Ecommerce Fulfillment Services Reduce the Burden of Logistics for Companies

Reaching customers with ecommerce fulfilment services

If you build it they will come. But also, you better have great shipping in place.

There’s a lot on the line where fulfilment is concerned for online stores. In fact, the ecommerce fulfilment industry itself is valued at just over $140 billion.

Shipping isn’t the only ingredient in the multi-billion dollar pie known as ecommerce fulfilment. You’ve got inventory management, supply chain woes, and refunds to deal with. (And that’s not all.)

For ecommerce businesses big and small, fulfilment can be a bottleneck to growth and a day-to-day pain in the package. Isn’t there a better way?

Of course there is.

What is ecommerce fulfilment?

First things first: ecommerce fulfilment is the end-to-end process of picking, packaging, and shipping a product to a customer.

This largely post-purchase process plays a big role in the customer experience, with elements like shipping costs or timelines often factoring into whether someone buys from you. Upwards of 90% of shoppers will cut and run entirely if shipping is too costly.

Where the actual process of fulfilling an ecommerce order is concerned, ecommerce businesses can handle it in-house, or use a third-party logistics (3PL) company. A 3PL provider will typically handle the entire process of order fulfilment, from inventory storage to the actual shipping and return of products.

For many ecommerce brands, 3PL providers are pivotal to their overall fulfilment strategy, especially as they scale. Shipping orders is a lot of work, especially as your customer base and demands grow, and your need for multiple warehouses with them.

A step-by-step look at the ecommerce fulfilment process

The entire ecommerce fulfilment process actually begins before an online order is placed. Every business is different, but the process is typically spread across a few stages.

Step 1: Receiving inventory.

Unless you’re selling meme coins, you can’t sell something that isn’t there. Receiving is step one of fulfilment, during which a warehouse receives a shipment of your products to then distribute after customer orders are placed.

Step 2: Storage and warehousing.

Received inventory is stored in the warehouse, whether on-premise or with a partner, depending on whether you’re handling in-house fulfilment.

With the right warehouse management system (WMS), you can optimise your use of any warehouse space and make storing inventory less of a headache. If you have an inventory management system in place and synced with your WMS, you can further your optimisation efforts with real-time inventory.

Step 3: Order processing.

After a customer purchase, the order itself is processed within the system. This triggers packing slip generation and loops in the warehouse staff. If you’re using a third-party fulfilment option, then most of this will simply happen in the background, handled by the provider.

Step 4: Picking.

The warehouse team picks any of the items for the order from their storage location.

Step 5: Packing.

Staff carefully (you hope) pack orders into an appropriate shipping container, using packing materials and so on.

Note: Don’t neglect the unboxing experience. While it’s important to keep things cost-effective, the unboxing experience itself can play into your branding and help deliver a memorable moment for first-time shoppers.

Step 6: Shipping.

The order is processed in the system, a tracking number is generated and sent to the customer, and the order is shipped.

For those of you hoping to accomplish same-day shipping, a lot rides not only on this step, but also every step before this. Preventing stockouts, optimising warehouse workflows, and yes, having the right shipping options all set, are how you make this happen.

With Amazon setting new shipping records each year, fast shipping will only continue to be expected. Optimising processes for faster shipping should be a big priority as you evaluate your ecommerce order fulfilment processes.

Step 7: Returns management.

Any returned items are processed in the system and put back into their respective storage location, assuming they’re not used or in need of repair. If your company is distributed across the country or globe, restocking can become increasingly complicated, requiring careful balancing of stock across warehouse locations.

For the above steps, it’s worth noting there can be a high degree of manual work. On the other end of the spectrum, it’s possible to automate much of these processes, especially if you’re leveraging unified commerce (sometimes called omnichannel fulfilment) and syncing your inventory, order management, and warehouse systems on the backend of your ecommerce platform.

Ecommerce fulfilment vs. traditional retail fulfilment.

Both ecommerce fulfilment and traditional retail fulfilment share a number of similarities, with their differences becoming more apparent in how steps are handled.

• Receiving: Shipments of products are typically split across any number of brick-and-mortar locations, instead of going to one or more warehouse locations.

• Shipping: Where ecommerce shipping is all about speedy shipping times for customers, retail shipping prioritises consistency and safety, reducing damage to bulk shipments before they arrive at stores.

• Returns: Reverse logistics, the process of a product coming back, are more complex in ecommerce situations. For retail, the product is typically returned in-store and then processed. For ecommerce, the fulfilment network can be distributed, making returns more complex and increasing fulfilment costs.

In general, it’s often more difficult for ecommerce brands to streamline fulfilment, as distribution can become scattered. Fortunately, the right fulfilment provider or fulfilment solution can help you optimise workflows and meet customer expectations.

What is a fulfilment service?

A fulfilment service is an outside vendor that takes the burden of fulfilment off your plate, handling the packing and shipping for you.

fulfilment services vary in their model, but in most cases they’ll handle warehouse space and returns as well.

What is a fulfilment centre?

fulfilment centers are the brains of shipping operations. Here, products are prepared and routed to their final destination. Think of these as a control centre. (Or a fancy name for a warehouse.)

What do fulfilment services cost?

Every fulfilment service comes with a cost, depending on a variety of factors. Most often, fulfilment services use either a monthly model, or a volume-based model that increases with the number of orders they have to process.

For a good idea of how costly a fulfilment service might be for your organisation, consider the following criteria they usually base price on:

• Receiving fees: First and foremost, how many pallets of products the company has to receive will influence cost.

• Storage fees: Products take up space, and the more space needed the higher the cost.

• Pick-and-pack fees: Providers will often have a per-order fee for physically picking and packing products. As your volume increases, some providers will lower the per-order fee. Keep in mind some may have a higher fee depending on the complexity of packing required.

• Shipping fees: Shipping fees can fluctuate depending on the shipping time, whether products have to cross international borders, if the product requires speciality shipping (As in the case of alcohol), and so on.

• Returns processing fees: Returns are unpredictable, so oftentimes these fees are per-case, meaning they get tacked onto your monthly rate. (This is also a great incentive to keep returns low.)

When you’re running an online business, any additional costs can be a tough pill to swallow. But, timely and consistent shipping and delivery is crucial to the long-term success of your business, making a fulfilment provider well worth the investment.

Order fulfilment methods: which model is right for your business?

There are several fulfilment models, each with their strengths and weaknesses. Think carefully about your resources, goals, and current needs as you review the different ways you can outsource fulfilment.

Self-fulfilment (in-house).

On paper, it might sound cheapest to run with a self-fulfilment option and just take care of it yourself. This can work just fine in the beginning, especially if you have a smaller customer base.

As your customer base grows, it becomes more difficult to manage warehouse space, keep up with shipping demands, and process returns.

The bottom line?

In-house fulfilment is simply unrealistic for many companies as they scale. There’s a reason 60% of online businesses outsource at least some of fulfilment.

Dropshipping.

Dropshipping is a direct-to-consumer (DTC) model, where you as the business don’t own any inventory. Instead of buying products in bulk and managing them yourself, you’re more of the face of the company.

When a customer buys from you, you then buy from the manufacturer, who ships directly to the customer.

Pros of dropshipping: There’s no upfront investment on your end, making dropshipping a low-risk route. You also don’t have to deal with the overhead of paying for storage space.

Cons of dropshipping: You have no control over the quality of the product, nor the shipping times when you use a dropshipper. If the dropshipper ends up delivering poor quality products or takes too long, your brand’s reputation takes the hit, not the dropshipper.

Third-party logistics (3PL).

A 3PL is a provider that handles the entire ordering process. You run the online store, customers buy from you, and then the 3PL steps in and handles the rest.

Most often, a 3PL will charge a monthly fee that factors in the amount of space you need, volume of orders, shipping requirements, and the level of account management required. Many 3PL providers also have a return fee to consider.

Pros of 3PL: A 3PL will often be capable of faster shipping than a dropshipper, and keeps you in control of the product quality.

Cons of 3PL: A 3PL company gives you more control than a dropshipper, but you’re still handing some of your company over to a third-party. If customer complaints arise, you can be left in the difficult position of changing 3PL providers, which is going to interrupt operations.

Fourth-party logistics (4PL).

A fourth-party logistics (4PL) provider is like a 3PL, only one bigger. Kidding aside, a 4PL brings a larger, more strategic lens to the fulfilment provider experience.

If you’re running a large-scale organisation or enterprise, or you have international ordering and shipping, a 4PL can be a great solution. A 4PL provider will facilitate the entire fulfilment network, handling any 3PL providers you use, managing ordering and warehouse space, and ultimately ensuring fulfilment runs smoothly at scale.

Pros of 4PL: A 4PL can bring order to chaos where fulfilment is concerned, helping you scale effectively while meeting customer expectations. They’ll often handle 3PL relations as well, leaving you to focus on your brand and customer service.

Cons of 4PL: A 4PL can come with significant contract costs, making them unattainable for smaller businesses. Like a 3PL, you’re also handing over some control when you bring on a 4PL, making it extremely important you carefully vet a 4PL before signing anything.

fulfilment by Amazon (FBA).

With the Amazon FBA method, you run a business on Amazon’s giant platform, benefitting from their equally giant audience and speedy, Prime delivery times.

The FBA method falls in the middle of dropshipping and 3PL, taking away the hassle of managing warehouse space and shipping. Unlike a dropshipper, you still buy your product in bulk, sending it to Amazon for shipment. In exchange, Amazon takes a cut of your sales.

Pros of fulfilment by Amazon: Amazon offers access to a massive audience, fast shipping, and a reputable platform people trust. FBA also makes it easier to scale, as they continue to handle shipping and storage.

Cons of fulfilment by Amazon: There is a loss of control with FBA, as the platform limits how you can customise and market your brand (unless you also sell outside the platform). There’s also a sizable chunk of profit lost to Amazon fees.

Advantages of using a fulfilment service

Logistics aren’t easy and standing up an operation is even harder. fulfilment companies are experts at this and allow companies to start delivering products quickly.

Scalability without long-term leases.

Flexible pricing means that shipping costs will ebb and flow as sales do. Companies that rent their own warehouse space are locked into long-term contracts and storage fees regardless of business performance.

Recent case studies also show that owning or leasing a warehouse can slow down growth in comparison to using a fulfilment service. 

Those owning a warehouse grew revenue at 3.9%. Those outsourcing? They grew revenue 22.2%. Renting, for the win.

Reduced operational burden.

You have no shortage of “stuff” to handle, from marketing to managing sales channels to delivering great customer service. fulfilment adds a lot to that list, especially as your warehouse and shipping needs ramp up.

By outsourcing fulfilment, you’re removing a lot of operational burden and allowing yourself to focus on other areas of your business.

Access to bulk shipping rates.

Many shipping providers will offer bulk shipping rates for customers shipping mass quantities of products. A successful 3PL or 4PL provider will have a long list of customers, allowing them to send equally long lists of customers to shippers. This gives them access to bulk shipping rates, which they can pass onto you if you decide to partner with them.

Better inventory control.

You can achieve top-tier inventory control in-house by leveraging various systems. But, many fulfilment services are already utilising best-in-class tools, allowing them to give you real-time inventory updates, better projections, and so on.

Think of it this way: You can mow your own lawn, and you can even buy the best mower to do it. Or, you can hire a professional crew that does it for a living, achieving the results you want.

When should you use a fulfilment service?

Every business is different, so there’s no clearcut answer as to when you should use a fulfilment service. Before you shout “what a cop-out,” there are a series of areas you can look at to determine if it’s time for YOUR business to consider a fulfilment service.

When your sales volume becomes unmanageable.

Mo’ sales mo’ fulfilment woes.

A high sales volume is great for your bottom line, but also means more logistical headaches. If you’re reaching a point where fulfilment is falling behind or consuming too many resources, it could be time to consider a fulfilment partner.

When your sales are highly seasonal.

Many companies have regular or seasonal cycles in which sales fluctuate. An efficient and optimised shipping operation will understand this and increase and reduce warehouse space as needed.

A fulfilment company can provide multiple shipping options based on real-time demand forecasts and adjust inventory levels. They should be equally adept at handling high-volume and low-volume sales.

When you don’t have the infrastructure in place.

Getting a fulfilment operation up and running is hard and takes significant time and resources, especially when multi-channel sales are involved. You may not have that available and using a third-party vendor that provides an off-the-shelf solution is definitely a viable option.

When you should avoid fulfilment services

fulfilment services aren’t for everyone, of course. Depending on the nature of your business, a fulfilment provider may not be for you.

Limited cash flow or startup phase.

If you have limited cash on hand, cutting into those limited resources to use a fulfilment service may not be wise. Until greater resources are secured, you may need to handle shipping yourself.

Keep in mind warehouse space isn’t cheap either. Carefully review potential fulfilment providers and their costs before you make a final decision, as it could end up being cheaper to outsource fulfilment and warehouse space.

Highly specialised products with strict shipping requirements.

If you sell products with very specific shipping requirements, it may be difficult to find a vendor that can do what you need them to do. In that case, taking fulfilment in-house and ensuring that products are properly handled may be the best course of action.

Before you write off fulfilment providers entirely, hunt around for speciality providers. Even those in wine ecommerce can find shipping support.

Very low order volume (under ~50/month).

If you are a low-volume small business or are a sole proprietor that sells on platforms like eBay, you may be able to handle shipping yourself. In this case, avoid the added complexity of an external vendor and do it in-house, despite the constant trips to FedEx or UPS.

Brand requires full packaging control.

There’s always the chance your brand requires total control over packaging. Maybe you have consumables and have to abide by the FDA. Maybe you’re shipping potentially dangerous chemicals and can’t take risks with a third-party packing them. Or, maybe you have really fancy packaging and you want to ensure everything is just perfect.

How to choose a fulfilment services provider

There are many fulfilment service providers out there. Given this partner will be the one handling your shipping, you want to make sure they’re up to the task. Take a close look at the following to avoid picking the wrong dance partner.

Evaluate industry experience and product fit.

Before you scrutinise any other element of a provider, check for industry and product experience. Ask the potential fulfilment partner about any client success in your particular industry, and gauge their knowledge around your products. It may not be make-or-break for some industries, but for others, specific experience can mean a lot.

For instance, a provider that understands the nuances of packing and shipping alcohol or glassware will likely do a better job than one accustomed to shipping building materials.

Review warehouse network and locations.

Timely shipping starts with fulfilment. Your provider of choice needs to have a warehouse network that covers your customer base, otherwise no amount of excessively-fast driving from a delivery driver will save your shipping times.

Assess technology integrations and API support.

Just as you can integrate your various systems within your ecommerce platform when handling fulfilment in-house, a provider should be able to do the same.

Check if a fulfilment provider offers integrations and API support that allow them to sync with your existing ecommerce platform and ordering systems. This will enable real-time inventory, more accurate shipping, the ability to forecast more accurately, and more. (Not to mention, it allows you to stay in the loop with their work, too.)

Understand the full cost structure.

Always read the fine print and make sure you’re aware of the partner’s full pricing structure.

Some common, sneaky fees to look out for include:

• Return fees

• Packing markups for specialised packaging

• One-time setup fees

• Long-term storage penalties

• Flat picking and packaging fees for orders

The last one can be especially damaging if you have a lot of lower-cost orders, as flat fees can take a sizable bite out of margins that will be hard to counter with higher-cost orders.

Check SLAs and on-time delivery rates.

Ask your provider for SLAs and metrics for on-time delivery rates. The higher the number, the better.

Beyond the delivery rate, ask them who they frequently ship with, as not all shipping companies are going to deliver the goods (pun intended). For example, UPS has an impressive 97.2% on-time delivery rate during the holidays. (8 years running!)

Ask about returns management process.

Beyond what a provider charges for handling returns, it’s important you know HOW they handle returns.

Ask them:

• What’s your standard turnaround time on returns? (How quickly do you have items back in storage?)

• How do you handle quality control to ensure products are returned in good condition?

• Can you handle product exchanges, and how do you go about it?

• What data around returns do you collect?

Having a smooth returns process is nearly as important as having a smooth checkout. If people buy from you and have a rough time returning a product, they’re unlikely to return at all.

Evaluate scalability for peak seasons.

Keep all of the above in mind and vet whether a fulfilment vendor can scale to meet your seasonal peaks.

You’ll want to keep in mind how their pricing will fluctuate and factor in how much this can eat into your margins, if they have the warehouse network to accommodate an influx in orders and returns, and so on.

The final word

Every sale should feel like something to celebrate. When fulfilment is weighing you down, it can be difficult to cherish sales, let alone scale and grow your business.

Ecommerce fulfilment services can help you focus on what matters most: your business.

Take your time, vet potential fulfilment partners carefully, and soon fulfilment will be just another part of your business — not something that keeps you up at night.

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