Designing, manufacturing and marketing your product is only the beginning of an ecommerce business’ journey to a happy, repeat customer base. Packaging your product and shipping it to customers on time is an enormous driver of customer satisfaction and can make or break a company.
Consumers’ expectations for faster and more convenient delivery are constantly increasing, with 40% or more saying that free shipping, free returns or exchanges, same-day shipping or next-day whipping would make them more likely to shop online. This article covers each step of fulfillment that your company needs to master to wow your customers and how to improve in each area.
What Are Fulfillment Logistics?
There are two sides to a successful ecommerce transaction. Customers view a successful transaction as when they get the item they ordered by the time they expected it to arrive. For companies, a successful transaction occurs when they deliver the product affordably and on time, generating profit for the company.
Fulfillment logistics is key to successful transactions for both the customer and the company — it’s the process of receiving, tracking and fulfilling customer orders. This article will walk you through how to implement successful inventory management at your company step by step.
What Does the Fulfillment Logistics Process Look Like?
Getting a handle on storage for your company is essential to maximizing your order fulfillment strategy. Every ecommerce company has unique requirements for storage. For example, a smaller company may be able to get by with storing its product in the owner's garage or a storage unit.
However, storing products at home will quickly become inefficient and overwhelming if you have a larger company. You need the right equipment and people to continue delivering products to customers on time and at an affordable rate. You may consider a warehouse or a third-party logistics provider as you grow. A third-party provider can do the logistics and fulfillment services you require without investing in infrastructure, staff or supplies.
There are three major types of order fulfillment.
- Self-fulfillment: The company handles every step of the process in-house, including managing inventory, packing the order, shipping it to the customer and handling any returns. This can work well for one- or two-person companies starting out and running the business out of their home.
- Dropshipping: The company doesn't make or store the products they sell. Instead, they outsource fulfillment to a manufacturer who makes and ships products according to the company's specifications.
- Third-party fulfillment: With this method, the company uses a fulfillment company to take care of inventory, packing and shipping. Taking order processing and fulfillment off the company's plate allows the company's team to focus instead on manufacturing, marketing and other critical business areas. The company also gets access to shipping discounts, more warehouses, specialty fulfillment
To fulfill orders in-house, it’s essential to optimize the following areas:
- Visibility of the whole supply chain so you can identify and prevent potential bottlenecks.
- Future-proofed systems: while you may be able to handle fulfillment logistics right now, what if your company has a sudden boom and you need to deliver 10x the orders? Can your current order management software handle that?
- Accurate inventory management so you always know what's in stock and what's running low. This saves you money because you'll have fewer emergencies requiring expedited shipping to consumers, and you won't have to overstock to avert crises.
- Visibility for the customer: Customers have grown accustomed to seeing where their order is at all times. Make sure you use software that lets customers know when you've shipped their order and where it is on its trip to their front door.
A recent survey found that 85% of customers won't shop with a retailer again after having a poor delivery experience. Additionally, you can expect higher cart abandonment rates if delivery is poor: 88% of customers will abandon their online shopping cart if they see the delivery is too slow or too expensive. So getting delivery right is imperative.
Here are some key areas to look at to improve your delivery processes:
- Ensure you're using correctly sized packaging. This will reduce the employee time needed to secure each product inside the package. Correctly sized packaging will also require less cushioning material, lowering your costs. Finally, keeping packaging size down reduces package dimensions and your shipping cost.
- Use lightweight packaging materials. Reduce shipping costs by using materials like bubble envelopes, corrugated boxes and foam inserts.
- Incorporate shipping costs into your product prices. This makes the buying process simpler for customers and doesn't make them feel like they're paying extra for shipping.
- Enact local delivery. With local delivery, customers get faster shipping. How do you offer local delivery across the entire country? You use a third-party fulfillment company that has warehouses across the country.
- Stay up-to-date on carrier cost increases, continually getting new quotes to ensure your delivery is always as cost-effective as possible.
Return Product Processing
54% of consumers say that free returns or exchanges make them more likely to shop online, so getting the return process is essential. A friendly and easy return process increases the likelihood that customers will return to buy from you. Without one, you risk alienating customers, resulting in them complaining online and not coming back.
Why are returns so important to consumers? Well, a lot of people return products. For example, recent research found that U.S. consumers returned $428 billion in merchandise to retailers in just one year — 10.6% of total U.S. retail sales that year.
Let's cover the two primary ways to get this critical process right: 1) posting the return to your warehouse or 2) using a third-party fulfillment service.
If you're handling fulfillment in-house, the customer will send the product back to your warehouse. Your staff will inspect the product and confirm that it's eligible for a refund. To improve the process, you can try using a return management app, which gives customers insight into the status of their returns and updates your inventory management system automatically. Here are the most critical status updates customers should receive:
- When you generate the return label and email it to the customer or when the customer creates a return label
- When the carrier notifies you that it’s picked up the return
- When the returned package arrives at your warehouse
- When you approve the return (or why you’re not approving it)
Third-party logistics providers handle the whole order fulfillment process from start to finish, including returns. They take this lengthy process off your company's hands, freeing your team to focus on other things.
Common Fulfillment Challenges Facing Ecommerce Companies
With the supply-chain challenges of the past few years, it’s become even more important to avoid common fulfillment issues by implementing an optimized fulfillment strategy for shipping products. Let’s go over some of the common challenges to fulfillment and logistics and how you can avert them.
Without proper inventory control, warehouse staff will waste time looking for the inventory, delaying shipment and delivery to the customer. To avert this challenge, an ecommerce business should choose real-time inventory management to help them track inventory accurately and get it to the customer faster.
Customer demand constantly changes with the seasons, news cycles, and economic conditions. If you overestimate customer demand, you can end up with outdated inventory taking up valuable shelf space in your warehouse — space that profitable products could be occupying. However, if you underestimate demand, your company will have long wait times due to backorders, and many customers will look for another retailer to fulfill their purchase.
To avoid this challenge, invest in software with a forecasting model that supports profitable inventory management. It should anticipate SKU-level demand at each of your fulfillment centers so you never understock or overstock.
Manufacturer Communication and Supply Chain Execution
Even with the most optimized planning and processes possible, unexpected spikes in demand can cause you to run out of inventory. This is where it's so critical to have good communication with your manufacturers. You want manufacturers who will respond to you ASAP, adapting to fulfill your orders quickly.
What is supply chain execution? Supply chain execution is the process of moving goods through the supply chain, from procurement to final-mile delivery to the customer. Tasks involved in supply chain execution include manufacturing, distribution, warehousing, transportation and fulfillment. This involves tasks such as:
- Factoring in lead times for production and warehouse receiving
- Forecasting demand accurately
- Spreading inventory strategically across different warehouse locations to minimize delivery time to customers
- Monitoring warehouse inventory levels
- Packing and sending orders
Delivery Tracking and Efficiency
Giving your customers an estimated ship date, tracking number and delivery notifications throughout the delivery process builds trust with your customers and reassures them that their product is coming. It can also save valuable customer service time by not fielding calls that customers could get from a tracking system instead.
Additionally, with order tracking, you have more control over the order fulfillment process, and you can see exactly where bottlenecks occur and fix those problems in the future.
In short, order tracking is an excellent way to earn happy customers who become repeat customers — an ecommerce business' bread and butter.
Why a Third-Party Logistics Company Is the Solution
As you can see, a lot of time and work goes into fulfillment logistics. This is where third-party logistics fulfillment services can save your company time and money and promote business growth. While investing in third-party ecommerce logistics and order fulfillment can seem risky because you’re placing a huge part of the customer experience in someone else’s hands, it can also pay off. So let's go over how.
Increased Inventory Space and Better Warehouse Management
Flexibility is essential for effective inventory management. For example, you might need more warehouse space to store products in the run-up to a holiday, or you might need less space if your manufacturing has production delays. If you own or rent your warehouse and fulfill orders in-house, you have a set amount of space to store your goods in. This makes it challenging to adapt when conditions change. However, with a third-party logistics provider (3PL provider) that offers flexible storage, you can pay for only as much warehouse space as you need.
While we've covered a few different aspects of warehouse management, one we haven't covered is warehouse staff. This is a key area that 3PL providers can help. They specialize in fulfillment and therefore have hiring and training practices down pat. They can also more easily cross-train workers to fill in gaps. This lets you focus on your business instead of reinventing the wheel of warehouse management.
Optimized Packaging and Shipping Costs
Shipping companies raise their rates yearly, and consumer demand for quicker delivery times and lower shipping prices is also increasing. This can make it difficult for companies to fulfill orders accurately and in a way that doesn't cost them more money than they're bringing in.
3PL order fulfillment and logistics are set up to deal effectively with these challenges.
For example, the shipping zones for domestic shipments within the U.S. range from Zone 1 to Area 8. Zone 1 covers a 50-mile radius from the fulfillment location (warehouse). The farther away from Zone 1 that a package has to go, the slower and more expensive the package is to ship. You can get faster and cheaper shipping options using a 3PL provider with locations across the country in every zone. That way, the customer will nearly always be closer to your product and thus cheaper and faster to ship to.
Another area where a 3PL can help is using correctly sized packaging ("right-sized packaging") that they tailor to your product. That way, the product will have a snug fit rather than empty space in the box. You save on shipping costs by not paying for empty space in a box because the packaging isn't right-sized.
Additional factors to consider are the annual generate rate increase (GRI) that carriers typically release every September or October and surcharges during peak times like the holidays and the fourth quarter.
The most effective way to deal with these surcharges and rate increases is to incorporate them into the shipping fee you charge customers. A 3PL who stays up-to-date on carrier price changes will be able to help you determine how much to charge for shipping or how to bake shipping costs into product pricing.
Established 3PLs will also have discounts based on shipping volume that they negotiate with carriers and pass on to their clients. Another discount 3PLs have access to is packaging supplies — one more way they can save you money.
Efficient Delivery Times and Shipping Method
A 3PL can determine the best way to ship a product: air, land or sea. Each has its benefits and drawbacks, and considerations include the type of product, speed of delivery, safety during transit and shipping cost. A 3PL who knows the ins and outs of each shipping method will be able to balance all factors to offer unique services like same-day delivery and eco-friendly shipping.
Accurate Demand Predictions
3PLs use predictive analytics to determine how much inventory to store at specific warehouses. With advanced technology that lets them forecast what customers will buy, 3PLs process orders more efficiently and reduce out-of-stock rates. With highly optimized forecasting and storage, 3PLs may even be able to deliver orders to customers in as little as a few hours. Essential to this process is accurate forecasting and having enough product where demand is high (e.g., more snow shovels at a midwest warehouse than at a Florida warehouse).
Faster delivery increases customer satisfaction and reduces your costs by not having product sitting in a warehouse taking up space. You can then invest that cash on hand in other areas of your business to generate more revenue and improve investor sentiment.
Improved Customer Satisfaction
Returns cost ecommerce businesses a great deal of employee time, stress and money, especially if you're a high-volume brand. Partnering with a 3PL experienced in ecommerce fulfillment services can dramatically reduce returns by ensuring order pick-up and packing are accurate. A 3PL can also streamline returns and improve customer satisfaction with the return process. Expect your customer satisfaction to improve with fast, accurate shipping and returns.
Maximize Your Fulfillment Process by Outsourcing With Cart.com
Ready to take a deeper dive into topics around fulfillment logistics? Take a look at our guides to supply chain management, order management, what is picked, packed, and shipped and inventory management.
And if you’re ready to optimize your fulfillment process by outsourcing with an experience, proven 3PL provider, learn more here.