At the heart of ecommerce is order fulfillment. It’s a set of operations that deal with how quickly and efficiently your business can move sourced products to the customer’s doorstep.
Today, we’re going to discover how it works, the different fulfillment models to choose from and several tips for driving your company’s fulfillment to its fullest potential. So let’s begin!
What is order fulfillment?
Order fulfillment is the receiving of inventory, processing of store orders, and shipping of packaged goods.
Here’s a rough idea of what the steps of order fulfillment looks like for most ecommerce sellers;
- You receive inventory.
- You store it in a warehouse.
- A shopper places an order in your store.
- You pick the specific product by referencing your order management system.
- You package the product along with a shipping and returns label.
- You send it out for shipping.
- If the customer wants a return, you process the refund according to your returns policy.
What are the four main fulfillment models
With in-house fulfillment, you handle orders fulfillment by yourself from start to finish. While it offers more control, the in-house fulfillment model comes with increased complexity.
When you have to fulfill only a few purchases each day, it’s cheaper and much easier to fulfill those few orders.
But as order numbers grow, you might pay hefty warehousing costs and salaries to your fulfillment staff.
A third-party fulfillment company takes the entire fulfillment process off your hands.
And it’s the provider’s job to offer support like warehousing, order fulfillment, customer service, and even sourcing.
In contrast with in-house fulfillment, outsourcing to 3PLs saves time and resources because having professionals manage your fulfillment enables you to focus on growing your company.
Additionally, as a high-volume shipper, your 3PL can help negotiate more economical shipping rates, which you can pass off to customers as discounts and keep for profits.
However finding a reliable 3PL provider can be challenging, and if you’re not careful, you might face issues with quality control, timely shipping, and customer service.
Dropshipping is when you neither store nor manufacture the products that you sell. Rather the products are directly shipped from your manufacturer’s warehouse.
Because you don’t buy inventory and storage space, dropshipping is a cost-friendly fulfillment model that’s perfect when you want to foray into ecommerce on a budget.
However, dropshippers encounter challenges such as difficulty branding products and the unboxing process, maintaining quality control, and providing customer service.
Recommended; Learn how to make money as a dropshipper in 2024
Hybrid models are a combination of two or more fulfillment models.
Expectedly, the major benefit is more flexibility for your business.
However, it comes with problems like more operational complexity and inconsistent performance.
While it may seem promising, hybrid fulfillment is still very rare because it requires a lot of time and higher-level planning for smooth execution.
What To Consider When Choosing Fulfillment Models
Customer locations are the most important factor to consider.
After all, delivery distance is the second biggest contributor to shipping costs and times. Second only to weight and size of course.
If you have many customer hubs far away from your headquarters or operation bases, it’s wise to delegate fulfillment to a 3PL with a global network of fulfillment centers.
For example, imagine your headquarters is in Texas USA, but during the Christmas holiday Canadian shoppers place 100 orders for winter coats. What do you do?
Well, it will be easier and cheaper to fulfill it from a Canada-based warehouse, rather than a US-based one. Hence, finding a fulfillment agent with Canadian fulfillment centers will be a good choice for you.
Likewise, it might make more sense economically to self-fulfill orders within your vicinity, such as orders from shoppers within Texas and a few neighboring states.
Volume of sales
Look at each of your sales channels (Amazon, social media, your website, etc.) to gauge the sales volumes across each.
If you notice you’re rushing through more orders than you can handle and fulfillment accuracy starts slipping, then consider finding a fulfillment partner or dropshipping from your supplier if they permit.
Volume and complexity of each SKU
If you’re selling a luxury or high-ticket product that only shoppers only buy twice or thrice a month, it makes more sense to self-fulfill or to dropship if your supplier agrees to.
On the other hand, if you’re selling clothing and hundreds of your shirts sell every month, you’ll want to outsource to dedicated fulfillment experts.
Meanwhile, if you have a few products that require special assembly i.e. hand-written notes, bonus products, etc for VIP customers, influencers and publication reviews, you most likely want to make the final touches yourself.
Your company’s strengths
This factor has more to do with your core competencies than the products themselves.
If logistics and fulfillment aren’t something your team has a background in, it will be better to outsource and then focus on promoting your brand, refining your offerings, and making sales.
Knowing how much money you have to invest in fulfillment is essential to creating a successful plan.
– If you have customer service capacity to handle inquiries, returns and order issues
– Storage and warehouse staff costs when you want to self-fulfill.
– Profit margins when you hire 3PLs to pick, pack, and store
All so you can develop a realistic strategy that won’t break the bank.
The most common order fulfillment challenges and solutions
Here, we’ll go over some major challenges that come with managing inventory, fulfilling orders. adjusting to demand, shipping internationally and handling returns.
To make sense of it all, I’ll share many low cost and actionable solutions you can implement today to achieve an efficient fulfillment operation.
1. Inventory Management
Inventory management deals with receiving, storing, tracking and using your company’s inventory. Let’s uncover a few ways you can optimize this part of fulfillment.
Restocking or receiving inventory is the procedure of collecting stock from your supplier and confirming the quantities.
For more efficiency and less errors;
Keep your receiving area tidy;
This is where warehouse staff receive, check and approve shipments so keeping the area clean and organized will make it easy for them to do their jobs. Plus, it reduces the risk of accidents .
Invest in inventory management technology;
Having tools like RFID tags and barcodes in your warehouse drastically reduces human errors, saves time through automation, and helps to make spotting and correcting mistakes easier.
Cross-check new stock with the purchase order;
This check ensures you can detect errors before they spiral out of control, allows you to reach resolutions with your suppliers faster and assures customers that what they ordered is precisely what they get.
Label storage zones for clarity.
With well-labeled zones, warehouse staff can swiftly locate items, reducing lead times for processing orders and fulfilling orders.
When you have checked and approved new stock, the next thing to do is to label and store the goods in your warehouse.
To enable real time visibility of inventory, emphasize proper SKU naming.
Proper SKU naming
SKUs or stock keeping units are unique identifiers that you use to track the details, location and status of inventory. Every warehouse operation makes use of it.
To create SKUs that make fulfillment easier:
Start with the top-level identifier:
Depending on what’s important to you, this can be the
- Season (e.g WT for winter)
- Warehouse location.
- Product category (e.g SHT for shirt)
Ensure you begin the SKU with the most general identifier so your whole SKU hierarchy is logical.
Starting with the most unique details only makes it more complicated to categorize the inventory.
Additionally, use a hyphen (-) to set each attribute apart for easy comprehension.
Assign unique details in the middle:
This part of the SKU is where you include the unique attributes of the product, like the color, modification, size, or fabric, etc.
For example, if you sell black button-down shirts, you can use SHT-BD-BLK as the SKU.
Give it a sequential number at the end:
The sequential differentiates products within the same category.
Continuing with our example, the fifth item in that line or button-down shirts can be categorized as SHT-BD-BLK-005.
Sync SKU information to a reliable warehouse management system
When you’re done creating SKUs for all your products, sync it to a reliable warehouse management system.
Recording SKUs in Excel sheets or notepads by hand is too time consuming and prone to errors, so it makes more sense to work with an automated system.
Plus, warehouse management systems enable real-time visibility to all company members.
Integrate scanning into all your operations
Carrying on with the last point, instead of updating inventory information manually, invest in a barcode scanner so that anytime products are received, moved, shipped, or altered, they can be checked to ensure accuracy.
With a system that requires workers to track inventory movement by hand, your entire operation, from the stage of receiving to storage, picking, packing and shipping is vulnerable to inaccuracies.
If you handle hundreds or thousands of SKUs, it’s easy to see how inaccuracies can pose serious consequences for your business.
Once a customer places an order, you need to ensure the right items are picked and packaged swiftly. Otherwise, the parcel is likely to arrive late or worse, incorrect.
Some solutions to inaccurate or inefficient picking and packing include;
Use a warehouse slotting system to minimize picker times.
Warehouse slotting is a process of organizing inventory in the most efficient manner so space requirements and travel time for warehouse staff are minimized.
Three cornerstone practices of warehouse slotting are:
- Organizing your inventory from top-selling to low-selling or placing fast-moving stock within the closest reach.
- Storing items that often ship together next to each other.
- Adjusting stock locations during peak demand seasons or holidays to accommodate increased demand and
Look to low cost automation
As a startup, you might not be able to afford technologies like Automated Guided Vehicles (AGVs) and robots.
But for a relatively small investment, you can create barcodes and buy scanners so products can be checked reliably during receiving, storage, picking, packing and shipping.
Additionally, consider getting tape machines. Because the pack-out process becomes streamlined with them, you’ll need fewer staff to handle the throughput.
Establish warehouse productivity standards.
These are reasonable and fair expectations of the time it will take a warehouse worker to complete certain tasks.
For this to work, carefully study all the steps it takes to execute that task over a long period of time and give each task a definite time frame.
To start, here are some metrics to define for warehouse staff:
- Number of lines that can be picked per hour.
- Number of lines that can be packed per hour.
- Number of pallets that can be put away per hour.
- Time required to build a specific kit.
2. Demand fluctuation
Significant changes in order volumes during periods of slow sales and peak shopping seasons like Christmas and Black Friday can lead to over or under stocking if you aren’t prepared.
To adequately ready your business for these unexpected changes:
Define your goals
Define what you want to achieve with your forecasting before collecting any data.
This could be preventing stockouts, selling a specific volume of a certain SKU, discovering the cause of spikes and crashes in sales or reducing the amount of excess stock you hold.
With your goals in place, proceed to gathering data.
There are two types of data to collect, internal and external.
External data relates to information like
– industry briefings
– social media chatter
– investment trends
– events and holidays
– competitor data,
While internal data refers to company information like the
– average revenue per day of an SKU
– average sales per month of an SKU
– average cart value at your store
– your returns rate and
– your net sales
Analyze the data
After compiling all your data, mine through it for patterns and trends.
Are sales spiking then declining or vice versa at regular intervals? Do you notice any fluctuation to be in line with seasonal or economic trends? Or did a sharp increase in sales occur right after a promotional campaign?
Don’t stop there, dig deeper. Analyze individual products and sales channels to further inform your analysis.
For instance, if a certain SKU didn’t generate any sales in the last month. Ask why so?
Was there no demand for the product, were you out of stock or was store traffic incredibly low during that period.
Honing in on these specifics can be the difference between making an informed forecast and a failed one.
Imagine you discover sales of certain skus are declining because of seasonal changes. Using your analysis, you might decide to halt restocking those products until demand rises.
Or if recent market conditions show demand has been on the rise for an SKU, but you’ve been out of stock for months, you can order a fraction of your forecast estimate to see if sales actualize.
3. International shipping
International shipping can be a daunting activity. Unlike domestic shipping, costs are higher, more paperwork and customs processes are involved and you have to go the extra length to ensure packages are delivered in a timely and cost-effective manner.
But worry not. Here’s all you need to know about setting up an international shipping operation for the first time.
First and foremost, display your products and shipping costs in the native currencies of shoppers in different countries.
This is so they won’t have to leave your site to calculate conversions.
Prepare these documents and information
To ship to most countries, you’ll need a customs form and an invoice.
The customs form is a declaration of your parcel’s contents for regulatory purposes. While the invoice is required for customs inspections, fees, and taxation.
Within the customs form, you must divulge the following information;
- Content type – Choose from samples, merchandise or gifts.
Each option is taxed differently, so know that it’s illegal to mark a false content type. Foreign shoppers sometimes ask you to choose a gift, but if you’re caught, you’ll be the one held liable.
- Signing person
The person responsible for the shipment. This is you.
- Who to bill for customs and duties –
DDP (Delivery Duties Paid by Sender) means you the shipper covers those costs. DDU (Delivery Duties Unpaid by Sender) means the receiver is responsible for those costs.
- Item details –
A brief description of the product you’re shipping. Along with quantity, weight, monetary value, and country of origin.
Customs restrictions and duties
Custom regulations vary by country. So before shipping to a country for the first time, educate yourself about its restrictions to avoid surprises down the road.
For that, you can refer to the USPS shipping restrictions page for general do’s and don’ts. As well as the Index of Countries and Localities for more detailed information about global shipping restrictions.
Importantly, remember that other carriers may implement different restrictions, so you can’t rely solely on USPS’s information.
Duties are unpredictable. They vary month to month, by time of the year, and occasionally based on the customs officer handling your product. That said, use this online duties calculator for a close estimate of what duties will cost.
Carriers and service levels
Some customers are more budget-sensitive and patient, while others don’t mind paying a premium for quicker delivery.
The solution? Provide customers with as many carrier options so they can choose the best one to fit their needs.
If you offer free returns to your domestic customers, you may not be able to extend that generosity to international customers.
The key here is to establish a comprehensive returns policy and only permit returns on items that are valuable enough to ship back (if not, you can refund).
Additionally, if you can’t afford it, let international customers know that they have to pay for returns.
Give customers realistic deadlines and promises.
Give realistic times for customers to expect their orders and keep them informed of any changes during the journey.
If you work with three suppliers, let’s say the first one offers 14 day shipping, the second 28 day shipping and the third 30 days shipping, what do you do?
The wisest call is to give the third supplier’s time frame to shoppers. That way, you can fulfill customer expectations earlier if you have another supplier fulfill the order, and so that in the worst case scenario, your customers will get their product in 30 days.
Or consider telling customers that multiple orders of the same product might arrive separately. Although, this discourages group purchases (think Christmas family shopping, fan groups etc), because bulk shoppers usually don’t want to wait separately for a single order.
4. Returns Management
Returns management is the process of handling returned items, from receiving and inspecting the item to processing a refund or exchange and recycling or reselling the product.
To optimize your returns management, take the following steps;
Establish a clear, fair, and sustainable returns policy.
Through your returns policy, clearly communicate:
- How long customers get to open a refund, i.e., 30 days, 90 days.
- What products qualify for returns. For instance, wrong, damaged, and defective items. Or for clothing, footwear, and accessories, a wrong size product.
- What products don’t qualify for returns, i.e, underwear, personalized items, etc.
- Grounds for refusals of return – broken tags, seals, or packaging. The item is visibly used. The returns window has expired, etc.
Make returns complicated for scammers
If you sell clothing online, you can discourage returning scammers by making your returns process more intricate. How?
During packing, mark each piece of clothing with a tag that can’t be easily reattached, take a picture of it, then ship the product out.
On the insert card that goes inside the parcel, instruct customers to closely inspect the item and try it on before removing the tag.
If the tag is intact, the product must be barely used or recently bought.
If it isn’t, require the person asking for a refund to prove that the product belongs to them. And that it is damaged or defective, because surely they wouldn’t rip the tag on a wrong product. If there is damage and it is clearly user-caused, don’t accept it.
Make sure you pack and ship items securely.
All sorts of errors might occur during the fulfillment process. However, by properly checking items for accuracy at the point of departure, you drastically reduce the rate of legitimate returns.
For the right balance, automate this process with barcode scanners and position one or two warehouse staff to make the final accuracy inspection.
Even though getting shoppers to exchange products doesn’t take away the costs of processing the return, it means you get to keep whatever profit margins you earn from the new sale.
How you encourage returns depends on you. Some sellers only offer store credit for returns and do not provide cash returns. However, refusing to offer cash refunds might lead to a lot of unhappy and betrayed customers.
So another option is to encourage product exchanges with carefully-crafted messaging or incentives, like an additional store credit.
Handle bad reviews.
You can’t do anything to prevent bad reviews. But you can invest in customer service staff to attend to those reviews in a way that portrays your business as professional, caring, and fair.
Rather than smearing the dissatisfied customer online or worse, ignoring the reviews, your team will politely state the facts and professionally offer to work with them further to resolve their issue.
Repair, Resell, Recycle or Donate returns
Instead of throwing away products that are in good condition, you can repair and resell them at a full or discounted price, depending on how much damage existed in the first place.
Or you can open a donation program to divert returns from landfills and into the hands of those who need it. Besides helping sustainability causes, such acts improve public perception of your company and appeal to customers who are socially responsible.
However, not all products can be repaired and thus resold or donated. When this is the case, send the items to recycling facilities that will use them as raw materials for new products. This reduces your waste footprint, extends the life cycles of materials and benefits the environment.
To sum up, order fulfillment is the set of operations that deals with the timely and efficient logistics of customer orders.
By choosing the right fulfillment model for your business and implementing the tips we explored today, your company will be able to deliver products as swiftly, accurately and cost-efficiently as possible.
That said, if you found this post helpful and want to learn more ecommerce strategies, head over to the Globallyfulill blog where we post new guides and articles every week!