additional inventory (beyond what’s on the floor) and to pack your online orders prior to shipment. Since the USPS visits your shop every day to drop off mail, you also hand over outgoing items to mail carriers.
The appropriateness of in-house ecommerce fulfillment for your business will depend largely on your inventory volume. If your operation is lean, fielding less than 100 orders a month, in-house order fulfillment may be an efficient option for you.
Advantages of in-house ecommerce fulfillment include ease of implementation, low startup costs, control over packaging style and branding, and control over fulfillment processes and customer support. You may also qualify for lower shipping costs by signing up for bulk postage services like Stamps.com. Downsides include difficulty scaling, diverted labor and time consumption, limitations on storage space and labor, and reliance on full-price shipping.
Dropshipping involves forwarding orders from your online store directly to a product supplier or manufacturer who picks, packs, and ships orders to customers on your behalf. The retailer (you) comes into no actual contact with the merchandise—no one involved with your company will need to store, pick, pack, or ship inventory. The supplier manages the entire process after point-of-sale. Your profits are generated by paying lower, discounted, or wholesale costs to the supplier, and charging the customer a premium for your own branding.
Many ecommerce businesses that sell imported cosmetics or clothing in the US rely on the dropshipping model. Korean products are especially popular, and by ordering makeup directly from a dealer in Seoul, for example, and forwarding those shipments directly to the client, retailers cut out the time-consuming process of importing, storing, and merchandising these orders themselves.
The advantages of dropshipping are its low startup cost. Overall costs of order fulfillment are also lower, as the process is streamlined by leaving everything to the supplier. You also accept lower risk of loss by only paying the supplier for what customers have already ordered.
The downside of dropshipping is that you relinquish control over the shipping and handling process to the supplier—their process might be efficient, or it might be disastrous. If the customer receives a broken item, or the shipment is excessively delayed, poor customer experience can result in complaints and bad reviews that ultimately impact your sales.
Third-party logistics (3PL) is a fulfillment model where a service hired by your company manages the entire fulfillment and shipping process and manages your supply chain. Elements of the supply chain managed by a 3PL service include sourcing, inventory storage, inventory and order management, freight forwarding, shipping the order, receiving, distribution, customs, cross-docking, picking, and packing.
3PLs are popular with fast-growing startups with small product ranges that sell direct-to-consumer. Companies at this stage might have a huge amount of orders, but haven’t yet built the physical capacity to handle fulfillment in-house.
The benefits of outsourcing to a 3PL service exist where your ecommerce company lacks the resources to efficiently store, pack, and ship inventory. Perhaps your orders are outpacing your capacity to fulfill them. If so, you can outsource the process, which frees up your team’s time and resources to focus on other essential aspects of the business.
Other benefits of utilizing a 3PL service include the opportunity to leverage the third-party company’s supply chain management expertise, reduced operating costs due to not having to warehouse or coordinate shipment for orders yourself, and optimized shipping and return processes. This option is also the easiest to scale.
The disadvantages of working with a 3PL service is that you relinquish some control over shipping processes and returns. You will be at the mercy of the pace and deadlining dictated by the service.
As you assess your ecommerce business’s size, scope, and needs, there are a number of questions you’ll want to consider before opting for a particular fulfillment strategy:
- What type of products will your company ship? Are they large, heavy, or more easily (and less costly) transported?
- Do you have the physical space on hand to store inputs and warehouse orders prior to shipment?
- Do you have the customer service capacity to handle inquiries on order status and returns?
- Do you have the budget to pay for fulfillment mistakes?
- What is the effect of inventory shrinkage (product loss, through damage, theft, etc.) on your bottom line?
- Do you offer customers shipping discounts?
- Do you offer international shipping?
- Do you have a system in place to track shipments, and do customers have an interface?
- What are your average shipping times? How fast can you ship orders?
Remember: Customers want fulfillment to feel like magic. Choose a strategy that will allow you to create that experience for them.