Anyone who is in charge of warehouse management and inventory storage knows that planning, organizing, and managing fulfillment is critical for establishing efficient, effective, and sustainable supply chain operations. In today’s eCommerce business environment, customers are no longer willing to wait for a week or more for their orders to be processed, filled, and delivered to their front doors. Present-day shoppers have become accustomed to next-day or even same-day deliveries and will rarely accept anything less.
Statistically speaking, 53% of shoppers say that a speedy delivery is a deciding factor when it comes to evaluating their online orders. 25% of consumers will cancel an order if the delivery speed does not meet their expectations and 24% will cancel if no delivery date is provided. In terms of acceptable delivery timeframes, 38% of consumers abandon their virtual shopping cart if the delivery will take longer than a week. As the delivery time shortens, fewer consumers will abandon their carts. 16% abandon their carts when orders take up to 7 days, 15% will abandon their order if delivery takes between 4 to 5 days, and 8% will cancel their order if delivery takes three days.
It is also crucial to discuss the impact on businesses when they do not meet their delivery dates. 69% of consumers are less inclined to shop from the same retailer if their order wasn’t delivered within two days of the promised date. Beyond just slow deliveries, shipping costs also play a major role in a customer’s willingness to purchase from a given online retailer. In fact, 53% of shoppers say that if shipping, taxes, and other fees are too high and will abandon their cart. It’s for this reason that 74% also view free shipping as a major deciding factor when at the checkout, with 94% taking some form of action to qualify for it. Yet, from the perspective of retailers, the math can be hard to reckon with given that fulfillment costs will typically be around 70% of the average order’s value.
What all of these figures indicate is that retailers and manufacturers need to find a perfect balance between fast deliveries and low costs without sacrificing their own bottom lines. As such, supply chain management professionals (CSCMP) and operations managers must be able to develop an order fulfillment strategy capable of meeting customer demands. Simply switching to a better warehouse management system (WMS), may not be enough to achieve this task.
Fortunately, this complete guide to planning, implementing, and delivering sustainable order fulfillment will help you achieve just that.
What is Order Fulfillment?
Before we delve deeply into the inner workings of supply chain order fulfillment, we need to cover some basic concepts. In its most elemental form, eCommerce order fulfillment is the process of receiving and storing inventory, picking and packing products, and finally, shipping orders to end-customers.
There are also several ways that a company can fulfill an order. They can either do it in-house, outsource to a third-party logistics provider (3PL), or employ dropshipping.
eCommerce fulfillment operations can apply to both B2B and B2C orders. The difference between the two is that for B2B, we typically deal with large quantities of a product that are shipped to retailers, whereas B2C orders are smaller and shipped directly to a shopper’s home. B2C consumers may place the order directly via a retailer’s website or through an online marketplace such as Amazon. Once the purchase is complete, the fulfillment process can begin.
The Order Fulfillment Process
There are many moving parts that go into an order fulfillment process. From routing to managing inventory, and choosing the correct packaging, the entire fulfillment process will go through several stages before it’s complete. These stages, in their simplified form, are as follows:
Whether you decide to outsource fulfillment or handle it in-house, receiving inventory from manufacturers or suppliers will be the first step in the process. Once in the warehouse, the following steps need to be taken:
- Items need to be counted to ensure that the actual number coincides with that indicated on the invoice.
- Inventory needs to be inspected for any damages.
- The stock-keeping unit (SKU) codes need to be added onto the items and into the warehouse management system to track the location, count, and the quantity sold per each item type.
With inventory received, counted, inspected, labeled, and added into your WMS, proper inventory storage needs to follow. This step is one of the most important when it comes to maximizing the speed and accuracy of your order fulfillment operations. Usually, you will have individual SKUs designated to separate bins for faster order processing. Hot SKUs – items that sell the most often – should be placed closer to picking, packing, and shipping locations.
Receiving orders is the first step in processing. Once a customer has placed an order, retailers can use a number of methods to get that order information to their fulfillment centers. The most efficient way is to use fulfillment software that allows the warehouse to receive orders automatically.
Once the order is received, all items that make up the order will be picked and packaged. At the packing station, the package will go through a series of quality control checks. At this stage, the best packing materials are chosen. The items are scanned, any inserts are added, and the box is sealed. Finally, the package is moved to the shipping station. Picking and packing orders can be done in a wide variety of ways, and several technologies can be used, some more efficient than others. This is also the reason why many retailers prefer to outsource their fulfillment rather than doing it in-house.
At the shipping station, the package is weighed to determine the best shipping method for that order. While some orders are simple and require basic delivery methods, others may have special requirements for both packaging material and the delivery method. It is also the shipping station’s responsibility to update the status of the order and to let the retailer know that the items have been shipped. In turn, sellers can inform their customers and give them the tracking information for their order.
Reverse logistics is yet another vital aspect of the overall order fulfillment system. For many online customers, having the option to return orders is an important part of the buying process. Retailers and manufacturers need to meet customer expectations by implementing a clear and effective return policy.
External policies should be listed on the retailer’s website and should clarify how and where returns need to be sent. Internal policies, should make it clear for staff members and fulfillment providers on how customer returns need to be handled once they are sent back to the warehouse.
Common Order Fulfillment Costs
Order fulfillment costs will vary from one facility to another. These costs are typically categorized in the following ways:
- Inventory Receiving Costs – When working with dropshipping or third-party fulfillment, receiving inventory will have some added costs. This cost comes from the labor and time needed to do all the tasks required at this stage. Usually, this cost is billed by the box or pallet.
- Inventory Storage Costs – This cost refers to storing inventory in the warehouse, and it applies to all situations, regardless of the fulfillment strategy used. Typically, this cost is based on the space required and the individual SKUs that use this space.
- Pick and Pack Costs – This amount refers to the labor and time needed to organize each order to get it ready for shipping. It will typically include both human and automated labor costs.
- Shipping Costs – In some cases, the shipping costs are covered by the end-customer or they can be absorbed by the entire order fulfillment operation. In other cases, there can also be sizable discounts when signing a contract with a professional logistics provider.
The Challenges of eCommerce Order Fulfillment
Even though it might look simple on the surface, eCommerce fulfillment is anything but. Companies can face complex challenges in terms of demand, inventory management, logistics planning, and more. All of these can make the entire process next to impossible for those that don’t have the required resources and experience. Here are some of the most common challenges one may encounter in their order fulfillment operations:
- Inventory Management – Companies will always need to maintain optimal inventory levels without having to worry about losing customers to the competition. The fastest way to discourage customers from considering your company again is by constantly running out of stock.
- Demand Planning – Equally important as not running out of stock is to avoid overstocking – which can be just as costly. Striking a perfect balance between the two can prove to be a challenge for those that don’t possess the right tools, know-how, and experience.
- Logistics Planning – The shipping process is almost as important as making the sale. Some may even say that it’s more important. You will need to ensure that the shipping method, speed, and package handling while in-transit are all optimized to minimize the risk of late, damaged, or missing orders. Any of these can hurt your reputation, drive customers away, and lead them straight to your competitors.
- Supply Chain Flexibility – Sometimes, despite your best efforts, running out of inventory is inevitable, especially during peak seasons such as Black Friday or the holidays. When this happens, you must be prepared to replenish your stocks as fast as possible to lower the number of missed opportunities.
The WMS for Order Fulfillment
The critical role of technology in managing fulfillment cannot be overstated. For fulfillment centers to be successful and efficient, they need to embrace the latest tools and technologies available on the market. When it comes to the topic at hand, no piece of software will be more useful than the warehouse management system (WMS). A comprehensive WMS is designed to streamline a wide variety of warehouse and inventory processes, including customer service and billing. Several WMS capabilities relevant here include:
- Greater Supply Chain Transparency – A good WMS tool can provide end-to-end visibility throughout the entire supply chain. For instance, your suppliers can see your inventory level in real-time, while your customers can track their orders as they move through the fulfillment process.
- Accuracy – While a human operator can do everything a WMS can do, the difference is that the WMS can perform tasks much faster and error-free (automatically and in real-time). Having immediate access to this reliable and accurate information at any moment leads to better decision-making. Auditing and optimizing your supply chain becomes much easier and more effective. Likewise, these systems minimize the need for manual inventory counts.
- Automated Reporting – When it comes to compliance, safety, human resources, and fulfillment protocols, reporting is an absolute necessity. The majority of WMS systems will come equipped with on-demand reporting capabilities which provide reports in a matter of minutes. These up-to-date reports will provide you with even more visibility over your KPIs and other metrics when assessing the performance of your supply chain.
The Different Types of Order Fulfillment
Choosing the right method to fulfill your orders will depend mostly on order volume, types of products, the desired level of control, and more. There are four major types of order fulfillment to consider. These are as follows:
- In-House Order Fulfillment
When companies opt for an in-house order fulfillment model, they use their own employees and resources to see the process through to the end. Staff members handle everything from storing to shipping, either on-site or at a company-controlled fulfillment center. Small companies with a low volume of orders can see the cost benefits of handling everything in-house. But as companies outgrow their initial space, other fulfillment models may be required.
To simplify, the pros of fulfilling orders in-house include the fact that you have complete control over the entire process. It can also prove to be more cost-effective for small companies with low volumes of orders. As for companies shipping large quantities, it can prove to be a significant advantage when negotiating shipping rates with FedEx, UPS, or USPS. On the downside, an in-house fulfillment model can be time-consuming, particularly as the number of orders starts to increase. Likewise, it can also be quite costly over time. You will need to buy and maintain a warehouse space, equipment, additional staff members, software tools, and more.
- Outsourced Fulfillment
Outsourcing fulfillment means that a third-party logistics provider will handle the entire process. In this case, the 3PL takes care of receiving inventory, storing it at their storage location, processing it, and shipping it to the end-customer. There are plenty of benefits when outsourcing order fulfillment. For starters, you won’t have to invest in any infrastructure, tools, or additional personnel. You can get better shipping discounts than if you were to negotiate them on your own and you can purchase inventory in bulk to further improve your profit margins.
The drawback of working with a 3PL is that you won’t have the same level of control as you would doing everything on your own. Also, if you are not working with a professional and reliable provider, the quality of services can be compromised. Order fulfillment is, in a sense, the face of your organization as far as the end-customer is concerned. And if anything goes wrong here, you will likely be the one to blame. Therefore, it’s crucial to do your due diligence and find a reliable logistics company.
Somewhat similar to outsourcing, dropshipping takes away many of the overhead costs associated with in-house fulfillment. Simply put, dropshipping is a supply chain management method where the retailer doesn’t keep any goods in stock but instead transfers the order and customer details to the manufacturer or other retailer.
Basically, the difference between outsourcing and dropshipping is that there’s no inventory to manage. When an item is sold, the retailer will purchase it from a supplier. It becomes the supplier’s responsibility to handle orders and shipments to customers. In this method, you will only be billed for the items you sell.
The advantage here is that dropshippers provide the products and shipping, while you focus solely on sales. As such, you can sell more products faster without having to invest in the infrastructure or have any of the overhead costs attached to order fulfillment.
The main disadvantage of dropshipping is that you entrust the credibility of your brand to another party while still maintaining full accountability. Since you don’t manufacture the products, you have a more difficult time establishing your brand. It’s also harder to gain a competitive advantage over other businesses since the competition here revolves solely on price and not the products being sold. Since anyone can work with these manufacturers, your products will be the same with the only major difference being the price you offer. Finally, as your business scales, logistics can become quite challenging when having to deal with multiple dropshippers at the same time.
- Hybrid Fulfillment
The fourth type of order fulfillment is a mix of some or all of the other three mentioned above. For instance, a company could process some of its orders in-house, like items that need assembly, while it outsources its non-customized items. Other companies can choose to use dropshipping for items that are rarely sold to avoid keeping them in their warehouse. Hybrid fulfillment is ideal for companies that want more flexibility and are going through a phase of rapid growth and expansion.
Finding and working with a reliable logistics company is a great way to save time and money. It also allows you to scale your business faster and easier than before.
Redbird Logistics Services can work with you, no matter your requirements. This definitive guide to improving order fulfillment is just the start. Our logistic services and supply chain solutions can maximize the efficiency of your supply chain management, network optimization, and increase customer satisfaction. With our real-time technology, we can provide you with complete visibility of your products every step of the way.
If you’re looking for a top logistics company, Redbird Logistics Services can help!! Contact us today!