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Ecommerce Order Fulfillment

Ecommerce Fulfillment: A complete guide for beginners

Nguyễn Viết Lộc
EFEX

Ecommerce fulfillment is the bridge between your products and your buyers. Without fulfillment, your products will not be processed, and your buyers look elsewhere to get what they need.

Your approach to fulfillment, and the way you execute it, essentially affect your customer experience.Therefore, getting ecommerce fulfillment right can leave a positive impact on your business bottom line. Before going any further, you have to understand how fulfillment in ecommerce works.

Understanding ecommerce fulfillment

Introduction to e-commerce fulfillment

Ecommerce fulfillment refers to an end-to-end process of handling online orders, delivering them to your customers, and managing inventory. It can be implemented by your in-house team or a third-party logistics provider (3PL).

Fulfillment is relevant to both B2B businesses - involving bulk shipments to big retailers, and B2C businesses - where products are sent directly to a single customer’s address.

Do you need to invest in fulfillment services at the time?

We suggest asking yourself two questions to identify your current demands.

Q1. Do you still want to retain full control over every aspect of your ecommerce fulfillment? 

If yes, you might not be ready to outsource the service. In other cases, some business owners may find it more economical to handle order fulfillment in-house. This is especially common for businesses with low order volume or custom products.

Q2. Besides fulfillment, do you want to focus on other business functions in the coming months and grow faster? 

If yes, you need to get ready to outsource and work with a third-party logistics provider (3PL). Outsourcing fulfillment service is a good start when your business sales volume has made it difficult to manage fulfillment in a timely manner. Here are some cues for you to make the decision:

Clue #1: Increasing demand for orders: As your business grows, managing the increasing order fulfillment demands could become challenging.

Clue #2: Insufficient infrastructure to manage inventory: You may lack the necessary facilities to store and organize inventory effectively, leading to potential storage issues between restocking and shipping.

Clue #3: Rising fulfillment expenses impacting your profitability: Fulfillment processes can eat up both time and resources, resulting in escalating costs that erode your profit margins.

Why ecommerce fulfillment providers cost as much as they do

The demanded costs are mainly due to the workforce required to complete tasks, including receiving, stocking, quality checking, order picking and packing, shipping, and labor costs. Notably, labor costs take up to 65% of a fulfillment center’s total cost (disclosed by Conveyco). Also, over 50% of the labor is dedicated to outbound aspects such as picking and packing.

The ecommerce fulfillment process

After your shoppers complete their purchases, the ecommerce fulfillment process begins. This process includes some key layers that make up the entire journey, which are broken down into:

ecommerce-fulfillment-process.jpg
The complete ecommerce fulfillment process

Receiving orders

Inventory must be accessible. This is the first thing you need before fulfilling any orders from your sales channels. If your fulfillment is processed in-house, the inventory must be at hand in your location. If your fulfillment is outsourced, your inventory must be delivered to the fulfillment provider that later will fulfill the order on your behalf.

The location where you receive merchandise can vary and might include your business place, a warehouse, fulfillment center, or storage facility. When working with a 3PL, it’s a must to ensure the correct packing materials and labels in order to speed up the process and get the products ready for shipment.

Tip: If you outsource the fulfillment, work with a 3PL that provides clear shipping criterias to keep the process smooth and speedy.

Storing inventory

Inventory storage is the area where orders are kept. If your ecommerce fulfillment is in-house, the storage can be a convenient space like your garage or a spacious room. However, if your business has a large volume of inventory, it is necessary to employ warehousing.

Once your products are securely sent to your storage space or a warehouse, store them efficiently and complete the integration of your ecommerce platform. Most importantly, you need to assign a unique Stock Keeping Unit (SKU) code to each product for effective inventory management and storage allocation. For quicker search of inventory, each product or SKU should be allocated its own storage space, i.e. placing them on a shelf, a pallet, or within a bin.

Tip: Using a Warehouse Management System (WMS) or an Order Management System (OMS) can reduce your manual work in the order picking and packing process, ensuring a faster turnaround time.

Picking & packing

Most of the time, when your customer finishes a transaction, the picking and packing (order processing) begins. Following the last stage as your inventory is available, your in-house team or the 3PL will start selecting items, packing, and getting them ready for shipping.

A crucial aspect of this stage involves making the appropriate packaging choice, mostly include:

  • Boxes
  • Paper or bubble mailers
  • Packing materials: packing tape, bubble wrap, airfill, etc.
  • The shipping label
  • Other custom packaging to create customized unboxing experience for the receiver.

Tip: Ensure to understand your provider’s packing and preparation guidelines to reduce fees and prevent damage to items during delivery.

Shipping

When the order has been processed and is prepared to ship, it is delivery time. For small orders, in-house shipping can be as quick as a short trip to your nearby postal service or UPS center. For larger orders, your connected carrier collects the orders from an ecommerce fulfillment center, which could be your business location or a storage facility.

After the order has been shipped, you should have the tracking data, which can then be shared with customers to keep them informed about the deliveries status.

Tip: If you aim to enhance your ecommerce fulfillment approach, consider partnering with a provider that provides a centralized data view and intelligent inventory distribution across multiple warehouses. This will offer you greater flexibility and efficiency in your operations.

Processing returns

Returns are to be expected if your customers do not like the products they order. Whether you handle ecommerce fulfillment in-house or rely on a 3PL, it's essential to establish a procedure for managing returns.

Usually, customers will send returns directly to the fulfillment center, where the company assesses it for any damage and reviews feedback. They will then proceed to either replace the product or issue a refund. If the returned product is in good condition for resale, it will be restocked and included in later shipments.

Tip: For ecommerce newbies, it's crucial to know which product categories have a high return rate. Then, you need to establish clear policies and procedures to handle returns for these items.

Common e-commerce fulfillment options

Small sellers typically handle their own order management, whereas bigger businesses turn to 3PL centers to minimize costs. However, an ecommerce seller with a dropshipping business leaves the entire fulfillment process to the manufacturer.

Which one should you consider? Let’s find out!

In-house fulfillment

What is it? 

In-house fulfillment is precisely what it sounds like: businesses manage the fulfillment process using their own resources, instead of relying on a 3PL provider.

In-house.jpg
 A common in-house fulfillment process

Is it suitable for you? 

How in-house ecommerce fulfillment fits your business depends on your inventory volume in a timely manner. If the volume is relatively small (fewer than 100 items per month), then this is likely a suitable choice for your business.

Advantages

  • Easy to start: There’s no need to hire employees to start production
  • Low startup costs: Costs for storage, inventory, and other aspects are much lower than outsourced fulfillment services.
  • Custom packaging: You have complete creative control if there’s a need for personalized brand elements like gift messaging, unique packaging, and others.
  • Total process control: You have complete oversight over the entire process, ensuring full quality control and the ability to customize orders..

Disadvantages

  • Limited scalability: Scaling up or order volume increase makes it challenging to operate efficiently.
  • Time-consuming: It can be labor-intensive and time-consuming, diverting focus from other aspects of business.
  • Limited storage capacity and workforce: In-house storage space may become inadequate for growing inventory. Also, depending on the size of your team, there may be limitations in labor availability.
  • Lack of shipping offers: You may miss out on potential shipping discounts that other 3PL can offer.

Third-party partner logistics (3PL)

What is it?

In simple terms, a third-party logistics - 3PL is an ecommerce fulfillment provider that you contract to oversee multiple aspects of your supply chain, including all of the main tasks previously explained.

3PL.jpg
A common 3PL model

Is it suitable for you?

Most of the time, 3PL is a fulfillment model suitable for growing businesses that require supply chain management support. As order volume grows (hundreds to thousands/month), sellers will find it difficult to continue self-storing, packing, and shipping the products. Therefore, by outsourcing ecommerce fulfillment, companies can concentrate on other areas such as marketing and business development.

Advantages

  • Scalability: Seamlessly integrate with your business growth model to provide services during expansion into different markets or geographic regions.
  • Reduced operating costs: Sellers can avoid long-term leases and adjust expenses according to sales fluctuation. Many 3PL offer flexible pricing tailored to your specific needs.
  • Optimized fulfillment and returns: You can deliver a better customer experience with faster, more affordable shipping and tracking, including hassle-free returns with a 3PL.
  • Larger provider network: there’s usually a wide-spread connection to warehouses. 3PL can fulfill your customer’s delivery needs and reduce shipping costs by choosing the closest warehouse to your customer’s location.
  • More purchasing power: 3PL establishes supplier relationships and helps you access extensive networks to secure cost-effective solutions for your business.
  • Industry expertise: There will be a skillful team experienced in warehousing, order fulfillment, and shipping to support you. You do not have to hire, train, and make quality assurance efforts.
  • Great data insights: You can access inventory and customer insights depending on the 3PL’s service for data-driven decision-making. This results in more accurate forecasting and uninterrupted fulfillment without stockout or overstock concerns.

Disadvantages

  • Variability in quality: Numerous 3PLs are available, and not all of them may fit your standards of service quality.
  • Partial control: Using a 3PL means relinquishing some control over shipping, customer service, and returns processes. It may require some adjustments to your customer service approach.
  • Dependency on third parties: Your supply chain is more reliant on third-party vendors, making it crucial to choose a reliable 3PL partner and minimize potential disruptions.

Dropshipping

What is it?

Dropshipping is a model in which you will operate separately from the fulfillment process. Instead of producing or storing inventory, the seller forwards all customer orders to a manufacturer or distributor. Then, these parties handle the direct shipment of the product on behalf of the business.

Drop-ship.jpg
A common drop-ship model

Is it suitable for you?

If you are new sellers in ecommerce, dropshipping especially can work for you. These individuals (dropshippers) aim to experiment with diverse products and marketing tactics as they set out on their entrepreneurial journey. It also means that dropshipping is most suitable for those primarily focused on driving sales rather than managing the process of ecommerce fulfillment services.

Advantages

  • Low startup costs: There's no need to purchase products until a sale transaction is completed by a customer, leading to minimal upfront inventory investments.
  • Low inventory costs: You’ll be able to list products without having to buy large inventory purchases.
  • Low order processing costs: As this method doesn't entail handling physical products, there’s no need to cover packing and shipping, warehouse costs, or managing inbound shipments.
  • Streamlined inventory updates: Access to a diverse range of products can help you adapt to trending items among customers.
  • Payment based on actual sales: This approach restricts out-of-pocket costs and eliminates overhead costs by only supplying products that customers have bought.

Disadvantages

  • No control over shipping and handling: Limited access to the shipping and handling processes makes it difficult to control the service quality.
  • Dependent on supplier stock and customer service: Reliance on suppliers for products and customer service can impact customer satisfaction.
  • Lower profit margins: This can result in typically lower profit margins due to the need to share revenue with suppliers or wholesalers.
  • Shorter lead times: Shorter lead times for order fulfillment may impact the ability to offer express shipping options or meet customer demands for speed delivery.

Why ecommerce fulfillment service fuels your revenue

Reduction in cart abandonment rate

High extra costs, slow delivery, and dissatisfied return policies are in the top 10 reasons for cart abandonment behavior (Baymard, 2021). With a fulfillment provider, you can offer faster shipping, potential supplier discounts, or professional returns to your customers. These factors enhance shopping experience, address shoppers’ concerns, and boost the likelihood of completed purchase.

Savings on shipping costs

Fulfillment warehouses handle a large volume of shipments, allowing them to negotiate lower shipping rates and pass them on to you. Moreover, professionals can offer expert advice and innovative solutions, like package consolidation, to reduce your shipping costs.

Cost savings to bottom line

An ecommerce fulfillment provider already has the infrastructure and expertise needed. The available resources range from packing materials, ensuring quality control, fulfillment staff, warehouse spaces, to managing the shipping. As a result, you’ll be able to achieve economies of scale, lower overhead and labor costs, fewer errors with new technologies, and more discounts.

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Cost savings to bottom line

Time savings to focus on other areas

Ecommerce fulfillment is an important element of online retail success, but it's not a primary expertise for many business owners. When outsourcing your logistics, you delegate the challenges and labor-intensive tasks, freeing up more of your time to concentrate on the business aspects where you excel.

Better warehouse networks

In-house shipping is often constrained to where your business headquarters are, which may not be strategically positioned for the two-day order delivery. When you collaborate with a 3PL, you are able to select optimal warehouse locations that can reach your customers swiftly. This allows you to place your products in more than one warehouse strategically, expand your reach and enhance delivery capabilities.

Tips to choose the right ecommerce fulfillment provider

There are thousands of provider options out there that you can find just by searching the phrase “ecommerce fulfillment”. Here, we present the 6 most important criterias to help you choose your matching provider:

Price is not everything

Subpar fulfillment leads to dissatisfied customers, resulting in more significant long-term costs. Therefore, pricing shouldn't be the sole determinant. Prioritizing the right fit for your business is important to avoid potential pitfalls and ensure customer satisfaction.

Technology & integrations (platforms and shipping carriers)

There are two most important aspects to consider.

Ecommerce platforms: When choosing fulfillment partners, ask about their platform integration capabilities. Smooth integration is crucial for effective fulfillment, and a lack of it can cause inefficiencies, impacting your operations negatively.

Shipping carriers: Whether your business relies on a single exclusive shipping provider or multiple ones, make sure to successfully integrate the software. Effective shipping provider integration features guarantee a smooth connection with your chosen carriers and seamless order fulfillment.

Similar business industry and client groups

Ecommerce fulfillment companies vary in their approach and specialization. Look for a logistics partner with prior ecommerce experience, ideally in your niche. This experience equips them to offer valuable guidance and handle e-commerce challenges effectively.

Fulfillment center locations

Keeping your inventory closest to your customers will help lower shipping durations and expenses. Under certain conditions, you might even be able to provide the same-day delivery.

Inventory shrinkage support

Several 3PLs impose fees for inventory shrinkage, which refers to products that are damaged, stolen, or lost. In contrast, some providers offer zero shrinkage policies.

Data & analytics

When utilized effectively, data becomes a powerful asset in ecommerce. Seek out providers that offer real-time analytics tracking, allowing you to make well-informed decisions regarding inventory allocation.

Enhance your ecommerce fulfillment: Powered by EFEX

Among core elements in your ecommerce tech stack, we understand that efficient logistics is the driver for success of any ecommerce organization. That’s why EFEX enhances order fulfillment, warehousing, and shipping processes with excellent technology, to increase efficiency for your ecommerce business.

“The EFEX implementation team made getting started extremely simple, and their support team is always available to answer any questions. We are very pleased about the accuracy and speed with which orders are processed”.

- Head of Business Department at IChiba.

How did we become the best ecommerce fulfillment companion of businesses?

  • Scale bigger with cross-border fulfillment at multi-market: Our strategically positioned global fulfillment centers empower businesses to efortlessly reach customers worldwide. EFEX is committed to meeting the unique demands of markets and provides cost-effective shipping solutions to any destination.
    • Speed up supply chain in minutes: Businesses can elevate customer satisfaction with our seamless workflow, including same-day order processing and fast 2-day delivery for all orders placed across multiple channels.
  • Order Management System: We address storage challenges with warehouse capacities of up to 5000m2, specialized equipment, and proprietary software for precise inventory management and real-time tracking.
    • Save up to 70% operating costs: Free your business from the financial strain of warehousing, staffing, and the complexities of shipping, among other challenges. This liberation allows you to concentrate on essential growth strategies while simultaneously minimizing operating costs to the lowest extent possible.
  • Professional customs clearance: Streamline your customs procedures in an increasingly complex market by developing a comprehensive understanding of your business and individual requirements. With this knowledge, we can efficiently implement the best-suited solution, ensuring swift processing.
  • Customs bonded warehouse: Bid farewell to the instability of goods storage with EFEX's global bonded warehouse network. Sellers can now access a long-term storage solution, enhance cash flow, forecast supply and demand, all while maintaining the quality of their items in the best condition.

For the most detailed interpretation of how EFEX works, visit our channel to get official information. If you have any queries about our ecommerce fulfillment services, don’t hesitate to leave questions to the support team.

The summary

Lacking the appropriate ecommerce fulfillment process can prevent you from delivering on your promises to customers, as making them wait can incur significant costs.

In order to meet customer expectations, we hope this article has helped you to understand:

  • The entire ecommerce fulfillment process and how it strengthens your bottom line.
  • The most suitable fulfillment options for your business.
  • The most important criterias in choosing the perfect fulfillment provider.

By doing so, you will be better equipped to navigate and overcome any challenges that arise.

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