What is a Fulfillment Center & How Can It Help Your Business Grow?

By December 12, 2018June 5th, 2019No Comments
Fulfillment Center

Fulfillment centers, also known as 3PLs provide a great option to expand your fulfillment capabilities. If you’re running a Shopify store and are looking for a simple fulfillment service, ShipHero Fulfillment provides an easy outsourced fulfillment option without the need to engage with a 3PL directly.

Online shopping has made it easier than ever for consumers to find the products they want at the best price. As brick-and-mortar stores slowly fade into the background, ecommerce stores are taking advantage of nearly limitless scalability and a worldwide customer base.

Though the convenience of online shopping is a major draw for many consumers, a positive customer experience is still extremely important. If purchases take too long to process or if shipments are delayed, your business could suffer, and you may lose potential repeat customers. Rather than limiting your inventory to prevent backups and shipping mishaps, consider using a fulfillment center to manage your store’s inventory.

In this article, we explore fulfillment centers as a convenient option for online merchants. You’ll learn what a fulfillment center is, how it compares to a warehouse, and the specific benefits of using a fulfillment center. We’ll also provide you with helpful tips for choosing the right fulfillment center for your business. Another option if you’re looking to outsource your shipping is to use a fulfillment service, a new option for using a fulfillment platform to manage and ship your orders without having to engage with a fulfillment center directly. We’ll be adding an article that details more about this and how you could use it directly with your Shopify store soon.

Understanding the Challenges of Online Stores

Online stores provide customers with access to a wide range of products that they might not have access to in traditional brick-and-mortar stores, depending on their location. By shopping online, consumers also have the ability to compare prices. Online shopping is about more than just finding the best price, however – it is also about efficient shipping and an overall positive customer experience.

On the merchant’s side, online shopping opens up a whole new customer base that isn’t limited to a specific region. Though this creates the potential for much higher sales margins, it does come with a few challenges. Overselling, for example, is a common problem among online merchants. This happens when the merchant receives more orders for an item than they have the inventory to fulfill. They are then forced to contact their customers to tell them that the item is out of stock or shipping will be delayed. Both options can lead to low customer satisfaction levels and potential lost sales.

All it takes is one angry customer to write a bad review that could dissuade other customers from buying your products.

In addition to overselling, many online merchants encounter certain shipping issues such as mispicks and misships. A mispick happens when the merchant selects the wrong product for an order, and a misship happens when the wrong item is sent to the customer. Both of these situations result in returns, and there is a high probability that the customer will simply cancel the order instead of waiting for the correct item to be sent.

The larger the inventory an online business has to manage, the higher the risk for problems. If you’re currently trying to manage your inventory directly and you’re experiencing these and other problems, it might be time to consider a fulfillment center.

What is a Fulfillment Center?

A fulfillment center is a physical space that processes and fulfills customer orders from e-commerce retailers. To help you understand, consider the typical order fulfillment process for a small to mid-sized online business.

When a customer places an order, you gather the purchased items from your inventory, package them up, and hand them over to a shipping carrier for delivery to the customer. Depending how successful your business is, you could be spending a majority of your time packing up shipments and delivering them to the appropriate shipping carrier. The more orders you get, the higher the risk for error when it comes to picking and shipping products. If you’re trying to manage your inventory yourself, you might make costly mistakes, and you could end up having multiple items on back-order which is a recipe for an unhappy customer.

Now, let’s take a look at how this process might go if you decided to start using a fulfillment center.

When a customer places an order, the information is forwarded to a third-party logistics (3PL) provider or fulfillment center. The center already has your inventory in storage, so they take the order, gather the purchased items, and package them. The order is then handed over to a shipping carrier for delivery to the customer. It’s the same process, but it takes the burden off your shoulders and, in many cases, gets it done more quickly and more efficiently.

A fulfillment center is designed to fulfill orders in a quick, efficient, and cost-effective manner. Fulfillment centers have the capacity to process business-to-customer (B2C) orders as well as larger business-to-business (B2B) orders. For the most part, B2B orders are sent directly to a retailer while B2C orders are shipped to the customer’s home.

How Does it Compare to a Warehouse?

The term fulfillment center is often used interchangeably with warehouse, but the fact of the matter is that they are very different. Both are large buildings used to hold inventory for businesses, but the actual services offered can be quite different.

A warehouse is a storage solution that is typically used to store products for an extended period of time. In many cases, a warehouse is an industrial space designed to house inventory items in bulk. If you were to walk into an inventory warehouse, you’d see products being moved by forklift on large pallets stacked high with large quantities of similar products. Warehouses are primarily used by wholesalers and business that fulfill B2B orders.

Generally speaking, warehouse is usually the best option for retailers who have a diverse inventory and who stock large quantities of their products. Large retailers sometimes have the capital to purchase a warehouse space, but leasing is usually the most cost-effective option for small and mid-sized retailers. For small businesses, renting a storage unit is sometimes the best option.

A fulfillment center performs some of the same roles that a warehouse does, but with some additional services. In addition to storing inventory, a fulfillment center will actually fulfill customer orders. When an order is placed through an e-commerce store, the order is forwarded to the fulfillment center where the inventory is picked and boxed up then labeled for shipment and sent to the customer. Simply put, using a fulfillment center means that you are outsourcing the order fulfillment process which takes the burden off your shoulders and increases your capacity to meet and fulfill orders.

Here is a quick summary of the differences between a warehouse and a fulfillment center:

  • The primary function of a warehouse is to store inventory while a fulfillment center’s goal is to turn inventory over quickly.
  • Fulfillment centers handle all stages of the order fulfillment process, including negotiating rates with shipping carriers.
  • Operations at a warehouse are fairly static whereas operations at a fulfillment center are much more complex and in constant motion. Some of the services provided by a fulfillment center include the following:
    • Receiving inventory from merchants
    • Picking products for individual orders
    • Gathering inventory and packaging orders
    • Labeling shipments for delivery
    • Turning over orders to the shipping carrier
    • Managing customer returns and exchanges
  • Warehouses typically have scheduled less-frequent pickups whereas fulfillment centers typically have daily pickups from shipping carriers.
  • Fulfillment centers have the ability to guarantee same-day or next-day shipping

Every 3PL provider is different in terms of the services they offer and the size and type of businesses they cater to.

Later in this article, we’ll talk about how to choose the right fulfillment center for your business but, for now, let’s take a closer look at the benefits fulfillment centers provide.

What Are the Benefits of Using Fulfillment Centers?

To put it simply, the benefit of using a fulfillment center as opposed to directly managing your own inventory is that you don’t have to deal with the ins and out of inventory (e.g. storing, shipping, and returns). It may sound simple, but once you make the switch, you will never go back. After using a fulfillment center to manage your inventory, you’ll find that the order fulfillment process not only goes much smoother, but you’ll be able to free up time on your end which can be dedicated to growing the business (rather than managing it).

Here are some of the top benefits of using a fulfillment center:

  • Using a fulfillment center frees you from having to find physical space for your inventory – this is particularly beneficial for small businesses being run out of your home.
  • Having a fulfillment center handle your inventory saves you from having to pack boxes and run to the post office every day.
  • A fulfillment center will negotiate with shipping carriers to get you the best rate on shipping costs.
  • Using a fulfillment center speeds up the order fulfillment process and may enable you to offer same-day or next-day shipping to your customers.
  • Having a fulfillment center means that your inventory will be properly organized and stored, so you’ll always know what is in and out of stock.
  • A fulfillment center will handle returns and exchanges for you, which could save you a great deal of hassle.
  • Using a fulfillment center can save you money by bundling your storage and shipping solutions all in one company.
  • Having a fulfillment center manage your inventory frees you up to focus on other tasks important to growing your business, such as marketing, product development, and customer service.

By now you should have a thorough understanding of what a fulfillment center is and how it can benefit your business. If you’re ready to make the switch, you’ll be glad to know that there are 3PL providers all over the country just waiting to handle your inventory. Keep reading to learn how to find them.

Things to Consider When Choosing a Fulfillment Center

If you’ve been struggling to keep up with orders and manage your own inventory, a fulfillment center may seem like the perfect solution. While 3PL providers have the ability to take the burden of order fulfillment off your shoulders, there are some things you need to consider before you commit.

First and foremost, you need to determine whether it is a cost-effective solution to start using a fulfillment center. Prices vary from one provider to another but will include costs for things like warehouse space, equipment, warehouse management, staff salaries, worker’s compensation and liability insurance, packaging supplies, postage, and more. Some 3PL providers offer a flat rate while others add individual fees per task such as picking and packing.

In many cases, outsourcing your order fulfillment services costs more than doing the work yourself, but what you’ll really be saving is time. If managing your inventory and fulfilling orders is holding you back from doing the work you need to grow your business, it may well be worth the extra cost to outsource.

Not only do you need to consider the cost of using a fulfillment center, but you need to make sure that the center you choose is compatible with your e-commerce platform. The type of software you use determines whether the 3PL provider will be able to receive, process, and track orders. The easiest option is to choose a provider that can integrate with your existing software rather than changing your entire e-commerce platform to match the provider.

With these factors in mind, here is a simple process to follow when choosing a 3PL provider:

  1. Sit down and take a closer look at your inventory as well as your shipping process. Take the time to identify existing problems and consider whether a 3PL provider could resolve them.
  2. Do some research to see what options are available. You may be able to find a 3PL provider in your region, or you could choose one closer to your largest customer base.
  3. Compare and contrast services provided. Each 3PL provider is different, so you’ll need to know what your business’s needs are before you can find a company to match.
  4. Narrow down your list to no more than three. Once you’ve created a list of options, narrow it down to the top three choices – these are the companies you’ll evaluate on a deeper level to really make your decision. Any more than three will simply be too much to handle.
  5. Dig a little deeper into the company’s you’re considering. You’ll be relying on your chosen 3PL provider to fulfill your customer’s orders and to handle returns in an efficient manner. Choosing a company that has similar culture and values to your own is important for maintaining a consistent and satisfactory customer experience.
  6. Think about technological compatibility. Even if your business is still fairly new, you already have some kind of management software in place – save yourself the hassle of switching by choosing a 3PL provider that is compatible with your existing management software.
  7. Plan ahead for scalability. Ideally, outsourcing your order fulfillment process will give you more time to focus on the things it takes to grow your business. Choose a 3PL provider that is able to scale their operations to accommodate your changing business needs.
  8. Choose a provider that has a network of locations. Depending what your business sells, you’re likely to have customers from all over the country. You want to choose a 3PL provider with multiple distribution center locations, so you can keep costs down and optimize your efficiency.
  9. Consider experience and customer satisfaction. Though the satisfaction of your own customers is paramount, you also want to be satisfied with your 3PL experience. Look for a company with a proven track record that you can trust to handle your business’s day-to-day order fulfillment operations. Financial stability is also an important consideration, and you should look for a provider that has plenty of industry references – and don’t hesitate to check them!
  10. Negotiate the pricing. Each 3PL provider prices their services in different ways, some according to the size of your business and others by individual services. You’ll need to sit down with your chosen provider to determine the exact pricing and what specific services are included.

Once you’ve chosen a 3PL provider, you need to sit down with them and work out the details. Many small businesses who switch to using a fulfillment center skip this step and end up being frustrated when there is no clear process.

Before you sign a contract, sit down and go over the details for exactly what you expect from the company and how they will fulfill those expectations. You’ll need to determine which responsibilities the 3PL will handle and which you will retain in-house. It’s also a good idea to establish a schedule for regular meetings between members of your team and representatives from the 3PL. This is where you’ll evaluate the 3PL’s performance and discuss any changes that need to be made.

The Final Word

The success of your online business hinges on customer satisfaction. If your customers are satisfied with your products, your order fulfillment process, and your customer service they are more likely to recommend your company to others and to become repeat customers themselves.

As a business owner, it is your job to ensure that your products are of the highest quality and that you pay attention to the changing needs of your customer base. In order to focus on those things, you may want to consider outsourcing your order fulfillment process to a third-party logistics provider. The right 3PL provider can streamline your order fulfillment process for improved customer satisfaction, leaving you with more time to do the footwork to grow your business.

If you’re considering hiring a 3PL provider, take what you’ve learned here to heart and really take the time to determine what your needs are and how a 3PL provider can meet them. From there, follow the steps above to select the perfect partner to meet your needs then wait and see how much your business grows.

To help you find the right 3PL, we’ve created the ShipHero Marketplace, a directory of fulfillment centers across the country.