As an online seller, there’s more to the success of your store than just having a great website and marketing techniques. The logistics side of things, or how you’ll actually get your customer orders fulfilled, plays a major role in the customer experience and the profitability of your business.
They’re already estimating that e-commerce sales will make up 24% of total retail sales worldwide by 2026–nearly a quarter. So with the continued massive shift to e-commerce, online sellers can prepare now for the increased competition they’ll face by establishing a solid fulfillment strategy that’s efficient and reliable.
There’s no doubt that speed and accuracy of deliveries will play a major role in customer satisfaction in the coming years and turn them into repeat customers.
Throughout this guide, we will cover the four most common fulfillment models for e-commerce stores, and walk you through how you can select the option that’s best for you and your store to support profitable sales growth.
Are you still new to ecommerce? Before you continue reading, check out our guide to starting an online store and see if you have everything covered.
E-commerce fulfillment is the process of actually fulfilling the orders that customers make on your site. There are a number of different steps that make up the fulfillment process to get your products to the customer’s doorstep.
The entire process starts with ordering or producing inventory, storing it in warehouses, order processing, handling of items, packaging for delivery, and ending with final delivery to the customer. Then, part of the e-commerce fulfillment process also includes return management, should a customer need to exchange the product or be refunded for their purchase.
Given the large variety of different fulfillment strategies out there for e-commerce businesses, each store will have different reasons for choosing one method over the other. Here are some of the factors that might influence which fulfillment method you utilize:
As you can see, merchants need to choreograph each of these steps to align with one another and result in a positive ordering experience for the customer.
Now, let’s take a deeper look at each of the major stages of the e-commerce fulfillment process and what’s involved at each step–no matter what fulfillment strategy you select.
This will give you a better idea of what’s required of online sellers to help you reflect on your own business, what capabilities you possess in-house, and what fulfillment model you may select based on your needs.
The first step in any fulfillment process is actually supplying the inventory (click here for a full inventory sourcing guide!). Some online sellers will offer goods that they’ve purchased wholesale or white-labeled and will sell them as their own for an upcharge. On the other hand, some merchants will hand-make their goods rather than ordering from a supplier.
In either case, you need to decide how you will supply the products that you’re selling. If you will not be making your goods by hand, you’ll need to secure an external supplier who will meet your quality standards and budget. This step will take some research, though it’s important to get it right to promote a good customer experience and result in fewer returns.
Once you have ordered inventory from suppliers or produced it on your own, the next step will be to find the warehousing space to store the inventory so you can fulfill future orders.
This is the inbound logistics part of running an e-commerce business, so you will either store your products in an e-commerce fulfillment center or a self-run warehouse that you manage for yourself.
If you are just starting out and running a small online store, this may be a garage or storage space you already have access to. However, as you grow your business, you’ll need to secure a larger warehouse that can meet your more advanced needs for order fulfillment.
Inventory warehousing is important because it helps retain the safety of your inventory, and you can even find a warehouse closer to your customers for quick and cost-effective delivery.
Even after you order or produce your first batch of inventory, you’ll need to monitor levels on an ongoing basis to help prevent stockouts. Essentially, you need to make sure you always have products on the shelves of your online business, though you don’t want the inventory to pile up and cause cash flow issues either.
This will require some forecasting on your end, though there are tools out there to help with this. Plus, if you’re working with a warehousing partner, they may provide some guidance.
Once an actual order comes in on your site, you’ll need to have a method for tracking the orders and making sure they’re fulfilled. You’ll need to integrate your sales channels with the warehouse management system so orders can be processed in real-time without delay.
Once the warehouse has received a notification of the order, or if you’re processing the orders yourself, the corresponding products in the order need to be packaged and prepared to ship.
Accuracy during this stage is very crucial, as you don’t want your customers to receive the wrong goods or be missing certain units from their order. So once the package is complete with the correct items, it can be transferred to the logistics company for delivery.
This is finally where the goods arrive to the customer. Consumers today are focused on shipping costs and speed, so nailing both these details can be a home run for your business.
Positive delivery experiences can help boost your word-of-mouth promotion from happy customers and could turn them into repeat buyers.
Many small e-commerce stores do this through self-fulfillment, a drop shipper, a third-party fulfillment company, or through Amazon FBA, though we will discuss these each in more detail below.
The final step in the fulfillment process for e-commerce stores is return management. The more accurately you package orders and the better quality of goods you offer, the more you can avoid receiving returns; however, they are an inevitable part of running an online store.
So, this reverse logistics process involves receiving the return package from customers, fulfilling any exchanges if needed, processing refunds, and returning the stock back to the shelves to fulfill a future order.
Customers appreciate a well-laid-out return process, and will likely keep ordering from you if you had a satisfactory experience with returning items, even though it can be quite a complicated process for merchants.
After reading through each of the steps of the fulfillment process, you can get a better idea of all that’s required once a customer completes their order online. Thus, the type of fulfillment model you’ll choose for your online store will depend on your unique needs. Let’s walk through the major models that you can choose from.
This is an in-house strategy where you take care of each step on your own, from warehousing to return management. While this can be a great option when you’re just starting out and making your own goods, as you grow your business, this becomes unmanageable on the time management side and more costly as you move from your garage to a warehouse. You’ll need to purchase all the necessary insurance, software programs, and equipment, and hire employees, though this model gives you the most control over the fulfillment process.
Dropshipping is a popular option among online sellers. With this method, you skip buying, storing, and managing any inventory. Instead, you place items up for sale on your site, then upon receiving an order, a dropshipping partner that operates a fulfillment center will manage the order and deliver it to your customer.
This is a very hands-off method of selling goods online, which many merchants like for the low workload on their end. However, this leaves you with little to no control over the process and customer experience.
Working with a 3PL provider allows you to outsource each of the steps in the fulfillment process, just like with dropshipping.
However, most of the time with dropshipping, the product manufacturer or distributor is the one that sends the orders to your customers, which can fragment orders and increase shipping costs if individual products come in from different suppliers.
With a 3PL provider, the fulfillment warehouse will ship orders to your customers all at once from the inventory stored in their warehouses. 3PL providers are logistics experts, so it may be a sizable upfront investment, though it could save you money over the long run.
Fulfillment by Amazon is a way for online sellers to use Amazon’s platform to sell their products directly to Amazon customers. This also automates and fulfills orders, taking this process out of the merchants’ hands. Amazon FBA sellers also enjoy return management and product warehousing by Amazon as well.
Sellers send their inventory to Amazon, process orders, and the rest of the fulfillment process occurs through Amazon for a fee. Especially for the products that have a lot of great Amazon product data research, this can be a good option for new online sellers.
With a better understanding of each of the steps in the fulfillment process and the number of different models available to online sellers, let’s review some of the main considerations to make when choosing the right model for your business.
E-commerce stores on the smaller side may not generate enough sales to support the cost of outsourced fulfillment. But as you scale up and experience business growth, order fulfillment in-house can become challenging, and you may consider dropshipping, partnering with a 3PL, or Amazon FBA.
The weight and volume of your products will influence the types of order fulfillment you can utilize. This is because larger and heavier products will cost more to store and ship. Plus, any products with hazardous materials or perishable items will have unique storage and transportation requirements.
Outsourcing fulfillment for lightweight products tends to work well with 3PL providers since they’re actually storing your inventory, while dropshipping or using Amazon FBA to sell these items can be more cost-effective.
If you have a smaller store and you’re able to order, track, store, and restock inventory on your own, you may be able to utilize self-fulfillment. As you grow your business, you may need to consider outsourcing for more accurate inventory planning and forecasting.
As an Amazon FBA seller, you’ll also need to track and order inventory on your own, though this is not the case with dropshipping or 3PL methods.
You’ll need to consider where you’ll store your inventory before it’s sold. If you sell smaller items and can house a reasonable amount of inventory at your own home, you may not need to outsource fulfillment.
However, if you’re selling larger goods or products that need to be stored in temperature-controlled spaces, you may need to outsource. Plus, the more business growth you experience, the more stock you’ll need to keep on hand, so you may consider outsourcing at this level.
Lastly, you need to consider how you’ll return the items. E-commerce sellers deal with a high level of returns, so having a good return policy and procedures in place to deal with returns and exchanges is crucial.
The most control comes from self-fulfillment, though Amazon FBA and 3PL return management tends to be effective as well.
Choosing the right fulfillment model for your business can be crucial, though online sellers find success with each of these strategies.
As you scale and grow your online business, not only does the fulfillment model you select have large implications for your business, but your ability to secure external financing does as well. The e-commerce field moves quickly, so ordering inventory and exploring new product lines can be costly when self-financing.
There are many options out there to finance your online store to fuel further growth, though none offer such strong benefits with little downside like asset-based financing. Even for a store that has little business history, you can still quickly be approved and access the funds you need to keep expanding your store and enjoy flexible repayment terms, and enjoy flexible repayment terms.
Myos is a top asset-based lender that helps online sellers apply in minutes with lean document requirements and a limited business history. Myos borrowers don’t make any personal guarantees for the funding, as all their lending decisions are based on the future potential of the goods you sell, not your past history.
On top of that, we have established a strong network of warehousing partners across Europe and the UK, so you can diversify your fulfillment methods, or find one with the best conditions for you!
Start selling more and grow your store with Myos asset-based financing.