When starting with eCommerce, one of the things you’ll need to learn about is fulfillment. Fulfillment is getting your products from your warehouse or supplier to customers. It’s a crucial part of your eCommerce business, as it can impact customer satisfaction, shipping costs, and overall profitability.
Your company’s fulfillment strategy directly affects your bottom-line as well as your brand reputation. Making the right decisions early on is crucial, because switching fulfillment strategies later on is a costly venture.
We’ll outline the procedure for choosing your fulfillment strategy in three simple phases. Let’s briefly go through your options before getting into how to choose the best plan for your company.
Step 1: Understand your options when it comes to e-commerce fulfillment
The first step in choosing the fulfillment strategy that fits your business is to understand what’s out there, and there are essentially three options when it comes to fulfillment.
- Option 1: In-house
- Option 2: Outsource to a third party
- Option 3: Dropshipping (goods ship directly from the manufacturer)
There are plenty of resources that explain the pros and cons of each in excruciating detail, but in summary, here are the three dimensions to consider for each:
Price: Pricing and costs are essentially important to consider as it can greatly impact your profit. For in-house e-commerce fulfillment, it involves warehouse rental/mortgage, maintenance, shipping costs including dimensional weight, wages. For outsourced fulfillment, consider subscription cost, inventory, per item margin, etc.
Energy: How much time and effort is required by your business? Are you willing to invest in and develop long-term infrastructure and fulfillment best practices? Establishing in-house fulfillment requires a significant financial outlay, and choosing the right third party may be a lengthy process.
Customization: How much freedom does the business have in customization? Does your business provide some consumer value through fulfillment? Do you want the flexibility to do bundles or custom boxing? For example, your business wants to offer a limited-time bundle of two of your best-selling products. You want them in the same box for a span of time. This may seem simple, but many 3PLs (third-party logistics) and Dropshipping providers do not allow this.
Let’s look at each option through the lens of these three dimensions.
Option 1: In-house
In-house fulfillment means you will handle everything from the inventory storage, picking, packing, and delivery.
To DIY, you’ll need space to house your inventory, and efficient processes to handle orders and ship in a timely manner, not to mention a process for handling returns. Overhead costs are high to house inventory yourself, but this rewards your business full autonomy.
Regarding customization, you are completely free to customize because you have full control, but the more you customize on your own, the higher the complexity and the higher the price. You would need to make a considerable investment in infrastructure as well as fulfillment software to manage customizations after a certain point.
You’ll also have to select a delivery partner and be sure to have an awareness of your dimensional weight costs for each carrier.
SUMMARY: Price is variable, energy is the highest, and customization is high but costly.
Option 2: Outsource to a Third-Party Logistics (3PL) Company
Hand your inventory over to 3PL and smart fulfillment companies who invest heavily in infrastructure and software to create global networks of warehouses and to provide a wide array of cutting-edge fulfillment capabilities.
For many 3PLs, the fulfillment software is built to integrate seamlessly with whatever e-commerce platform you use, and they provide you intuitive interfaces to manage your inventory.
These high-quality services come with higher costs, but each day more and more brands find that the added benefits and business growth potential outweigh the costs, not to mention 3PL companies can become important business partners.
SUMMARY: Price is high, energy is low, and customization depends on the provider
Option 3: Dropshipping
Dropshipping is when the manufacturer ships directly to the consumer, completely bypassing the retailer. This is typically used by businesses that are just starting that don’t have the capital for inventory, so the price to start a business is low.
However, dropshipping has notoriously low margins because the manufacturers charge high premiums to carry the sole responsibility of fulfillment. Branding and customization during the fulfillment process are only what you can negotiate with your manufacturer, and is also notoriously low.
SUMMARY: Price is highest, energy is lowest, customization is lowest
Step 2: Determine What’s Right for Your Business
What’s important for your business in terms of fulfillment? What are your business goals? Perhaps after reading the above list, one option immediately jumps out as correct, but take the time to carefully deliberate your growth strategy. Successful businesses are always growing and scaling, and the last thing you need is to be limited by a poor choice in fulfillment strategy.
After you have your business goals in mind, look at other companies in your industry. What is your competition doing? Does it work for them? Do you think they’d be better with more customization, or is speed the name of the game?
Finally, what do your customers want? Quick shipping? Free returns? A completely customized unboxing experience? Sometimes it’s not just what you sell, it’s how you sell it. Also, where are the majority of your sales coming from? Nearby or far away?
A good fulfillment strategy can provide a significant competitive advantage to your company, and the choice should not be taken lightly.
We posed a lot of questions here today, and you may have been hoping for answers. The reality is that your margins and own personal needs will determine which is just right for you. There’s no exact order quantity or revenue number that determines when you should choose one over another. If you are stressed out trying to find the correct strategy for your business, TSL is the answer you are looking for. Total Solutions Logistics (TSL) offer end-to-end solutions related to logistics software solutions, barcode solutions, IT infrastructure solutions and value-added services. At TSL, we have a team of highly knowledgeable and skilled experts who can provide you with state-of-the-art consultancy service and assist you in making the decisions that are best for your company. Regardless of your industry, your commodity, your key markets, or the scale of your business, TSL has the answers to your problems.