Understanding eCommerce Fulfillment: Essential Concepts, Types , and Scope

Why Does Your Business Need eCommerce Fulfillment?

Defining eCommerce Fulfillment

What is Included in eCommerce Fulfillment Operations (Order Fulfillment Steps)

1. Storage Services – Warehousing

2. Inventory Management

The next crucial aspect of order fulfillment is inventory management, where a record of all the products is maintained so you can always stay up-to-date about the products that are out of stock and replenish the stock accordingly.

Inventory management makes it easier for you to assess customer demands and forecast in advance for your business. Also, it helps you stay much more organized and streamline your order and supply accordingly.

3. Order Management

Order management refers to managing incoming orders received on your eCommerce website. With efficient order management, you can ensure that no order gets missed and all are processed correctly before delivery.
Order management needs to be in complete sync with the warehousing and inventory management system so that the information is updated on all fronts, and further processing steps can be undertaken almost immediately.

4. Order Picking & Packaging

After an order is received, the eCommerce fulfillment chain progresses to picking and packing. The order is picked from its stipulated location in the warehouse and then packed with the suitable packaging material allocated for the specific product. The packaged product must be labeled to ensure a hassle-free shipping process.

Picking and packaging must be done with complete accuracy and precision so that no incorrect order is packed and delivered to the customer. Also, if packaged correctly, the order can leave a positive impression on the customer and hamper their chances of returning to your website for business.

5. Shipping & Logistics

The next and most crucial part of the fulfillment process is the shipping and logistics of the orders. Once all the above procedures are done, a delivery executive picks it up and takes it to a courier hub from where it is further shipped to the customer’s delivery address.

All orders need to be handed over to the delivery executives on time so that any delays can be avoided in the first-mile and last-mile fulfillment operations.

Proper shipping of the orders will ensure that they are delivered on time to your customers without tampering or damage. Therefore, it is recommended that you ship with the best courier partner for your shipments, so you don’t have to regret or pay extra later on.

6. Returns Management

Lastly, eCommerce and fulfillment do not only include order delivery. It also accounts for return orders that might come your way if customers do not like the product they ordered. Effective reverse logistics and order management can help you improve your customer’s shopping experience.

Types of eCommerce Fulfillment Models

There is no one way to carry out eCommerce fulfillment. It includes several models that vary depending on the number of orders, your inventory, and your requirement for processing orders. Based on these parameters, there are various types of eCommerce fulfillment methods that you can consider for your business. Of course, each fulfillment model has its pros and cons and is suitable for particular requirements and hence, is tailor-made to a great extent.

Self Fulfillment

The first type of eCommerce fulfillment model is the self-fulfillment model. In this type of eCommerce fulfillment, you manage all fulfillment operations, including storage, inventory and order management, packaging, shipping, and returns.

This means you can have a small storage center of your own where you carry out all the processing operations yourself. Even though this model is suitable for small businesses that are just starting, it is not sustainable. Eventually, when your orders increase, you must invest in additional storage space and resources to manage your operations. If you do not do this, there are chances that you might face delays, incorrect orders are shipped, etc.

We do not recommend the self-fulfillment model as it has more negatives than positives. It is only suitable for businesses that have just started and are looking for sustainable alternatives for fulfillment.

3PL Fulfillment

3PL fulfillment refers to third-party fulfillment. This includes outsourcing your fulfillment operations to a third party that provides you with access to warehouses, inventory management systems, shipping, and return management.

Once you decide to hop on to 3PL fulfillment, the third-party logistics company will handle all aspects of your fulfillment process. 3PL companies work with several merchants; they have trained resources for all functions and fulfillment centers to facilitate faster processing of orders.

Depending on your business type, you can approach 3PL businesses to partner with your eCommerce store. Every 3PL offers unique solutions like B2B order processing, B2C order processing, temperature-controlled storage, etc. Once you contact these fulfillment companies, they can customize your requirements. For example, if you do not want to ship with them, you can contact them for storage and processing and arrange shipping yourself.

According to us, third-party fulfillment is the most reliable option as it gives you the advantage of shipping more orders and a chance to scale your business depending upon the demand. It is flexible, and no investment is required for growth. You get trained resources to carry out all the processes, and you can process orders much faster by storing them with a 3PL provider that is closer to your customers.

Dropshipping

In the dropshipping model, your wholesaler or manufacturer directly ships the product to the customer. This means the merchant never holds inventory physically. So, when a customer places an order on your website, the order is manually or automatically transported and sent to the supplier from where it is processed and delivered.

The Dropshipping model is suitable if you just started a business and are still figuring out your way around storage and processing. In the long run, it can prove to be difficult as it does not allow you to control inventory and reduces any scope for branding.

Eventually, if you want to scale your business, it can be challenging as you might have to tie-up with multiple drop shippers and coordinate with many for a seamless experience.

eCommerce Fulfillment Costs Depending on The Model

The next concern about eCommerce fulfillment is fulfillment costs. How much will the entire eCommerce fulfillment process cost you based on the different models we have presented?

Let’s dive deeper to see what aspects of this fulfillment each model covers and how this will impact your fulfillment costs.

Under self-fulfillment, you need to take care of all fulfillment operations yourself. That means that you need to put in place a manual inventory and order management system, buy additional storage space, train resources for picking and packaging, and finally tie-up with courier companies to ship your products. Each of these operations is labor-intensive and requires a significant investment. Therefore, you might have to invest much more in self-fulfillment as you scale up your business.

In 3PL fulfillment, you only need to tie up with a 3PL provider to take care of all fulfillment operations. Since you only pay a processing fee based upon your inventory and the storage you occupy, the overall costs are much less as you skip the overheads and labor costs. This model could be extremely beneficial for your business if you want to scale up eventually.

Usually, 3PL providers also take care of shipping while you only pay for the shipping costs. The hack for this is to choose a 3PL partner closer to your customer’s delivery location. This way, you can reduce your delivery time and delivery costs.

Finally, when we talk about dropshipping, initially, it does not include any overheads or total payment costs, as your supplier takes care of the entire shipping process, storage, and processing. But, as you grow your business, it can be challenging as you must tie up with multiple drop shippers. This can lead to you including the exact costs to scale up.

How to Decide When You Need a Fulfillment Partner?

Debunking Common eCommerce Fulfillment Myths

Warehousing and Fulfillment are interchangeable terms.

This statement is false. Warehousing and fulfillment are separate terms with separate meanings. Warehousing refers to the storage of products in an organized fashion, whereas fulfillment refers to the storage and distribution of products. Usually, companies with their own warehouse only tie up with the 3PL for a distribution center. Warehouses are typically used for storing inventory and managing it. In a fulfillment center, operations like ordering, inventory, picking, packaging, and shipping are also looked after. Therefore, both terms have different meanings based on the services they offer.

Fulfillment center should be closer to my business location

If a fulfillment center is closer to your business location, you may pay extra for shipping charges. Even though you will be able to control your inventory and storage better, you will have to incur a lot of extra costs if you have to ship to far-off locations. Hence, always keep your fulfillment center closer to your customers’ site to deliver faster and reduce returns.

Self-fulfillment is the cheapest way to fulfill orders

If you have just started your business and are not shipping more than 10 orders a day, then probably yes. But, if you ship above 20-30 orders daily, you invest a major chunk of your time in self-fulfilling orders. This is a huge setback for your business regarding progress and innovation. Also, your money spent on training resources and procuring raw materials for packaging will eventually lead to higher costs and lower profits.

It will be much cheaper if a fulfillment center is located in a tier-2 or tier-3 city

In terms of storage and inventory management costs, it might be cheaper to choose a fulfillment center in an isolated location. However, you will have to pay much more in terms of shipping costs to deliver your orders faster to your customers. Therefore, it is essential to analyze where your major target audience is situated and then choose a fulfillment center accordingly.

For example, if your audience is situated in Bangalore, it is intelligent to store your products in a fulfillment center located closer to the city.

As we move deeper into the digital age, the landscape of eCommerce fulfillment is evolving rapidly, driven by advancements in technology and shifting consumer expectations. In 2023, several key trends are set to reshape how businesses handle fulfillment, enhancing efficiency and customer satisfaction.