Have you ever wondered how the largest B2C corporations manage their massive customer bases? For example, how does retail giant Amazon consistently offer all its customers 2-day shipping through Amazon Prime?
The answer is that they've optimized their ecommerce fulfillment process. Brands that have perfected their fulfillment processes use technology, fulfillment experts, and creative strategies to minimize errors and boost operational efficiency.
This article will break down the ecommerce fulfillment process to its core stages and explore how leading businesses optimize each step.
What is ecommerce fulfillment?
Ecommerce fulfillment is the part of your supply chain that gets customers' orders to their doorstep. It includes tasks like stocking your fulfillment centers, picking goods and securely packing them, shipping your orders out, and managing returns.
As ecommerce brands grow, scaling fulfillment operations is vital. Otherwise, your organization won't be able to keep up with the increased order volume and deliver quality customer experiences.
The ecommerce fulfillment process
Ecommerce fulfillment has four core stages, which are:
1. Integrating your store and fulfillment center
Although your ecommerce store is online, your inventory is still physical. So, it's crucial to have an inventory management system in place that syncs stock information. Otherwise, you won't have a real-time view of current inventory levels, leading to shortages.
If you're managing your own ecommerce fulfillment process, your IT department should integrate all your ecommerce platforms' with your fulfillment center. You'll need a fully integrated system to monitor inventory across multiple channels accurately.
2. Warehousing and inventory management
- Designing a warehouse layout optimized for picking.
- Leveraging machinery and technology.
- Maintaining the proper internal conditions (like temperature or humidity).
Inventory management involves storing goods, monitoring and balancing stock levels, demand forecasting (to prevent shortages or overstocking), and tracking orders and deliveries.
3. Picking and packing
Pick and pack processes prepare orders for shipping. Your fulfillment team must locate the correct items as efficiently as possible in the picking process. Many warehouses use technology, like robots, IoT, and barcode or RFID scanners to increase operational efficiency and minimize picking errors.
In the packing stage, goods are securely packaged for delivery. Depending on the items, you'll need to use the right dunnage (Kraft paper is popular; bubble wrap is used for fragile items) and a box with the correct dimensions.
4. Shipping orders via the suitable carrier
After the orders are securely packed, they're shipped to customers' doorsteps via a carrier.
Choosing the right carrier is important because their efficiency is situational. They have different pricing structures and delivery options, so one page may have lower shipping rates for smaller parcels, while another is more cost-effective for overweight shipping.
5. Managing returns and refunds
Managing reverse logistics is a significant part of your ecommerce fulfillment, which includes returns, refunds, and wrong order requests (a type of return). Nailing your reverse logistics and providing customers with a good returns experience is vital to boosting customer retention.
Ecommerce fulfillment strategies
You can manage your own ecommerce fulfillment, outsource it to a third party, or keep away from inventory management altogether. Let's take a closer look at your options.
In-house fulfillment is also known as self-fulfillment, and in this strategy, businesses manage their own ecommerce fulfillment. Self-fulfillment is a popular choice for smaller companies, especially brands just starting out.
However, managing your fulfillment processes in-house can be challenging as your brand grows. You'll need to keep up with larger order volumes and demand fluctuations and spend more overhead costs.
You trade control over much of the fulfillment process in dropshipping for reduced overhead costs and convenience. Dropshipping retailers don't store or manage their own inventory or shipping - they're effectively middlemen.
When a customer places an order, a dropshipping business forwards it to the manufacturer, who picks, packs, and ships the items to the customer. So, your company never physically owns the inventory.
Amazon FBA fulfillment
Fulfillment By Amazon (FBA) is a service Amazon offers online retailers where the ecommerce giant manages your fulfillment process. It's a type of outsourcing where retailers send their inventory to Amazon's warehouses, and they'll order pick and pack, delivery, reverse logistics, and customer service.
FBA fulfillment gives brands access to Amazon's superior fulfillment offerings, like two-day delivery.
Third-party logistics fulfillment (3PL)
Using a third-party logistics provider is another form of outsourcing your ecommerce fulfillment. When you partner with a 3PL provider, they'll manage your fulfillment operations, including warehousing and inventory management, integrating fulfillment systems, pick and pack processes, shipping, and returns.
Choosing the most cost-effective fulfillment strategy
Choosing the right fulfillment strategy is crucial for your brand's success. After all, if you're struggling to keep customers satisfied and meet order volumes, your customer retention and bottom line will suffer.
Unfortunately, many ecommerce brands underestimate their fulfillment needs and may choose the wrong strategy. As a result, they fail to meet customer expectations.
That's why it's essential to understand when to keep your fulfillment in-house and when to search for a partner to help you scale.
When to keep your fulfillment in-house
If you're running a small business with limited orders, self-fulfillment can be the most cost-effective option. This reason is that:
- Managing a small inventory is usually inexpensive - the overhead costs aren't high.
- A limited volume of orders isn't overwhelming - you won't need to rush to fulfill several orders in one go.
When to use dropshipping
Dropshipping is an attractive low-investment option because you don't need much seed capital. Since you don't physically store the inventory, you save on the costs of (a) buying the inventory and (b) managing your inventory and fulfillment operations.
However, dropshipping can be risky, especially as you scale unless you have strong relationships with reliable manufacturers. This matter is because customers will hold your brand responsible for delays or wrong orders, impacting customer retention.
When should you outsource to Amazon FBA or a 3PL provider?
Why do ecommerce brands outsource in the first place?
Whether to use a fulfillment company or not is a question most growing ecommerce brands eventually encounter. Because as your fulfillment needs increase, managing them on your own can be tedious and costly.
Consumers prioritize the best user experience, so offering fast, reliable, and affordable delivery is a key brand differentiator. But, meeting these expectations isn't easy.
Some brands shy away from outsourcing their fulfillment processes because of the upfront costs. However, in practice, you can save more in the long run. Outsourcing gives you access to a third-party's technology, experienced fulfillment team, and network of fulfillment centers, which:
- Reduces your overhead costs
- Increases your operational efficiency
- Reduces errors, and hence wrong order requests
- Improves customer satisfaction, boosting retention and your bottom line.
Why outsource to Amazon FBA?
Amazon FBA is an attractive option because retailers can ship under Amazon's prestigious label, appealing to Prime customers. Additionally, Amazon's fulfillment centers have an optimized order fulfillment process so that you can trust that online shoppers will have a great experience.
Unfortunately, Amazon FBA's requirements are pretty stringent, and many businesses find them challenging to meet consistently. But, if you're looking to outsource, Amazon FBA isn't the only order fulfillment service worth considering.
This point brings us to...
Why work with a 3PL provider?
Many businesses (including an absolute majority of Fortune 500 companies) work with a 3PL partner to optimize their ecommerce fulfillment because these order fulfillment companies have:
- A team of fulfillment experts, so order inaccuracies are less likely.
- Robust technology that integrates your store with their fulfillment centers' systems and inventory management software.
- Warehouses with machinery and optimized layouts.
- A network of distribution centers to offer customers fast, affordable shipping.
- Strong relationships with carriers, usually accompanied by shipment discounts.
Additionally, 3PL partners scale with your fulfillment requirements and are flexible in demanding fluctuations, making them reliable long-term partners.
How are ecommerce fulfillment services optimized?
Till now, we've discussed the fundamentals of ecommerce fulfillment. However, brands that scale well have optimized their fulfillment services through various proven strategies.
Let's take a look at what the fulfillment experts are using.
Integrations & data centralization
Data centralization is vital for several reasons, but let's start with one of the most important uses: to manage orders across different marketplaces.
If you're selling on different platforms, like eBay, Amazon, and your own BigCommerce or Shopify store, tracking inventory across each sales channel is a nightmare. Unless you're using technology, that is. A robust inventory management system/fulfillment solution should integrate with your systems and sync your data so that you can manage it from one centralized platform.
Beyond marketplace diversification, data centralization is also vital to gain real-time insights into different fulfillment operations, like your return requests, order statuses, and team reports.
Strategic warehouse planning
Your warehouse layout significantly influences inventory management and picking processes. A good layout stores inventory logically and makes it easy for picking teams to navigate the warehouse. But, an optimized layout goes the extra mile and takes customer orders into account - items that are frequently ordered together are stored near each other.
Inventory distribution involves dividing your stock up and storing it in different distribution centers. It's one of the most effective ways to increase shipping speeds without driving costs up because each order is shipped from the nearest center.
Strategically positioned fulfillment centers
Distributing your inventory is most effective if your fulfillment centers are strategically located. You won't benefit much if you have three closely-located centers without much coverage. However, two strategically located centers (near your key customer bases) can expand your scope and increase fulfillment efficiency.
Highly skilled teams
There's a reason Netflix pays top developers sky-high salaries to work for them; experts add value. Similarly, in ecommerce fulfillment, highly trained, skilled teams work faster and make fewer mistakes. With an experienced team, you can minimize order inaccuracies and increase fulfillment speeds.
Earlier, we discussed how carriers have different pricing structures, and there isn't one that beats the result. Carrier diversification takes advantage of varying carrier offerings by shipping orders at the best rates.
If you're fulfilling a large number of orders, it's essential to leverage technology for proper carrier diversification. You'll need software that calculates, in real-time, the shipping costs each carrier charges for a given package.
The software should then automatically suggest the lowest-fees carrier to your fulfillment team for the given order. Robust software systems estimate carrier costs in real-time as customers add items to their shopping carts.
Improving your ecommerce fulfillment offering is crucial to brand growth, but optimizing the various supply chain processes can be challenging. As your brand grows, it's vital to assess your ecommerce fulfillment process and identify areas of improvement.
For example, do you need more robust inventory management software? Or a more experienced team? And are you able to scale sustainably (or is it time to find a fulfillment partner)?
As with any key part of your business, ecommerce fulfillment requires continuous monitoring and optimization. But with the right strategies, you can develop a fulfillment process that keeps customers happy and outdoes your competitors.
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