We talk a lot about marketing, specifically email marketing, and how to utilize and optimize both to drive sales in online shops – the part the customer is directly involved in. But what happens after the sale is made? You know, what about the part the customer doesn’t see; the journey of his product from being bought to being delivered to his doorstep.
Just because the customer doesn’t get to see that part, called order fulfillment, doesn’t mean it’s not a significant part of any ecommerce store. In fact, without fulfilling customer orders, there would essentially be no business.
In this chapter, we’d like to focus on what happens on the store-side of things after the customer clicks that “buy” button. We’ll talk about how you can automate order fulfillment so you don’t end up spending all day every day packing boxes in your garage to ship to customers.
Understanding Order Fulfillment
Let’s make sure we’re all talking about the same thing. What exactly is “order fulfillment”?
Order fulfillment describes all the steps a business takes from the moment they receive a customer’s order until the customer holds his item in his hands. This can be done either
- in-house, where your company handles the entire process, including warehousing and shipping,
- by a third-party logistics company, or
The fulfillment process can vary depending on the size and industry of the company, but there are some elements they all have in common. Other factors include order volume, whether it’s a B2B- or B2C-transaction, whether the company relies on dropshipping, and whether production of the product doesn’t begin until a customer order is placed.
No matter the differences between companies, there are some challenges every ecommerce business faces in fulfilling customer orders.
5 Challenges of Order Fulfillment
Customers often have no idea – and don’t want to know – what goes on in the background after they click “buy”. They want their item to be shipped fast and cheap with no damages. This poses a few specific challenges for store owners in their fulfillment process.
1. Demand Planning & Seasonal Fulfillment
To be able to plan ahead and order the right amount of the right product, you have to know in advance what demand for a product will be. This can be difficult to pin down, especially for a new product.
But without it, you’re running the gauntlet between making bad and uninformed decisions about products and target markets and “guessing” demand correctly. Good luck with that. Guessing wrong can have negative effects on inventory costs, customer satisfaction and profitability.
Market and competitor research can provide a good indicator for how demand might shape itself for your new product. If you’ve been selling it for a while, you can analyze the past data stored in your WMS and identify which products are doing consistently well, and which of them have peaks throughout the year. Check out this article for more details on demand planning methods.
Also: Never underestimate the peak seasons like Christmas, Black Friday, Valentine’s Day or Mothers and Fathers Day. Seasonal order fulfillment can be difficult to keep up with. The “usual” challenges are present to a higher degree, and you have to be sure to get everything shipped in time for the holidays.
Predictive ordering software, like Inventory Planner for Shopify, and data analysis can help predict and prepare for increases in order volume.
2. Comparison to Amazon
It’s an open secret these days: Amazon sets the ecommerce standard.
According to Statista, the online retail giant is projected to account for 13.7% of worldwide retail ecommerce sales in 2019. In the United States, Amazon is expected to account for over half of the local ecommerce market.
Whether it’s payment- or shipping options, the recognition of the checkout process, or the layout of a product page – Amazon is used by customers as the benchmark for all things ordered online. Because literally everybody and their dog’s fleas have bought things on Amazon.
Amazon makes it look easy to offer two-day shipping at a reasonable price and with every payment method imaginable. So that’s what customers expect from small(er) online shops, as well.
Customers will ask – and sometimes demand – fast and cheap shipping. You have to figure out what you can afford without going belly-up. This won’t be easy, since shipping fees and times can vary greatly.
3. High Shipping Fees
Ecommerce order fulfillment options and their costs vary. Whether you’re fulfilling orders in-house, via a third-party logistics company or by dropshipping, they may result in very different costs for the same order.
For some ecommerce businesses, shipping costs are the second-largest cost drivers after cost price. Cross- or upselling your products to be able to ship them in one package will lower shipping fees not just for your clients, but for you.
Use shipping calculators like these from UPS or Shopify, to understand the different ways you get charged and to find the best distribution center.
4. Streamlining Inventory Management
The right inventory management can make or break your customer satisfaction. It is vital in getting the right product to the buyer in the right amount and at the promised time. When fulfilling orders in-house, you have to make sure you can efficiently and consistently handle your inventory, so you don’t run into problems like pending orders with no stock, dead inventory, and rising costs because of poor warehouse location planning.
This is a case where scrimping on a warehouse management system or good staff is completely counterproductive because once your online business hits a certain growth stage, you won’t be able to manage your inventory by yourself.
We’ll go deeper into warehouse management software (WMS) in a later paragraph; for now, you can find a list of the most popular WMS here.
By the way, it’s not only the in-house fulfillers who may run into this problem. Dropshipping suppliers often can’t or won’t provide full-service order fulfillment in certain cases, for example if you’re only giving them small orders.
5. Order Tracking
I guarantee that, no matter what you sell, you will consistently be asked by customers “where is my package?” Buyers don’t like not knowing where their shipment currently is and when to expect it. Customer satisfaction is almost sure to decrease if a customer can’t track his order, no matter how satisfactory everything else went.
But don’t despair. As always, there are software solutions for this problem as well. Most ecommerce platforms have their own order tracking programs, like WooCommerce or Shopify. But there are also independent providers like TrackingMore to help you keep track of shipments and help your customers obtain that information themselves.
3 Order Fulfillment Methods
We’ve already mentioned “in-house” and “dropshipping” in the paragraphs above. But what do they mean? And how do they differ?
Read on for the nitty-gritty details on the different order fulfillment methods.
This method is also known as “self-fulfillment”, because the company handles the entire fulfillment process internally. This is very common for shop owners who are just starting out and are still able to manage inventory and packaging of orders from their home. It means that
- your manufacturing, inventory and warehousing operations are all in-house and managed by you,
- you receive your customers’ orders and you
- pack and ship the order to your customer.
Some big companies also handle all order fulfillment in-house, but if you’re that shop owner who started out stacking his inventory in the garage, you’ll – hopefully – outgrow your own capabilities sooner rather than later.
Once you grow to a certain point, you’ll no longer be able to manage fulfillment by yourself. You can now choose to either expand your fulfillment structure yourself, or outsource it.
If you decide to do it yourself, you’ll have to:
- Secure warehouse space
- Staff it
- Get workers’ compensation and liability insurance
- Buy the necessary warehouse management software, and
- Purchase the necessary equipment
With in-house fulfillment, you retain 100% control of inventory as well as the packing and shipping process. If your business is small and you’re handling everything yourself, it’s low-cost since you’re only paying for shipping. If you have high shipping-volumes you can often negotiate shipping rates with shipping services.
It’ll also be easier to have some fun with the packaging by individualizing it for each customer or adding a handwritten note, a favorite chocolate or other personal surprises that will go a long way towards customer satisfaction.
There are a few disadvantages, though. Packing and processing all orders yourself can be time-consuming, especially when orders start to increase. That’s also when things start to become more cost-intensive, because you’ll have to invest in warehouse space and equipment, an order fulfillment software and, at some point, staff.
Once you start growing to that stage where you have to think about expanding from your garage-inventory model, there are alternatives to handling everything in-house.
Instead of handling fulfillment for your growing ecommerce company yourself, why not outsource some or all aspects of the order fulfillment process to a third-party logistics company?
A third-party logistics company uses their own workforce, technology and infrastructure to handle warehousing, picking & packing, shipping, quality control and returns processing for you.
This means that you
- won’t be storing inventory yourself,
- don’t have to deal with packing boxes, managing your inventory or shipping carriers
- can focus on the most important tasks to scale your business
- won’t need to invest in warehouse space or real estate, warehouse management software or a workforce
- can let the third-party logistics provider negotiate much better shipping discounts than you would
- are able to purchase inventory in bulk
Furthermore, you get to leverage the third-party logistic company’s
- fulfillment centers in various regions, which allow fast or even same-day shipping, and
- technology and analytics.
Don’t use a third-party logistics service if you want to maintain full control of your fulfillment process, or if your products are customizable or have special needs.
You should also be aware that using a third-party logistics provider may compromise the quality of your product. They control the final transfer of your goods to your customer, meaning their quality of service and handling will make or break your customer satisfaction.
If you decide to go with a third-party fulfillment service, consider the following to choose the right one for you:
- Understand all potential fulfillment costs
- Analyze the time in transit from all potential third-parties’ fulfillment centers until reaching your customer
- Evaluate the shipping coverage and whether you’ll be able to utilize multiple fulfillment centers as you continue to grow
- Figure out if your ecommerce systems are compatible with their fulfillment technology
- Find out what reporting and analyzation tools they offer
- Determine what level of support you want to receive
Each third-party logistics service is unique and offers their own services that vary depending on your needs, so do your research to compare and determine which one is best for your company.
With dropshipping, shop owners leave fulfillment completely to the manufacturer of their products. A customer’s order in the online store is forwarded to the manufacturer, who produces, stores, packs and dropships the wares directly to the customer.
The advantages are numerous:
- Dropshipping is one of the easiest ways to start an ecommerce company, since the manufacturer provides the product and handles the fulfillment and shipping while you can focus solely on sales.
- It is also one of the most affordable ways to start your ecommerce business, since dropshipping requires only a low overhead. You only pay for inventory when a sale is made, which means you avoid warehousing expenses.
- You will have the freedom to focus on strategy, marketing, sales and growing your business without having to worry about fulfillment.
- Testing out the viability of new markets for existing products is made easy wherever you can establish a dropshipping service.
On the other hand, the manufacturers are often overseas, meaning the product might have to be shipped to your customer from across the world, which can take a while. Also, dropshipping doesn’t give you full control of inventory and order fulfillment, as both are in the hands of the manufacturer.
In addition, customization is virtually impossible when using dropshipping and you won’t have a direct hand in quality control because you’re removed completely from the fulfillment process. This can hurt your brand, whose power is already reduced because leaving production and fulfillment in the hands of others make it difficult to establish a unique brand.
Which also puts you at a competitive disadvantage; barriers to entry are usually low with dropshipping, meaning you end up competing on price rather than your unique selling point.
It’s not always easy to determine which of these order fulfillment methods – in-house, third-party or dropshipping – is the best for your ecommerce business. So let’s talk a bit more about the order fulfillment process itself, to help you determine your favorite.
The Order Fulfillment Process in 3 Steps
There are three major steps in any order fulfillment process for an ecommerce company.
Step 1. Receiving Inventory
This step depends on which fulfillment method your ecommerce company uses. When using a third-party logistics service or dropshipping, receiving inventory and warehousing will be handled by your partner(s).
But if you’re working in-house and have your own warehouse, you’ll be receiving inventory from suppliers and manufacturers at your warehouse. This means that you’ll be checking and counting all items to ensure they match your order and haven’t been damaged during transit. Beyond that, you will usually have to
- maintain your warehouse management software to track location, sales numbers and counts for each product
- add stock-keeping units (SKUs) or barcodes to items not yet appropriately labeled, and
- if applicable, assemble individual products into ready-to-ship packages.
You then shelve the items in your warehouse. Ideally, you have a system in place to maximize speed and accuracy of your order fulfillment.
Step 2. Processing a Customer Order
Processing begins when you receive an order from a customer in your online shop. Be sure to integrate the fulfillment software with your shopping cart software, so the order is automatically sent to your fulfillment warehouse, third-party logistics company or manufacturer as well.
The ordered items are picked from their shelf in the warehouse and taken to the packing area. Here, all items are checked for quality and packaged before being moved to the shipping station.
In some cases, products aren’t produced until an order is placed. Generally speaking, this eliminates the warehousing part and moves the finished product straight to the packing area.
Depending on your method of fulfillment, processing a customer order can look different from company to company.
Step 3. Delivering the Customer Order
At the shipping station, the order is prepared for delivery to the customer. The best shipping method is determined depending on weight and size, type of product, end destination and shipping service the customer paid for.
An order is considered fulfilled when it has been delivered to the customer.
Fulfillment Automation in Ecommerce
We’ve already talked about two major ways to automate your order fulfillment: utilizing third-party logistics companies and dropshipping. Both leave the fulfillment process in the hands of a logistics provider or the manufacturer, leaving your own hands free to focus on strategy, marketing and sales.
But if you’ve decided to go the distance in-house, you’ll have to be smart about freeing up your hands yourself. A great way to do that is via fulfillment automation.
The Benefits of Automated Fulfillment
As a business, you’re always looking to save time and money while selling more. By setting up automated processes, including order fulfillment, you will be able to scale your business much faster and more effectively than when you try to do it all yourself.
Now, with fulfillment automation, we’re not talking about those robots retrieving things stored in shelves with their metal tentacle arms in a giant warehouse. Rather, automating order fulfillment is about eliminating manual and repetitive steps from your fulfillment process. Manual steps provide ample opportunities for inefficiencies, errors and runaway costs – so let’s get rid of them with automation:
- Eliminate manual data entries
- Automatically connect to printers, scales and other hardware
- Automatically select the proper carrier, service and warehouse for any customer order
- Account for business-specific rules like using specific carriers for specific zip codes
- Input data like customer account numbers automatically
Don’t let the prospect of automating your order fulfillment process and all its moving parts intimidate you. There’s enough software out there to fit both your needs and your budget, and really help simplify order fulfillment. But first we’ll have a look at when it does and doesn’t make sense to automate your order fulfillment.
Conditions for Successful Order Fulfillment Automation
As Elon Musk once said, “there are some things that are very well-suited to manual operation and some things that are very well-suited to automated operation — and the two should not be confused.”
So let’s discuss some conditions for order fulfillment automation to make sense for any ecommerce business.
Sustainable Success and Growth
Make sure that the current success and growth you’re experiencing isn’t due to seasonal demand or special promotions. Rather, you should be asking the question:
Is my current success and growth sustainable over time?
If the answer is yes, it’s a good indicator to get started on automation you can afford. If no, it may be better to hold off for now, at least on big automation changes. Don’t go all in with too much too soon or your business may not survive even though it’s doing reasonably well.
Considering all costs
Determining whether you’re at a good point to start implementing automation can be helped along by making sure you’ve considered all costs. Often, there are more costs involved than the pricing for the software you choose.
Whatever software or equipment you intend to install, make sure you’re factoring in the cost for
- installation and implementation
- integration with your existing systems
- training your staff in how to use it
- maintenance and repairs that will eventually crop up.
Anticipating your ROI
When do you expect to see a payback for implementing a specific automation? In a year? In two? Maybe three?
Depending on the answer, you can follow different strategies. These days, processes, technologies and software advance and evolve fast, meaning nothing you implement now is a permanent solution.
It generally takes three years for this advance to merit another change or an update in how you deal with your fulfillment. What do you anticipate your ROI to be by that time? Will the automation you’re thinking of implementing now have paid for itself and brought you more revenue?
If you predict seeing a significant payback within a year or less, don’t be reluctant to take that step towards automation. It might be a big one, but if all signs point towards almost immediate improvement and instantaneous savings, make life easier on yourself and everyone involved by automating.
Warehouse Management Systems
A warehouse management system (WMS) is a software that manages, controls and automates different warehouse operations in one. It increases productivity and efficiency of warehousing operations. The biggest benefits of WMS are
- enhanced security
- improved customer and supplier relations
- reduced operating cost
- continuous process optimization.
Most WMS is found as individual, standalone systems, though many enterprise resource planning systems (ERP) and supply chain management systems (SCM) offer WMS modules as well.
A typical WMS includes features like
- Barcode scanning and radio frequency ID tagging to help data input, item tracking and storage
- Order and fulfillment management
- Reorder tools that track when orders are shipped and received
- Real-time tracking capabilities
- Analytics and business intelligence functionality
- Dashboard features to view incoming and outgoing shipments, employee workloads, stock location and volume
Read this article on what to look for to find the perfect WMS for your ecommerce business and check out these 52 best tools and systems to improve warehouse efficiency.
Side Note on WMS vs. Inventory Management Systems
You may also hear about inventory management systems in connection with WMS solutions, and there is indeed quite a bit of overlap. Yet, they aren’t 100% the same thing. WMS handle all warehousing features, including inventory. Inventory management systems are therefore more light-weight and usually cheaper than WMS. Because they’re unable to automatically input as much data as a WMS, an inventory management system requires more manual data entry.
This also adds to the fact that inventory management systems can only handle a limited amount of products. In comparison, WMS can handle a wide variety and high volume of products by comparison. So if you’re running a shop and warehouse with only a few products, an inventory management system may be enough and just what you’re looking for. If you’re selling a lot of different and diverse products, you’ll most likely need a WMS.
Automation lets you focus on your most important asset – your customer
Order fulfillment is a vital cog in the machine that is an ecommerce business. But it’s also one the customer never gets a peek at. Smart store owners know they should be focusing on scaling the business, not packing boxes. And the first order of scaling any business is to increase the traffic to your shop.
So if you can automate order fulfillment – be it by using appropriate software or outsourcing it – you’ll be able to focus all your attention on driving that traffic to your site and converting it into buying customers with the right marketing strategy.
Even more awesome, converting traffic into buying customers can be automated as well! CM Commerce’s email marketing features will help you create newsletters, reel those shopping cart abandoners back in, or cross-sell products to existing customers. We will even help you get better and more product reviews as well as honest customer feedback to learn about their needs.
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