With each passing year, more brick and mortar retailers are taking their businesses online. In 2017, ecommerce accounted for roughly $2.3 trillion in sales and is projected to exceed $4.5 trillion by the year 2021. Every year, ecommerce accounts for nearly 10% of retail sales, but that number is expected to grow by as much as 15% each year.
Since the internet has become readily available, customers all over the world are shopping online rather than in stores. Online retailers have the opportunity to cash in on this rising trend by providing customers with what they really want – easy access to the products they want, fast shipping, and great customer service. In order to keep your customers coming back time and time again, you need to ensure that your orders are fulfilled quickly, accurately, and efficiently.
Optimizing your ecommerce fulfillment strategy is the key to minimizing your costs while maximizing both profits and customer satisfaction. Keep reading to learn more about the challenges facing ecommerce businesses and to receive some tips and tricks for creating a fulfillment strategy that works for your business.
What Challenges Do Ecommerce Businesses Face?
In the early years of ecommerce, competition was low and the potential for profitability high. Over time, technology has become more affordable, and the world of ecommerce has become crowded with online retailers of all sizes. Opening and running a successful ecommerce business is no easy task, especially with monsters like Amazon controlling a significant portion of the market.
Competition is one of the biggest challenges any ecommerce business has to face, but there are other factors to consider as well, particularly when it comes to planning and executing your order fulfillment strategy. Here are some of the biggest challenges facing ecommerce businesses today:
- Finding the best products to sell. With so much competition out there, the fate of your business rests in your decision of what products to sell. You need to choose products that are in high demand without too much competition that you can sell with a decent profit margin.
- Reaching your target audience. Selling great products doesn’t do you any good unless you reach the people who want to buy them. Creating a marketing strategy is all about identifying and reaching your target audience to drive sales.
- Generating traffic. You won’t sell anything if no one visits your site, so generating traffic is extremely important. Conversion rates fluctuate depending on your industry, so you’ll be putting in a lot of effort to generate leads.
- Engaging with email subscribers. Having an email list of subscribers doesn’t do you any good unless you actively engage with them. Only a fraction will convert into paying customers, so give yourself the best chance at converting those emails into sales by offering as much value as possible (e.g. promotions, coupons, and even exclusive content).
- Converting shoppers into customers. If you want to close a sale, driving traffic and making the most of your leads is the best way to do so. You want to give shoppers a reason to choose you over the dozens of other retailers like you that are out there. What is your unique value proposition?
- Retaining customers. Once you’ve turned a shopper into a customer, you want to keep that customer coming back. Why? Based on the research and industry you’re in acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one. Customer service and perceived value are two key factors for higher customer retention rates.
- Achieving long-term growth. Higher sales volume doesn’t always equate with profitability, so your long-term strategy for growth needs to be multifaceted. Look for ways to cut inventory costs, optimize order fulfillment, speed shipping, and reduce overhead and returns.
- Choosing the right technology. Technology is an integral part of any online business and choosing the right tech is key. Look for technology that will help you integrate and automate the different aspects of your business to reduce costs, improve accuracy, and boost efficiency.
Understanding and accounting for the challenges listed above is a big step toward ensuring the success of your online business. If you want your business to succeed in the long term, however, you need to make sure that you have a strong foundation to build from and that means creating and executing a successful order fulfillment strategy.
What is Involved in Order Fulfillment?
Order fulfillment is the backbone of any business, particularly ecommerce businesses. Rather than offering a particular service, you are selling goods and products directly to the customer. The strategy you use to fulfill customer orders affects everything from profit margin to customer satisfaction, so it is something you need to think about carefully.
Before getting into the details about different order fulfillment strategies, let’s quickly review the different stages involved in the order fulfillment process:
- Receiving – The first stage in the order fulfillment process is receiving your inventory. If you’re filling orders in-house, you’ll be receiving or manufacturing the products yourself.
- Storage – Proper storage of inventory is key because you need to be able to find, access, and ship your products as quickly and efficiently as possible.
- Processing – Order processing involves receiving an order and taking necessary steps to fill it.
- Picking – The first step in order processing, picking, involves gathering individual items for an order from their storage locations.
- Packing – Once items in an order are picked, they are grouped by order and packaged.
- Shipping – When the order is packaged and ready to go, it is shipped to the customer.
- Returns – Processing returns is another step in the order fulfillment process – returns may be shipped directly to you or to your storage facility for processing and corrections.
As you can see, order fulfillment is a multistage process, and there is room for error every step of the way. Choosing and utilizing a strong order fulfillment strategy will determine both the immediate and long-term success of your business. Keep reading to learn more about the options.
The Most Popular Ecommerce Order Fulfillment Strategies
Every company is unique, so the order fulfillment strategy that works best for one company might not be ideal for yours. Before getting into the details about choosing the right order fulfillment strategy for your business, let’s take a look at some of the options.
Here are some of the most popular ecommerce order fulfillment strategies:
- Direct Fulfillment
- Third-Party Logistics
Now, let’s take a closer look at each of these strategies.
1. Direct Fulfillment
Also known as in-house fulfillment, direct fulfillment is a strategy in which the business fills orders itself. This strategy is generally the starting point for smaller and at-home businesses, though it also works for massive corporations that have the funds to run their own warehouse operations. Direct fulfillment looks different for business of different sizes. Here are some of the pros and cons:
Pros for Direct Fulfillment:
- You retain total control over order fulfillment operations.
- You can add personal touches to your orders.
- It could save money, depending on the size of your business.
- You may not need to negotiate as many business contracts.
Cons for Direct Fulfillment:
- It takes a lot of time and energy that could be directed elsewhere.
- You could be limited in what shipping options you offer customers.
- You’ll need a lot of storage and workspace, depending on size.
- You might not be able to get discounts on shipping.
This is an order fulfillment strategy in which you pay for fulfillment as your orders come in, generally from the vendor or manufacturer itself. When a customer places an order, it goes directly to the drop-shipper who picks, packs, and ships the product on your behalf. You are then charged for that order. This strategy works well with ecommerce businesses that prefer not to own any inventory themselves, but it does require a certain degree of marketing. Here are some of the pros and cons:
Pros for Drop-Shipping:
- You don’t have to purchase, store, and manage inventory yourself.
- You can offer a wider range of products without worrying about space or overhead.
- Overhead costs are low due to low operational expenses.
- You only pay for products that are ordered after they have shipped to the customer.
Cons for Drop-Shipping:
- You have no control over the packaging and shipping for your products.
- You still handle customer service, so you’ll need to communicate with the drop-shipper.
- Profit margins will be narrower since you’re working with a middle-man.
- It’s difficult to establish a brand because products are owned and packaged elsewhere.
3. Third-Party Logistics
Also known as 3PL, third-party logistics involves handing over the details of order fulfillment to a third-party provider. Your company will still be responsible for purchasing or producing your inventory, but you’ll be relying on another company to store, pick, pack, and ship it. When your customer places an order, the order goes to the 3PL who picks the item from its storage location in their warehouse then packages it and ships it to the customer. Here are some of the pros and cons:
Pros for Third-Party Logistics:
- You’ll have more time to devote to other aspects of the business.
- You can still access important data about your inventory and sales.
- You may benefit from reduced packaging costs and shipping discounts.
- You’ll be able to offer your customers faster shipping options.
Cons for Third-Party Logistics:
- You have reduced control over how your products are packaged and shipped.
- You’ll need to stay in close communication with your 3PL provider to ensure everything is running smoothly.
- You may not be the 3PL’s only client and could have to share warehouse space.
Choosing the Right Strategy for Your Business
Now that you have a better understanding of the different options for order fulfillment, you’re ready to start thinking about the option that is best for your business. Though the three most popular strategies described in the previous section work for most businesses, you may find that a combination of different strategies works best for you. You also need to think about how to make the transition from one strategy to another as smoothly as possible, so you don’t have to shut down operations completely.
The first factor to consider when choosing an order fulfillment strategy is inventory.
If your business designs and manufactures its own products, a direct order fulfillment strategy or 3PL partnership may work best. This is because drop-shipping is best for companies who don’t produce or own inventory. The size of your business and the number of products you sell will be the determining factor between choosing a direct order fulfillment or 3PL strategy. For smaller businesses with a limited inventory, you may be able to handle order fulfillment in-house until your sales volume and inventory grows to the point that you have the ability (and margins) to hand over operations to a third-party provider.
Another factor to consider when choosing an order fulfillment strategy is scalability. Not only do you need to think about the current size and state of your business, but also your hopes for the future. If you expect your business to grow quickly or if you hope to expand into additional markets, a 3PL provider may be the way to go. Many 3PL providers have multiple warehouses and distribution centers which can give you access to new markets without significantly increasing your costs.
Technology is another important thing to think about when it comes to order fulfillment. If you plan to handle order fulfillment in-house, you’ll need some kind of customer relationship management (CRM) software to organize customer data and to process orders. This kind of software can be expensive, especially for large-scale operations where different stages of the fulfillment process are automated. If you are worried about the upfront cost to purchase this kind of technology, choosing a drop-shipping or 3PL order fulfillment strategy may be best.
Finally, you need to think about providing your customers with the best value when choosing your order fulfillment strategy. Customers want to find what they are looking for easily, pay a reasonable price, and receive their order as quickly and accurately as possible. For small operations where you have time to prepare and process orders yourself, direct fulfillment is a cost-effective option. For bigger companies with large inventories, however, drop-shipping or 3PL fulfillment may be the best way to speed order processing, reduce errors, and offer faster as well as more affordable shipping options.
When it comes to choosing an order fulfillment strategy, there may not be a clear right or wrong answer. You’ll need to think carefully about your business in its current state and consider the direction you want to go in the future. Factoring in these details along with customer satisfaction and profitability will help you make the right choice for your business.
Tips for Making the Transition
Once you’ve chosen your order fulfillment strategy, all that is left is to implement it. Unfortunately, that is easier said than done. You you’ll need to make the transition as quickly and efficiently as possible, so there are zero hiccups in your daily operations. Here are some tips for making the transition:
- Have a sit-down with your team to make sure everyone is on board with the new strategy. You’ll need to make sure that everyone understands their role within the new system so the transition can happen smoothly.
- Prepare your inventory for an onboarding experience. You’ll need to prepare your existing inventory as well as future inventory according to the requirements for your new strategy to make the receiving process as fast and efficient as possible.
- Make arrangements for the transfer early. The key to a smooth transition is making sure that your inventory arrives in the desired location on time. Planning ahead ensures that you’ll be able to choose a cost-effective transportation method without putting your deadline at risk.
- Work with your logistics company to make the transition as quick as possible. If you’re transitioning into 3PL for the first time or switching to a new company, go over the process in detail with your new provider so that their staff and yours can work together to make the process as quick and painless as can be.
- Keep your customers updated and involved. Making the transition to a new order fulfillment strategy can take time, so you may have some interruption in service that could impact your customers. Keeping your customers updated about the transition is key if you want to avoid lost sales and dissatisfied customers. Share the details with your customers and highlight the benefits they’ll see when it’s complete.
The key to maximizing profits and efficiency with your ecommerce business is to choose the right order fulfillment strategy. The speed, accuracy, and efficiency with which you fill your orders has a direct impact on customer satisfaction which also impacts your bottom line. Take what you’ve learned here to evaluate your current order fulfillment strategy to see whether there might be room for improvement and, if there is, put the tips you’ve received to work.