What Is Fulfillment And How It Can Make Or Break An eCommerce Effort
If you're asking "what is fulfillment" and you are either an existing online merchant, or thinking about it, you may be facing these situations:
- You've started fulfilling (warehousing your inventory, receiving and shipping orders, handling returns/customer service and perhaps even doing some basic assembly or configuration of your products) and you've outgrown it, or it's becoming burdensome or unprofitable
- You are just getting started in eCommerce and are wondering whether it's more effective or even less costly to outsource your fulfillment to a third party
- You're experiencing or (better) planning for potential surges in business that will outstrip your current fulfillment capabilities
- You are facing an increase in fulfillment related expenses which could include local tax, fees or regulation costs; an increase in facilities costs, software upgrades or more expenses coming from shipping, labor, insurance, training, etc.
- You are already outsourcing fulfillment and need to brush up on how to compare different offerings
All are good reasons to explore what is fullfillment's success criteria, well just read on…
What is fulfillment's role in the success of an online merchant can depend on the tradeoffs between managing their own operation or sending them to a third party. Key considerations including bulk shipping cost discounts a third party may deliver, verus any added overhead or costs they require.
Modern Fulfillment: What Is In Your Box?
Most of the time, a small eCommerce operation will startup doing its own fulfillment. That often makes sense because of the need to contain costs and the lack of scale or volume that could bring unit costs down. There are exceptions. For instance, even if using a third party to fulfill is more expensive for a lower volume operation than internalizing it, the time to get to operational status can be less since third parties have everything in place. Also, if the online merchant feels that time spent either doing or managing their own fulfillment operation could be better spent on other tasks (like marketing, procurement/product development, raising capital, etc.), then this is one task that can make a lot of sense to outsource even at the early stages.
One example of this can be interfacing between your shopping cart and the fulfillment center. Shopping cart software like UltraCart is geared to support both in-house and third party fulfillment with various types of connectivity to communicate orders from website to fulfillment center. However, there are times when custom style "integrations" can increase efficiency or capabilities. In these cases, using a third party who has already completed the process can save time and sometimes additional expense. (UltraCart has completed nearly a hundred of these integrations with nearly a hundred different fulfillment companies giving UltraCart users a large number of logistical choices in a wide geographic range.)
But whether you "make versus buy" this particular service, you'll need to consider a few basics for the operation's success.
Sizing Up What Is Fulfillment 's Most Pressing Needs
So, checking out what is a fulfillment operation's "must have's" when setting up or evaluating a center starts with the physical and moves to the virtual and ends up in the financial realm. Here's the checklist for virtually anyone considering a fulfillment move.
Your product's size, volume and proximity to customers and suppliers can make choosing a location (yours or a third party) a little more obvious. For instance, even if you are opening a warehouse in your city, larger products may require a different set of logistics to deliver (and might even include customer pickup at another location. Or companies that ship perishable items, may need to have all or part of their warehouse have cold storage capabilities.
If your suppliers are all in one part of the country, then having to ship goods across the continent, only to ship them back to customers in the same area as the supplier may make no sense. Triangulating where your products will come from, how they must be stored, how they will be shipped and received and where is worth a bit of calculator work. (By the way, UltraCart has mapped where each of the fulfillment houses it works with are, so this might be good start to see what combined warehousing/fulfillment resources may be available.) Many merchants end up with multiple warehouse locations in order to minimize shipping and handling costs because of these situations.
The basics of order processing originate in your shopping cart and often hinge on the speed and detail of the connection between the cart and the fulfillment center. This may range from a simple file download of current orders which is emailed to the center from the cart daily, to a much more sophisticated ("two-way") real time connection that also reports back to the cart (and customer) when any items are out of stock and when they might be replenished. What is fulfillment that is acceptable in speed and detail for one operation may not suit another, so the capabilities of the order processing function may or may not be suitable. Evaluating what is acceptable to your operation may hinge on what the customer's can expect from your competition, how finely tuned you need to keep inventory stocks on hand to save costs and even the cost of acquiring (and losing) a potential customer.
What is done with the order after it is received can also affect who or how performs this aspect of fulfillment. The longer an order stays in queue, the more it costs the company in lost cash flow and potentially order cancellations. Having enough staff and the correct internal operations to ensure prompt processing can be critical. Reporting order status back to the customer (and to the merchant's back office) is also important to maintain good customer relations and to decide upon the need for increased staffing or other resources. Real time integrations with shippers to keep the customer informed can also be a major issue to evaluate.
There may be "value added" operations such as personalizing, monogramming, pre-assembly or even assembly for which competencies must be created or evaluated by the fulfillment source. Error checking to ensure the order was "picked and packed" properly should be in place. If there are promised deadlines (like x days before Christmas or a birthday), then how those commitments are kept should be monitored as well.
Help with setting shipping fees and expense is becoming an even more even more important as margins for items thin, shipping expenses rise and promotions such as "free shipping" proliferate. Many eCommerce retailers use fairly simplistic methods such as flat rate or quantity/value of order to determine their shipping fees to the customer. But this can result in lost orders if the shipping calculations aren't really in tune with the total actual costs. (For instance, there can be situations where shipping fees actually fluctuate, or where a larger number of box sizes and weights can throw off "standardized" shipping quotes that can artificially inflate shipping costs (which looses customers) or deflate them (which looses profits). Creating a flexible, well managed shipping approach can be very important in creating a well functioning fulfillment arm.
What is fulfillment without customer service? If a customer has a question about a product either before or after the sale, or needs to return an item and no one is there to help, future order killing bad feedback/reviews can ensue. Even if all direct customer contact is handled elsewhere, there will be times when information is needed from the fulfillment center for the customers. Some operations have found it necessary to integrate customer service with fulfillment because of these service oriented requests. While shopping carts like UltraCart have many automated customer service functions built in, there will always be a need for personal interaction between customer and merchant. Deciding how much of this will be handled by the fulfillment center is a key customer satisfaction consideration.
As asked earlier, what is fulfillment 's role in maintaining the proper inventory levels? If a merchant is monitoring inventory on their own, at the least they will need accurate inventory debit reports that show shipped goods (minus breakage, returns, etc.). However there may be times when orders happen so fast (or so slowly) that a merchant can miss an order cycle which ends up in an out of stock situation and lost sales. Turning over reorder responsibility to the fulfillment operation can take a lot of faith, but can also reap many rewards. Before this authority is given, the fulfillment operation should demonstrate they have a good system for monitoring stock and that the proper internal reporting and activities are sent and executed properly. Reorder thresholds must be predicted based on current and past activities and conditions to help this process, so the correct order data must be captured, stored and analyzed.
What Is Fulfillment's Bottom Line?
Beyond these are basic considerations of "manpower" and how seasonal or unplanned spikes or reductions in volume will be handled. Costs associated with all phases listed above and others need to be figured and agreed upon, with both fixed and variable costs taken into account to be able to maintain profitability. This can include initial setup costs, costs associated with actual order processing or inventory management (for instance will you be charged on a per hour a per transaction basis), minimum fees (if your business contracts at times, etc. ) or how you will handle unemployment payouts if you have your own staff. Having your own staff, you may have to assess training, safety, benefits and other similar costs. A critical calculation may involved your solo volume with shippers versus the combined volume that a third party shipper may be able to negotiate.