E-commerce Fulfillment Guide: How it works, Challenges, How to Choose Right E-commerce Fulfillment Services
By FarEye | June 6, 2023
E-commerce fulfillment is a critical part of selling products online, and retailers must have a cost-effective fulfillment process to meet customer expectations to remain competitive while also managing the associated costs.
E-commerce fulfillment encompasses everything from inventory management, order picking, packaging, and shipping to managing returns and providing effective customer service.
E-commerce fulfillment involves a complex network of systems and processes that work together seamlessly to ensure that customer orders are fulfilled quickly and accurately.Efficient e-commerce fulfillment is essential for businesses to stay competitive and meet the increasing demands of online shoppers.
What is e-commerce fulfillment?
E-commerce fulfillment is the process of receiving, processing, picking, packing, shipping, and delivering orders placed through an online store. It includes managing inventory, processing orders, selecting carriers, generating shipping labels, and delivering orders to customers.
Providing an efficient and seamless experience for customers while ensuring timely delivery and accurate order fulfillment is critical to e-commerce vendors.
The e-commerce fulfillment process starts with order processing, where the online store receives the order and verifies it. The verification process includes checking product availability, confirming payment, and performing fraud checks. Once the order is verified, it is sent to the warehouse for picking and packing.
The process of picking and packing entails finding the requested items within the warehouse, retrieving them from the available stock, and preparing them for transportation. During this process, the warehouse staff needs to ensure the correct products are picked and packed and that the order is prepared for shipment in a timely manner.
Shipping and delivery is the process of selecting the appropriate shipping carrier and method, generating shipping labels, and ensuring timely and accurate delivery of the orders. Factors such as the package's weight and dimensions, shipping location, and desired delivery timeframe are taken into consideration when selecting the appropriate shipping carrier.
Returns processing is the process of receiving and processing returned products, including inspecting and restocking them. A good ecommerce fulfillment process must also have an efficient returns management system in place to ensure timely processing of returns and refunds.
E-commerce fulfillment relies heavily on effective inventory management as a crucial component. Managing inventory levels is crucial for efficient e-commerce fulfillment as it ensures that products are available for purchase and can be fulfilled quickly, improving the customer experience.
Other areas that are important in e-commerce fulfillment include order accuracy, shipping options and costs, and customer service and support. Providing multiple shipping options, providing transparent shipping costs along with prompt and helpful customer support can help increase customer satisfaction.
Types of Ecommerce Fulfillment Services
A. Warehousing and Inventory Management:
1. Importance of Efficient Inventory Management:
Efficient inventory management is crucial for e-commerce fulfillment services to ensure smooth operations and customer satisfaction. It involves maintaining optimal stock levels, preventing stockouts, minimizing carrying costs, and reducing the risk of overstocking. Accurate inventory tracking allows for better demand forecasting, timely reordering, and efficient order fulfillment.
2. Warehousing Options: Shared vs. Dedicated Facilities:
i) Shared Warehousing: In shared warehousing, multiple retailers share a fulfillment center. This option is cost-effective for small or medium-sized businesses with lower inventory volumes. Retailers pay for the space they use, which can be flexible based on their needs. However, shared facilities may have limitations in customization and control over operations.
ii) Dedicated Warehousing: Dedicated warehousing involves having an exclusive facility for a retailer's inventory. This option suits larger retailers with higher inventory volumes or specialized requirements. Retailers have more control over the facility layout, operations, and customization. However, it requires greater financial investment and long-term commitment.
B. Order Processing and Fulfillment:
1) Steps Involved in Order Processing:
a. Order Receipt: When a customer places an order, the fulfillment service provider receives the order information, including products, quantities, customer details, and shipping address.
b. Order Verification: The fulfillment center staff verifies the order details, ensuring accuracy and availability of the products in stock. If any issues arise, they may contact the customer or retailer for clarification.
c. Picking: The staff retrieves the ordered items from their designated locations in the warehouse. They can use various methods like manual picking, barcode scanning, or automated systems to locate the products efficiently.
d. Packing: Once the items are picked, they are properly packed to protect them during transit. Packaging materials, such as boxes, padding, and labels, are used based on the nature and fragility of the products.
e. Documentation: The necessary shipping documents, such as invoices, packing slips, and shipping labels, are prepared and included with the package.
f. Handover to Shipping: The packages are then handed over to the selected shipping carrier for transportation to the customer's address.
2) Pick and Pack Process for Efficient Order Fulfillment:
Efficient pick and pack processes contribute to faster order fulfillment and reduced errors. This involves the following steps:
a. Order Batch Optimization: Orders are grouped into batches to streamline picking and minimize travel distance within the warehouse.
b. Pick Path Optimization: The order picking sequence is optimized to minimize the distance traveled by pickers. This can be achieved through efficient warehouse layout, intelligent routing, or automated systems.
c. Quality Control: Picked items are checked for accuracy and quality before being moved to the packing area.
d. Packing Efficiency: Packing stations are organized for ease of access to packaging materials and to ensure consistent packaging standards. Automation, such as dimensioning systems and automated packaging equipment, can enhance efficiency.
C. Shipping and Delivery:
1. Different Shipping Options Available:
a. Ground Shipping: This is the most common and cost-effective shipping method, suitable for non-urgent deliveries within a specific region or country.
b. Expedited Shipping: For time-sensitive deliveries, expedited shipping services are available. These typically come at a higher cost but offer faster transit times.
c. International Shipping: Shipping packages across international borders involves additional considerations, including customs documentation, duties, and import regulations. Fulfillment services often partner with carriers experienced in international shipping.
2. Tracking and Customer Communication During Shipping:
a. Shipment Tracking: Fulfillment service providers provide tracking numbers to customers, enabling them to monitor the progress of their shipments online. Customers can typically track their packages through the carrier's website or a dedicated tracking portal provided by the retailer. Tracking information includes the package's current location, estimated delivery date, and any delivery exceptions or delays.
b. Notifications and Alerts: Customers receive notifications and alerts at various stages of the shipping process. This can include order confirmation emails, shipping confirmation emails with tracking details, and updates on the package's transit status. Notifications may also be sent for delivery exceptions, such as failed delivery attempts or address issues, allowing customers to take appropriate action.
c. Customer Support: Fulfillment service providers may offer customer support to handle inquiries or address issues related to shipping and delivery. This can involve providing assistance with tracking, handling delivery exceptions, coordinating with carriers, or resolving any customer concerns or complaints.
By offering different shipping options and providing effective tracking and customer communication, e-commerce fulfillment services strive to ensure timely and transparent delivery experiences for customers.
How to Choose the right e-commerce fulfillment service provider
A. Factors to Consider When Selecting a Fulfillment Partner:
Scalability and Flexibility of Services: Consider the fulfillment service provider's ability to handle your current and future needs. Ensure they have the capacity to scale up or down as your business grows or experiences fluctuations in demand. Flexibility is also important to accommodate changes in your product range, order volume, or special requirements.
Integration Capabilities with E-commerce Platforms: Check if the fulfillment provider integrates seamlessly with your e-commerce platform or order management system. Smooth integration enables automated order transmission, real-time inventory updates, and order tracking. This reduces manual data entry and minimizes the risk of errors.
Geographic Reach and Shipping Options: Evaluate the fulfillment partner's geographic reach and whether they can efficiently reach your target markets. If you sell internationally, confirm their capabilities for international shipping, knowledge of customs procedures, and partnerships with international carriers. The availability of different shipping options (ground, expedited, etc.) is also important to meet your customers' delivery expectations.
Pricing Structure and Cost Considerations: Understand the fulfillment provider's pricing structure and how it aligns with your budget and business model. Consider factors like storage fees, order fulfillment fees, shipping costs, return handling fees, and any additional charges for value-added services. Compare pricing models of different providers and assess their transparency and predictability to avoid unexpected expenses.
Service Level Agreements (SLAs) and Performance Metrics: Review the fulfillment partner's SLAs and performance metrics. This includes metrics like order accuracy, order processing time, on-time delivery, and customer satisfaction. Clearly defined SLAs ensure accountability and provide benchmarks to measure the fulfillment provider's performance.
Technology and Systems: Evaluate the fulfillment provider's technology infrastructure, including their warehouse management system (WMS), order management system (OMS), and any other relevant software or automation tools. Robust technology solutions contribute to accurate inventory management, efficient order processing, and seamless communication with customers and your team.
Experience and Reputation: Consider the fulfillment provider's experience in the industry and their track record of serving businesses similar to yours. Look for reviews, testimonials, or case studies that demonstrate their reliability, responsiveness, and overall customer satisfaction. A reputable provider with a proven track record is more likely to deliver high-quality services.
Customer Support and Communication: Assess the level of customer support and communication offered by the fulfillment partner. Prompt and effective communication is essential for resolving issues, addressing inquiries, and maintaining a strong partnership. Determine their availability for support, the channels through which you can reach them, and their responsiveness to customer concerns.
Tips for Optimizing Inventory Management:
1. Demand Forecasting and Inventory Replenishment Strategies:
Accurate demand forecasting helps you maintain optimal inventory levels, avoid stockouts, and minimize excess inventory. Consider historical sales data, market trends, seasonal fluctuations, and other relevant factors to predict demand. Implementing demand forecasting tools or working with fulfillment partners that offer forecasting services can assist in making data-driven replenishment decisions.
a. Safety Stock: Maintain a safety stock buffer to mitigate the risk of stockouts due to unexpected spikes in demand or supply chain disruptions. Calculate safety stock levels based on factors such as lead time, demand variability, and desired service levels.
b. Just-in-Time (JIT) Inventory: If feasible, implement JIT inventory management, where you receive inventory shortly before it's needed for fulfillment. This reduces holding costs and minimizes the risk of excess inventory.
c. Vendor-Managed Inventory (VMI): Collaborate with suppliers to manage inventory levels directly. VMI allows suppliers to monitor your inventory levels and proactively replenish stock, optimizing inventory management and reducing the burden on your team.
2. Implementing Barcode and SKU Systems for Efficient Tracking:
a. Barcoding: Barcode systems enable accurate and efficient tracking of inventory throughout the fulfillment process. Each product is assigned a unique barcode that contains product information, such as SKU, description, and price. Barcoding facilitates quick and error-free scanning during receiving, picking, packing, and inventory management tasks.
b. SKU System: Establish a standardized SKU (Stock Keeping Unit) system to uniquely identify each product variant. Well-defined SKU codes provide clear identification, enable accurate inventory tracking, and facilitate order processing and fulfillment. Organize SKUs logically based on product attributes, such as size, color, or style.
c. Inventory Management Software: Utilize inventory management software or warehouse management systems (WMS) that integrate with barcode systems and SKUs. These systems streamline inventory tracking, provide real-time visibility into stock levels, automate reorder triggers, and generate reports for analysis and decision-making.
d. Cycle Counting: Implement regular cycle counting procedures to verify inventory accuracy. This involves randomly counting subsets of inventory on an ongoing basis, rather than conducting a complete physical inventory count. Cycle counting helps identify discrepancies between physical stock and system records, allowing for timely adjustments and minimizing inventory discrepancies.
e. Real-Time Inventory Visibility: Ensure that your inventory management system provides real-time visibility into stock levels across warehouses, sales channels, and fulfillment centers. This enables accurate inventory allocation, prevents overselling, and allows for efficient order fulfillment.
Why is order fulfillment important?
The process of order fulfillment involves the receipt, processing, and timely delivery of customer orders. It plays a vital role in e-commerce businesses, directly influencing customer satisfaction, repeat purchases, cost-efficiency, and competitive edge.
- Customer satisfaction: Fulfilling orders accurately and efficiently is critical for customer satisfaction. Customers expect to receive their orders in a timely manner, in good condition and have the correct items. Any delays or errors can result in angry customers and negative reviews, which can damage a business's reputation. A strong fulfillment process can help ensure that orders are fulfilled accurately, efficiently, and in good condition, leading to higher levels of customer satisfaction.
Repeat business: Customers who are satisfied with their purchases are inclined to become repeat buyers, ultimately driving sales and boosting revenue. A seamless and efficient fulfillment process guarantees that customers will choose to return for their future shopping needs. Conversely, a subpar fulfillment experience can lead to customer attrition and a decline in revenue.
Cost savings: Implementing an effective fulfillment process enables businesses to save money across various areas such as shipping expenses, inventory management, and labor costs. For instance, the automation of order processing and streamlining of picking and packing operations can significantly reduce the time and resources needed to fulfill orders. Accurate inventory management also helps prevent unnecessary expenses associated with overstocking or stockouts.
Competitive advantage: In the era of e-commerce, customers have an abundance of choices. By establishing an efficient and dependable fulfillment system, businesses can distinguish themselves from competitors, carve out a unique brand identity, and gain a competitive edge. Offering swift and reliable shipping options allows businesses to attract customers who prioritize promptness and convenience.
How does E-commerce fulfillment work?
The e-commerce fulfillment process involves a series of steps that begin with receiving and processing customer orders and end with delivering those orders to customers. The process typically includes the following steps:
Order processing: This stage encompasses the receipt and handling of customer orders. It entails tasks such as validating payment details, confirming inventory availability, and ensuring the order's accuracy. Following these verifications, the order is directed to the warehouse for further processing.
Picking and packing: Upon receiving the order, the subsequent step involves selecting the requested items and preparing them for shipment. This process entails locating the designated items within the warehouse, double-checking their accuracy, and appropriately packaging them. Additionally, this stage may involve including marketing materials, inserts, or promotional items within the package.
Shipping and delivery: After the order is picked and packed, it is ready for shipping. This step involves selecting the appropriate shipping carrier, generating a shipping label, and sending the package to the carrier for delivery. Shipping carriers may include USPS, UPS, FedEx, or DHL, depending on the location and shipping options selected by the customer.
Returns processing: In case of returns or exchanges, businesses need to have a process in place for handling those requests. This process encompasses several actions, including issuing return labels, accepting returned items, examining their condition, handling refunds or exchanges, and updating inventory quantities accordingly.
In addition to the above steps, e-commerce fulfillment also involves several supporting processes, including inventory management, quality control, and customer support.
Efficient inventory management plays a vital role in guaranteeing the availability of accurate products for order fulfillment.
Quality control processes can help ensure that the right items are picked and packed and that packages are delivered in good condition.
Strong customer support processes can help businesses handle customer inquiries, track shipments, and address any issues that may arise during the fulfillment process.
Ecommerce fulfillment approaches:
Third-party logistics (3PL) and drop shipping are distinct strategies employed in e-commerce fulfillment, although they both involve outsourcing elements of the supply chain. However, it is important to note that there are notable distinctions between these two approaches:
Inventory ownership: In 3PL, the provider owns and manages the inventory on behalf of the seller. This means that the provider handles the receiving, storage, and management of the seller's inventory. On the other hand, in drop shipping, the seller does not own or handle the inventory. Here, the supplier directly delivers the products to the customer without involving any intermediaries or additional fulfillment steps.the supplier ships the products directly to the customer.
Order fulfillment: In 3PL, the provider is responsible for fulfilling orders on behalf of the seller. This includes picking and packing the items, labeling and shipping the packages, and handling returns and exchanges.In drop shipping, the supplier assumes the responsibility of fulfilling orders and managing returns and exchanges on behalf of the retailer or e-commerce business.
Cost structure: 3PL providers typically charge fees based on the services provided, such as storage, order fulfillment, and shipping. Drop shipping suppliers may charge a higher unit cost for the product to cover the cost of shipping and handling.
Control and customization: With 3PL, the seller typically has more control over the fulfillment process and can customize the experience for their customers. In drop shipping, the seller has less control over the fulfillment process and may have limited ability to customize the packaging or delivery experience.
In summary, the two types of e-commerce fulfillment include 3PL and drop shipping. 3PL involves outsourcing inventory management and order fulfillment to a third-party provider, while drop shipping involves outsourcing the entire supply chain to a supplier who handles inventory management and order fulfillment directly.
Can I outsource e-commerce fulfillment?
Deciding whether to outsource your e-commerce fulfillment or handle it in-house can be a complex decision. When contemplating the decision of whether to outsource your e-commerce fulfillment, it is important to take into account the following factors:
Outsourcing your e-commerce fulfillment can help you manage your inventory more efficiently, save you money, scale your business more easily and improve the customer experience.
Inventory management: Third-party logistics (3PL) providers typically have advanced inventory management systems that can help you optimize your inventory levels, reduce waste, and ensure that your products are always in stock.
Cost savings: 3PL providers typically have economies of scale that allow them to negotiate lower shipping rates, reduce labor costs, and minimize waste. In addition, outsourcing your e-commerce fulfillment can help you avoid the upfront costs of setting up your own fulfillment center.
Scalability: 3PL providers can typically handle a high volume of orders and can help you expand into new markets quickly and efficiently.
Customer experience:3PL providers typically have advanced order management systems that allow them to process orders quickly and accurately, provide real-time tracking information to customers, and handle returns and exchanges efficiently.
Control: Outsourcing your e-commerce fulfillment means that you'll be entrusting your inventory and customer experience to a third party. This can be a loss of control for some businesses, as they won't have the same level of oversight and control over the fulfillment process.
Ultimately, the decision to outsource your e-commerce fulfillment will depend on your business goals, budget, and priorities.
If you're looking to scale your business quickly, improve the customer experience, and save money, outsourcing your e-commerce fulfillment to a 3PL provider may be a good option.
However, if you're concerned about maintaining control over your inventory and fulfillment process, handling your e-commerce fulfillment in-house may be a better fit.
Types of E-commerce Fulfillment Models
There are various types of e-commerce fulfillment models to choose from, depending on the size of your business, order volume, budget, and other factors. Here are the five most common types of e-commerce fulfillment models:
In-house fulfillment refers to the practice of managing all aspects of the fulfillment process internally, including order reception, storage, picking, packing, and shipping. This approach is commonly suitable for smaller-scale e-commerce businesses or those with relatively low order volumes.
Drop shipping is a retail model that involves the retailer not maintaining inventory. Instead, the retailer forwards customer orders and shipment information to the manufacturer or wholesaler, who then directly ships the products to the customer. The retailer earns a profit based on the price difference between wholesale and retail.
Third-Party Logistics (3PL):
Third-party logistics (3PL) is a practice where a business outsources warehousing, order fulfillment, and shipping responsibilities to a third-party logistics provider. These providers typically possess multiple fulfillment centers, advanced technology systems, and specialized knowledge in logistics and supply chain management.
Hybrid fulfillment is a combination of two or more fulfillment models, where a business uses different types of fulfillment models for different products or channels. For example, a business may use in-house fulfillment for high-value, low-volume products and dropshipping for low-value, high-volume products.
Every e-commerce fulfillment model has its own set of benefits and drawbacks, and determining the most suitable option for a business relies on several factors including order volume, company size, and available resources.
Challenges of the E-commerce Fulfillment Process
The e-commerce fulfillment process can be complex and challenging, with various factors that can impact the efficiency and effectiveness of the process. Some of the common challenges faced in e-commerce fulfillment include:
Inventory Management: Accurate and up-to-date inventory management poses a significant hurdle in e-commerce fulfillment. It is imperative to maintain precise inventory levels to guarantee product availability for orders and prevent the occurrence of overselling. Failure to address this challenge can lead to order cancellations, customer discontentment, and missed sales opportunities.
Order Accuracy: Ensuring the accuracy of orders includes verifying customer information, product details, and shipping addresses. Any errors in order processing can lead to delays, returns, and unhappy customers.
Shipping Options and Costs: Shipping costs and options can impact the overall profitability of an e-commerce business. Offering free or discounted shipping can be a major draw for customers, but can also increase costs for the business. Choosing the right shipping options and carriers can also be a challenge, as it can impact delivery times and customer satisfaction.
Returns Processing: Returns are an inevitable part of e-commerce, and processing them efficiently can be a major challenge. This includes handling customer inquiries, managing return shipping, and restocking returned products.
Communication: Effective communication with customers plays a vital role in the success of e-commerce fulfillment. To ensure customer satisfaction and establish trust, it is crucial to provide timely and accurate order and shipping information. Nonetheless, effectively managing communication on a large scale can be quite challenging, particularly during peak sales periods.
Overall, these challenges can impact the speed, accuracy, and cost-effectiveness of e-commerce fulfillment. To address these challenges, e-commerce businesses can invest in technology and automation, partner with reliable fulfillment providers, and implement quality control measures to ensure the best possible customer experience.
How can FarEye help in e-commerce fulfillment?
FarEye is a delivery management platform that can help e-commerce businesses streamline their fulfillment processes and improve customer experience. Some of the ways FarEye can help are:
Real-time tracking and visibility: FarEye provides real-time tracking of shipments and inventory, allowing businesses to monitor their entire fulfillment process and identify any bottlenecks or delays. By employing this approach, businesses can effectively monitor and adapt their fulfillment operations in real-time, allowing them to stay ahead of the game.
Automated order processing: FarEye's platform can automate order processing, including order routing, picking, and packing. This helps businesses speed up their order processing and reduce errors.
Carrier management:FarEye assists businesses in efficiently handling their carriers and making optimal choices regarding shipping options that are both cost-effective and dependable. Furthermore, the platform enables businesses to track carrier performance and promptly identify and address any potential issues.
Returns management: FarEye's platform can help businesses manage their returns process, including returns authorization, reverse logistics, and inventory management.
Customer communication: FarEye equips businesses with a comprehensive suite of tools enabling seamless communication with customers throughout the fulfillment process. This includes features such as order confirmation, shipment tracking, and delivery notifications. By utilizing these tools, businesses can enhance customer satisfaction and foster long-term loyalty.
While e-commerce fulfillment comes with several challenges, retailers can overcome them by using technology, outsourcing to third-party logistics providers, and focusing on efficiency and accuracy. FarEye’s delivery management platform can help e-commerce businesses improve their fulfillment processes, reduce costs, and improve customer experience.