What exactly does fulfillment mean in relation to the operation of an e-commerce business?
Before you answer this question and find out what exactly we are talking about, it is good that you are already clear right now that, on this particular word, the success of an online store depends. You will find out the rest in this guide, where you will find the answer to many of your questions. The first, of course, is the fundamental one: what is order fulfillment? You will also understand, why it is so important in e-commerce and how best to optimize it.
What is fulfillment
The definition in e-commerce refers to a process that concerns a very specific moment: the moment when one must fulfill an order.
Definition and importance of fullfillment in the e-commerce industry
The definition of fulfillment in e-commerce refers to the process of processing the orders received by the online store, starting from the receipt of the orders to their shipment to the consumer, going through order management, order packing and several other steps.
Especially in this day and age, where reviews play a leading role in consumers’ purchasing decision-making process, making fulfillment efficient is an absolutely essential requirement for any e-commerce. A customer who does not see his expectations met, in case of problems or delays, will not be slow to turn to another brand for his purchases. You do not want to take this risk? Remember, then, the words of William Brown:
“An effective order fulfillment strategy is like an invisible hand coordinating the entire process, ensuring that each customer receives what they want in the most efficient way possible.”
There is another aspect you need to consider: knowing the secrets of this process should not only interest those who want to create an e-commerce. In fact, every company that sells products directly to consumers through shipping finds itself dealing with fulfillment. Be careful, however, not to confuse it with shipping.
Difference between shipping and fulfillment
When we described the meaning of order fulfillment, we divided the process into several steps, and in light of this, you may already have a rough idea of the difference between fulfillment and shipping. It is appropriate, however, to provide further clarity on this topic, since many entrepreneurs still confuse these two terms.
Contrary to what some people believe, fulfillment and shipping do not identify the same activity: in fact, the former term refers to the entire process, from the moment the customer places the order until he receives the ordered package in his hands. Shipping, on the other hand, refers specifically to the specific step in which the ordered goods are sent to the customer. While representing, therefore, a key moment of fulfillment in e-commerce, shipping does not identify the entire process.
Fulfillment: the steps of the process
We have just clarified that shipping is only one of the steps in the fulfillment process in an e-commerce; now, however, it is time to clarify precisely what the others are. It is worth noting, as of now, that there are different currents of thought on the number of stages that make up the entire fulfillment process. The number generally ranges between 6 and 8.
From receiving to packaging: key steps
The most “extensive” theory on the composition of the fulfillment process involves as its first step the receipt of inventory. There is one important thing you need to know in this regard: regardless of where they come from (e.g., from another company department or from a third-party source), know that it is absolutely critical that the products to be sold to consumers are in your company’s supply in the right quantities.
The management of the warehouse is an equally crucial step: proper organization of products in the warehouse allows orders to be fulfilled faster and better. One tip in this regard is to stock products according to their popularity in the market, meaning that “top seller” items should be placed as close as possible to the packing counter.
The third stage is order processing: customers can place orders from various sources, but regardless, the management system then dictates product picking and packing operations for each order received. In this case, it is advisable for an e-commerce to have the management software integrated with the shopping cart so that order processing is automatically initiated.
As just mentioned, the stage of processing an order is followed by picking the order itself. Taking care of this particular operation, which is called picking, can be either a human attendant or a collaborative robot.
Once you have collected the materials that make up your order, you must proceed to packing. We have a piece of advice for you regarding this particular step as well: you should pack the goods so that they are as low in weight and size as possible. This way, in fact, you can reduce shipping costs and speed up transport time (as well as reduce the environmental impact).
The next step is the aforementioned shipping of the goods. Unless you do this yourself, remember that each courier company has its own requirements regarding the packaging and weight of parcels. Also, don’t forget to send the customer an e-mail to confirm the shipment so that they can stay up-to-date on the status of their order, although our advice is to integrate shipping management software.
If the shipment is successful (and bother to make it successful, no ifs or buts), the next step is delivery of the product ordered by the customer. It is very important for an e-commerce to stimulate customer feedback on product quality and shipping and delivery times so that improvements can be made to the order fulfillment process.
With delivery does not always end the fulfillment process. In some cases, in fact, an additional step is necessary: that of returns management. This is a particular operation that, however, deserves a separate paragraph.
Returns management
Earlier we were talking about feedback and it is necessary to point out that customers do not always remain satisfied with the delivered product. In case someone wishes to return their order, they will have to send back the purchased items with a return label and, more generally, following the return procedures provided. In this regard, these should be explained absolutely clearly so as to avoid disputes.
Types of fulfillment
The fulfillment process, as mentioned, has several steps, but also different are the methodologies you can adopt to successfully complete this series of transactions.
Fulfillment In-house: pros and cons
In the model referred to as in-house fulfillment, all operations are handled in-house by the company, including the storage and shipment of products on-site at a location under the control of the company.
This model is recommended for you if you want to have 360-degree control over the entire process. You should know that this type is also ideal for startups that, at least in the beginning, want to keep costs low. This is possible when the volume of orders is small, while when they increase, companies generally tend to outsource the process.
Fulfillment outsourcing: pros and cons
Outsourcing the shipping, warehousing, and processing of orders (and handling of returns) to a third-party logistics company is what the outsourced fulfillment model provides.
This type is recommended for you if you do not have sufficient space and staff to handle the entire process. Of course, you must keep in mind that delegating these operations to an outside company exposes you to risks and disruptions that you cannot control directly.
Dropshipping and hybrid models
In addition to the in-house and outsourcing models, another type of fulfillment is dropshipping: this particular mode allows products to be sold without physically owning them, since the order is produced, shipped, and delivered directly by the manufacturer on behalf of the vendor, who merely advertises the products and forwards the customer’s order to the supplier.
The rationale behind this model is as follows: it is more convenient to buy goods for resale after the sale is completed. The advantages are obvious: you do not pay in advance for the goods with the risk that they will remain unsold later, and you get around the problem of having inventories in stock (indeed, the latter is no longer needed).
However, there are also cons: the profit percentages are lower because some of it obviously has to be reserved for the supplier who has to be paid for the service provided. Moreover, again, by losing control over many steps in the fulfillment process, you expose yourself to potential reputational problems due to third-party failures and errors.
Another route you can take is the hybrid mode, which involves combining two or more fulfillment models. For example, you might decide to handle order fulfillment directly throughout the year, but not to do so during certain periods such as vacations or for certain products (the peak ones).
Common challenges in fulfillment
When choosing which fulfillment model to adopt, you must also consider, among other factors, the most common challenges that this process puts before you. Let’s see in detail what they are and how best to deal with them.
Inventory management and depleted stock
We have previously mentioned the importance of having a sufficiently stocked warehouse to be able to fulfill all orders, even during the “hottest” periods for sales. At the same time, however, one must avoid having too many products in stock, so as to avoid the risk of ending up with a lot of paid-for and unsold goods.
These days, inventory management software provides a big hand to e-commerce owners because it gives them the ability to maintain direct control at all times over inventories (in this regard, notifications that warn of impending stock-outs are very useful).
Efficient distribution
Managing distribution efficiently is equally important: if you do not have enough couriers you might (indeed, you should) consider outsourcing this service to a specialized company.
Strategies for successful fulfillment
A little while ago we looked at how to respond to the main challenges of fulfillment, but now it is time to talk in more depth about the best strategies for successfully managing this particular process.
Automation and technology
Automating the fulfillment process is a choice that offers several advantages: first, with a management system you can manage all activities from a single control center, integrating the various operations and controlling them at all times, even remotely. Real-time tracking also facilitates the collection of data, which can be very valuable in understanding consumer preferences and areas where action may be needed.
Fulfillment with RFID
RFID technology is very useful in logistics because, thanks to the use of a “smart” label that can be read by special devices, it makes it possible to record every operation on pallets, packages or individual products in real time, speeding up the logistics flow and minimizing manual operations (and related risks). Another major advantage is that this technology ensures accurate and reliable information (as well as, as mentioned, in real time).
Fulfillment and IoT
The Internet of Things is also a valuable ally for those who want to effectively manage the fulfillment process. There are many ways to take advantage of it, from predictive analytics to drone deliveries and the use of self-driving vehicles and collaborative robots for picking.
Supply chain transparency and inventory management
Inventory and supply chain management is particularly sensitive, especially in some industries (such as, for example, the food industry).
It is crucial to be able to track and be able to guarantee the entire lifecycle of a product, from the origin of goods to their transportation to the moment they arrive in the hands of the end customer. In this regard, you should know that blockchain technology, through the use of smart labels and sensors, gives you the ability to keep track of even the most delicate parameters, such as the temperature and humidity of a product, as well as the location of the vehicle transporting it.
How to choose the right fulfillment model
By now it will be clear to you: the choice of the most suitable fulfillment model must take into consideration several factors, of which economic and time-related factors are only the clearest and most obvious.
The issue around which each of your decision-making paths must revolve is that, nowadays fulfillment plays a decisive role in ecommerce business model since a mistake in this process risks irreparably compromising the ability to accurately and correctly fulfill customer needs and desires.
For this reason, if you feel that you are not up to the task of effectively performing this particular task or that you do not have enough resources, you should consider outsourcing the fulfillment process (even partially), taking care, however, to rely on real specialists in ecommerce consulting. The paradoxical risk, in fact, is to put your startup’s reputation in the wrong hands.
Do you want to read all the articles related to the stage your startup is in?
