Everything you need to know about eCommerce fulfillment, shipping and more solutions

Everything you need to know about eCommerce fulfillment, shipping and more solutions

eCommerce shoppers statistics that you should know

The eCommerce industry is getting fiercer and more competitive everyday, and mostly because of the inexhaustible expectations of customers. Kind of like a “give an inch and they’ll take a mile” situation if you ask me, but it’s a vicious consumerism cycle that we all wilfully decided to run around.

So intense is the race to appease consumers that even global leaders like Amazon, eBay and Alibaba chose to play it safe with innovative policies to keep new and ambitious companies at bay. This one-upmanship is almost akin to opportunism that sprung up when market research revealed data and numbers that brought eCommerce companies to the edge of their seats.

And numbers sure don’t lie. A survey by Statista revealed that the global rate of shopping cart abandonment in 2020 was 88.05%, a figure that’s serious enough to scare the bejeezus out of even the biggest companies.

And the biggest reason behind cart abandonment? High shipping costs, which accounted for 63% cart abandonment among shoppers in the US in 2018.

Of course, like every other challenge, cart abandonment can be tackled too. The following graph shows the top reasons responsible for shoppers shying away from checking out with what they add to cart. The following graph shows the other reasons for cart abandonment.

Top reasons for cart abandonment among shoppers in the US in 2018
Source: statista.com

Shipping is one of the most challenging components of eCommerce business operations. You could be running highly profitable promotions on your site with everything under control and yet shipping would be one area that would remain largely out of your control.

It doesn’t make it easier either that it remains the key area for customer satisfaction. In the eCommerce world a sale is complete only when the customer receives their order, which really sounds quite simple.

Only it’s not. I mean a 63% cart abandonment rate because of costly shipping and a 36% abandonment rate because of slow shipping should be the key indicator of how important a good shipping policy is to convert and retain customers.

Payment received for a product on your website means a liability has been created, which you have to fulfill. Until that liability is fulfilled in time, with the product safely delivered in the hands of the customer, the order is not considered complete. An order accepted is a promise made and there could be many challenges on the way to fulfilling that promise.

Unless you have a super dependable shipping and logistics operations running, you may find yourself in a bit of a fix when you fail to ship on time or worse still, deliver damaged goods. This is where I’d like to bring your attention to the importance of eCommerce fulfillment.

eCommerce fulfillment: The pivotal point of your business operations

Broadly known as order fulfillment, this is the comprehensive process of a retailer’s response to a buyer’s order placement, starting right from sales inquiry to the delivery of the product, and in some cases even returns. In between these two steps, there are many more steps that go on to complete this highly complex process as a whole. Let’s find out more on each of these steps.

1. Sales Inquiry

In this stage, inquiries about products on the retailer’s website are processed. These inquiries could be about the availability of the product, bulk requests or further details before an order is placed.

2. Order arrangement

This step comprises of arranging multiple products to fit into one single order or seperate orders, depending on the possibilities after sorting it out with the suppliers of the products.

3. Order placement

As the name suggests, this is where the buyer places the order and confirms to purchase it, signifying an official agreement with the retailer. On most instances, the payments are also made and processed here, except in a few scenarios where the retailer sends an invoice to the buyer after confirming the order.

4. Order acknowledgement

Now, it’s the retailer’s turn to confirm the order and acknowledge the receipt of the buyer’s order.

5. Receiving inventory

This is where the retailer will source the ordered products from external parties after agreeing with them. Retailers usually look at sellers/suppliers in the same or nearest location as the shipment destination, thereby reducing the delivery time and associated expenses, unless of course they already have the ordered products in stock.

eCommerce leaders like Amazon simply outsource the order to the sellers on its platform, who go on to fulfill the order, thus reducing the work and risk of Amazon.

6. Order processing

Once the order has been finalized, the information is relayed to the distribution center where all the items are stored and received. The orders are then picked and packed in accordance with the instructions provided, including packaging material to use (mailers, cardboard boxes, bubble wraps, etc.), ready to be shipped to the buyer.

7. Shipping

After the order is packed and ready to go, the online retailer either drops off the shipment at the carrier’s office or arranges for it to be picked up from the distribution center. After taking over the shipment, the shipping agent shares a track and trace number with the buyer to stay updated with the shipment’s journey until delivery.

8. Delivery

This is usually the last step where the carrier delivers the shipment to the buyer, which could be within the promised timeframe or outside it depending on factors like customs clearance and possible delay inducing events.

In case the buyer opts for a ‘pay on delivery’ option, the carrier will collect the invoice amount on delivery. In the event that the buyer is not satisfied with the received product or receives a wrong product, it escalates to one last step in the order fulfillment process.

9. Returns & refunds

This is one step that every online merchant dreads for the sheer amount of time and money lost in processing return deliveries. In fact, according to a US eCommerce return delivery cost estimate made by Statista, it was estimated to be 350 billion USD in 2017, which was estimated to balloon to a mind numbing figure of 550 billion USD in 2020.

The harrowing experience for merchants doesn’t just end there, for now they have to resell the returned item. And because most merchants offer free returns, it just makes it more convenient for buyers to return their purchased items for the most frivolous of reasons.

Although this comes across as a very scary situation, you can still come out unscathed as an online retailer if you have a great return policy that works for both you and the buyers.

eCommerce returns lead to huge losses that online retailers have to incur if they don’t have a strong return policy
Source: cin7.com

Why you should have an eCommerce fulfillment strategy

Ensuring successful order fulfillments every time is never easy. While we’ve talked about returns as one of the perils of fulfillment, there are more challenges in its path, including overstocking that could lead to unsold items (worse if perishable) or conversely understocking.

An effective strategy that businesses employ to curb such unwanted situations is known as make to stock or MTS, which quite simply put, is a strategy that’s devised to meet the consumer demands based on forecasts. This demand forecast is a continuous process of improvement that helps business produce just enough of how much they predict there will be demand for. Read more on MTS here.

Besides MTS, there are other strategies that you can adopt, including built-to-order (BTO), customization and bundled offers. BTO is a lean manufacturing approach in which products are built/produced when an order is confirmed.

This approach was introduced to avoid incurring losses on expensive products that would go unsold, thus minimizing storage expenses, besides offering mass customization.

Build-to-order manufacturing approach has many benefits, lean & quick, cost cutting, customization
Source: huimfg.com

Order fulfillment models to choose from

Choosing the order fulfillment model from the options that we’re going to discuss will really depend on the business category you’re in, the volume of orders you receive and even the products that you sell on your eCommerce store. We’ll be highlighting three models and hope you will be able to choose the right one for you after reading about them.

1. In-house fulfillment

The in-house order fulfillment model, as the name suggests, is a process that is handled internally through in-house employees, from the very first step to the last step of delivery and returns. This model can be of benefit for home-based startups that run on a limited budget with order volumes that are quite minimal. It can also benefit large companies that want complete control over the entire process without depending on outsourcing companies.

Now, even though this model may appear to be a failsafe solution for many beginners, it is not without its share of challenges. Click here to know about the common in-house fulfillment mistakes that you could make if you’re not careful.

The advantages

  • You have end-to-end control of your order fulfillment process
  • It’s ideal for beginners and small-scale businesses because of the low costs involved
  • With limited order volumes, you don’t need a big warehouse or storage space
  • Large enterprises can avail discounted shipping rates from carriers because of the sheer order volume

The disadvantages

  • It can be a slow and arduous process for beginners who have no experience in packing
  • Operational costs will go up as business will grow, making it difficult to manage without professional help

What you will need

  • If you have a small operation, you can make do with your garage, a spare room in your house or even rent a small place in a backstreet nearby. For a larger operation, you will need to rent a proper warehouse.
  • Depending on the product you’re selling, you will need to stock packaging materials like cardboard, bubble wraps, mailers and boxes.
  • Shipping label printer - Use the shipping labels generated by the eCommerce software you have to print out the labels.
  • Inventory Management - This service usually comes free along with the eCommerce platform that you will be using. 
  • Layout plan - It is important to store your finished goods category-wise to have a quicker turnaround time. Fast moving items can be kept closer to the packing bay. Storage racks must be clearly labelled.
  • Staff - Depending on your volume, you will need to hire the appropriate number of staff, trying as much as possible to keep the expenditures within your estimated budget.
  • Tie-up with a shipping agency with pre-negotiated rates based on order volume. Usually, the same agency can be contracted to handle returns.
In-house order fulfillment model best suits small companies with limited order volume & budget
Source: medium.com

2. Outsourced or third-party fulfillment

Outsourced order fulfillment is the model where you will hand over the responsibilities of eCommerce fulfillment, including storage, order processing, shipping and returns, to a third-party logistics (3PL) company. This model works best for online merchants who realize that outsourced companies are ideally equipped to do a better job than them.

A fulfillment agency will provide you with the following services:

  • Warehouse space for your finished goods, at one or more locations
  • Receiving of orders
  • Picking and packing the correct product as per the packaging guidelines and printing the shipping label
  • Order processing
  • Shipping out the product to the customer through a shipping agency
  • Inventory management
  • Returns processing

Using a fulfillment agency is advisable for medium and large operations, although it can work for small businesses too. But due to insufficient order volume, it may turn out to be an expensive arrangement for small businesses. Nonetheless, here are some of the benefits of outsourcing your order fulfillment.

The advantages

  • It is usually cheaper to hire warehouse space in a fulfillment agency than to set up one on your own, with several one-time costs in the latter case. Many such costs get apportioned out between various clients of a fulfillment warehouse.
  • It is easier to enter into and exit an arrangement with a fulfillment agency than when you are setting up your own warehouse. 
  • Arrangements with an agency also provide higher flexibility to scale up or down your business in time.
  • If you have a highly seasonal business, once again an agency may be able to provide you with a variable space model. 
  • You get the benefit of cheaper shipping charges owing to the bulk business handled by the fulfillment agency.
  • You get the benefit of trained staff in packaging, shipping and inventory management. They would usually be in a good position to plan your work based on the pattern of your incoming orders.
  • If you have a large operation, a large agency may provide you with multiple stocking points, thereby optimizing your shipping costs.

The disadvantages

  • With many clients competing for attention, your work may at times get sidelined at the agency, thereby leading to compromised reputation for you.
  • Leaving everything to the fulfillment agency may at times serve you with unpleasant surprises.

If you have specialized needs in terms of packaging or shipping, taking care of the fulfillment by yourself rather than through an agency might be a better idea. For specialized businesses like food delivery, it would be better to manage the operation on your own for better control.

The 3PL fulfillment model offers unique solutions for unique businesses, storage, packaging, refrigeration
Source: bigcommerce.com

Costs involved

A fulfillment agency will usually charge you the following:

  • Warehouse rental
  • Picking and packing fees
  • Shipping charges
  • Management or per-transaction fee

3. Dropshipping

The dropshipping model is also an outsourced model, except for the fact that the merchant doesn’t have an inventory for the products sold on their online store. That’s because all the products that the merchant sells online are produced, held, stored and shipped by the manufacturer themselves.

All the merchant does is forwards the order details to the manufacturer after receiving it online, to be fulfilled by the manufacturer. The manufacturer then processes the order, packs and dropships it directly to the buyer’s address.

Dropshipping is a preferred option for global shippings because it is easier for the manufacturer to handle such complex shipping processes than for the merchant. This kind of fulfillment model works best for beginners and retailers with limited budget, but good sales skills.

The advantages

  • It’s very easy to go with this model because everything will be handled by the dropshippers, leaving you with all the time and freedom for sales campaigns.
  • The opportunity for growth is greater since you are at the liberty to connect with already established dropshippers on whose reputation and reach your business can ride.
  • It’s perfect for beginners with limited budget since all that you need to pay for is the inventory every time a sale is finalized.
  • With the dropshipper handling the order fulfillment, that leaves retailers with all the time to focus on their business.

The disadvantages

  • Unfortunately, the buyers will know you and not the dropshipper, which leave you vulnerable to criticism if there’s any quality issue, thereby potentially denting your reputation.
  • With dropshipping you can literally say goodbye to any hope for custom products.
  • The products you will sell on your online store are manufactured by others with you having no control over them. Meaning, you won’t really be floating a unique brand.

In spite of the equal share of advantages and disadvantages associated with dropshipping, it can do wonders for you if you play your cards well. Here are some common dropshipping beginner mistakes that you should look out for and avoid if you wish to taste success. You can thank us later.

Dropshipping fulfillment model, zero inventory costs, no shipping, no order fulfillment
Source: shopify.com

Order fulfillment strategies to adopt

Making sure that you have a efficient order fulfillment and shipping process running will be the key to a successful eCommerce business. Quick and reasonably priced shipping will be saving grace that will keep your customers coming back to you.

Here are some invaluable order fulfillment best practices that we cannot stress on enough. Follow them wisely and they will not fail you:

  • Be sure that you have chosen the order fulfillment model that best suits your business. keep in mind that it should give you the power to scale up to complement your business growth and the flexibility to accommodate all your business requirements.
  • Remember - market data is what will guide you in your decision making process. So, the technology that you will use should be able to fetch or plug into real time data during order fulfillment so you don’t miss out on any opportunities, nor go in blind without any market predictability that only data can provide.
  •  Keep every communication between you and the buyers crystal clear, indicating the shipping and return policies in bold if needed to get them to read before buying. It’s better to have few buyers than to handle several grievances after sales.
  • Efficient management of shipping operations depends on having the right warehouse, good inventory management of your stocks and low cost, but reliable, shipping service.
    You could do all this on your own if you don't have a fairly large operation. But if you do, it will make sense to outsource this work to a fulfillment agency.
  • Shipping may appear to be a challenging task, but like all challenges, they seem intimidating until you meet them head on. Believe me, that's the road to customer loyalty.

Other than the fulfillment models that we discussed, there’s another model that you may want to consider, although it requires merchants to enroll into the program to use it. I’m talking about the Amazon fulfillment program or FBA (fulfillment by Amazon) that offers merchants to ride on the reputation of the global leader and sell on their platform.

Here’s a good read on Amazon fulfillment and the advantages that go along with it.

Conclusion

Like I said, after what you just read, it may be a world of intimidation for you as you toy with the idea of whether to follow your instincts and set up your online store or just dunk it. Yes, you will face challenges, but then there are challenges in every business.

What you need is some expert guidance from people who are seasoned in eCommerce and its intricacies. Get in touch with our eCommerce experts to receive not just wisdom, but the morale boost that you might be missing to push ahead.

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