Order fulfillment is the bread and butter of your eCommerce business. When done well, the process is seamless and customers are satisfied. When inefficient, it produces late orders, poor quality products, and loss of revenue.
In this article, you will discover the different types of eCommerce order fulfillment and how to choose the best strategy.
Types of Fulfillment for E-Commerce Businesses
Order fulfillment is a necessary part of running a business. In its simplest terms, online order fulfillment is the process of packing and shipping an order to a customer. The larger your business is the more complex this process becomes. Without a dedicated process, mistakes increase leading to dissatisfied customers and diminishing sales.
Businesses use any one or combination of the three methods below.
In-house
In-house order fulfillment involves fulfilling the order yourself and is the most common method. Many merchants and small businesses start out this way. Self-fulfilling orders may involve anything from packing merchandise at home to leasing and staffing a warehouse.
The benefit of this method is you get to be hands-on. You know exactly where your inventory is stored and how it is being managed and delivered. The drawback of this method is that you spend valuable time and money managing logistics.
Outsourced or 3rd Party Logistic Providers
When you outsource your order fulfillment your inventory is shipped to fulfillment or distribution centers. This third party then manages your inventory, packs it, and sends it off to customers. Though they sound similar, fulfillment and distribution centers are not the same.
Outsourced fulfillment services also perform quality control, process returns, and labeling. Many businesses also have unique services such as branded packaging and refrigeration.
The benefit of a 3rd party service is that they can negotiate better shipping terms for you and can readily adjust to industry challenges. Also, you have the expertise of logistics and inventory management specialists.
A disadvantage of outsourced fulfillment is that your inventory is in someone else's hands. When you work with a logistics partner, you lose some control. They are the final stage before a product makes it to a customer. This is why it is essential to work with a company with a proven track record.
Dropshipping
Dropshipping occurs when you sell products manufactured by another company. These companies produce, pack, and ship their products to the customer. As the business owner, you handle the customer-facing aspects such as customer service and marketing.
The benefits of this method are that you don't have to buy, store, and pay taxes on inventory. You only have to pay for the production costs after a sale.
Slim profit margins are one drawback of this method. You also don't have control over inventory quality or the shipping process.
Best Practices for Creating an eCommerce Order Fulfillment Strategy
Regardless of the fulfillment method, eCommerce order fulfillment follows the same basic process:
1. Receiving Products
2. Storing Inventory
3. Order Processing
4. Shipping
5. Processing returns
Understand Customer Behavior and Expectations
Before you decide on a fulfillment method, consider your customers. What is more convenient for you may end up hurting them. Consider things like how often customers place orders and how soon they expect to receive it.
With the popularity of overnight shipping, more and more consumers expect to receive their purchases quickly without additional cost. One study showed that 63% of customers expect orders to arrive within three days with standard shipping.
If you have a brick and mortar, consider integrating online purchasing with in-store pickups.
Understanding your typical order volume is also a key component in your strategy. The volume will dictate what is smart to outsource vs. self-fulfill.
Test Your Distribution Methods
The location of your distribution centers can greatly affect shipping time. Dropshippers are typically overseas. If the provider you choose is out-of-state consider what the cost and time implications are.
Before you ship all your inventory to a 3rd party service, try shipping one product line or department at a time. This allows you to test how outsourcing will affect your bottom line in real-time. You can also try this if you have more than one retail location and an online presence. You may find that customers are best served when you manage the shipping of some products on your own.
Develop Shipping and Return Policies
One survey found that 68% of consumers review the return policy before making a purchase. A shipping and returns policy is an essential element for an online business.
Complete transparency and communication are tied to customer experiences. Just one bad experience could lead to a loss of a customer. Having these policies in place helps to manage customer expectations and leads to satisfying transactions.
Use an Integrative Software Tool
Order fulfillment software can do anything from managing inventory to order-processing to managing vendors in your supply chain. It creates picking and packing lists and automates many steps of the fulfillment process. Integrative fulfillment systems should work with your existing e-commerce software.
Many 3rd party logistic providers also have their own software to help you track your inventory through the purchasing journey. Choose a software tool that is specific to your industry.
How to Thrive with Order Fulfillment
Self-fulfillment is usually the first phase for e-commerce businesses with the exception of dropshipping. As your business grows, it may no longer be wise to manage this part of your business on your own. Choose the combination of eCommerce order fulfillment that best benefits your customers and the growth of your business.
Now that you know more about ecommerce order fulfillment, visit the Startups, Tech, and Retail sections to learn more about the e-commerce business.
