What to Look for in a Fulfillment Provider

account_circle Web.com Team

When you sell products online, shipping can be a headache you don’t want to handle on your own. It can also eat up a lot of your profit if you don’t have the kinds of bulk orders that qualify you for discounted shipping rates. That’s where fulfillment providers come in.

Fulfillment providers essentially deal with the shipping and handling on your behalf. Because they’ve negotiated low rates with reputable shipping services like FedEx and UPS, you pay less for shipping products to your customers, and you don’t even have to touch your products to do so.

First, ask yourself these questions:

  • What is your shipping currently costing your business?

  • How often are mistakes happening?

  • How are you storing your merchandise?

  • How loyal are your customers?

Then, look at your shipping costs, fulfillment accuracy, warehousing, and customer satisfaction.

Shipping Cost

Shipping cost varies across the board for online business owners. These values are determined by the weight of your product, customer location, and volume of orders.

Your business’s overall shipping cost is also determined by the shipping options you offer customers. Most online business owners want to provide their customers with free shipping. If you’re not making up for your lost cost elsewhere, free shipping could actually be more expensive for your business.

The basic rule of thumb for understanding if you’re overpaying for shipping is to see how much you’re spending versus how much revenue you’re earning. If it costs you $15 to send an item valued at $10, you’re overpaying.

To improve this, you could increase the shipping cost for your customer, increase the overall cost of your item, or require your customers to meet a threshold before getting discounted shipping rates. Although all three are viable options, your customers may be more open to the latter.

It’s important to also look at how much you are charging your customers in relation to how far your products have to travel. The further your merchandise has to travel, the more expensive your costs could be.

Inventory that travels across the country may not be able to use local carriers but will instead be shipped by bigger brand names like FedEx and UPS. If your inventory is closer to your customers, you’ll likely spend less on shipping and can offer options like free shipping.

After evaluating your process, it’s important to come up with a plan to combat these high shipping costs. Whether that’s changing the costs of items, reducing packaging, or working with a new partner altogether, it’s critical that you find a method that works best for your business.

Read more: Free returns or free shipping: Which should you offer?

Fulfillment efficiency

A big step in improving your logistics is deciding how your products will be fulfilled. For many start-up retailers, dropshipping and in-house fulfillment are ideal options.

Unfortunately, those are not sustainable long-term. As we saw during the pandemic, these strategies leave room for product delays and inaccuracy with processing orders. The best way to understand if your current systems are working is to look at how many mistakes are happening and how long is it taking to get your inventory to customers.

Dropshipping is reliant on the manufacturer to do the heavy lifting. When supply chain issues arise, your customers may not receive their orders for months! If you have a large customer base, you may want to consider another delivery option.

Self-fulfillment can put you in the same predicament. The more orders that come in, the harder it is to keep up. No customer ever wants to receive the wrong order, but this mishap is common when in-house methods can’t fall short. You want to aim for a 99% accuracy rate for all of your orders. Anything less will send your customers packing.

Depending on the size of your business, building an efficient fulfillment system may require some additional help. Whether a bigger workforce or a partnership with a professional shipping company is required, it’s important to find a method that eliminates potential logistics mishaps.

Consumers have high expectations for accurate orders. Even just one mistake could prevent them from becoming a return customer.

Inventory Storage

The most cost-effective shipping happens when your product is in the same city as your customer and you’re producing a large number of packages. This cuts down on your transit time, and also allows you to obtain shipping carrier discounts. You can easily achieve 1-2 day shipping options and keep up with bigger businesses in your industry.

How long does it take for your orders to be delivered to customers? If you’re still using in-house methods, you may not be able to achieve these quick turnaround times. Instead, your out-of-state customers may be waiting weeks to get their orders because your inventory is only located in your city.

It may be more ideal to work with a shipping partner that operates multiple warehouses. That way you can achieve the discounts you want while being closer to all of your customers.

By partnering with a 3PL, you’ll also have more space for your growing inventory. You’ll no longer have to worry about outgrowing your home storage because most 3PLs have multiple warehouses. They have the capacity to grow with your business no matter how much inventory you have.

Customer Satisfaction

How happy are your customers with your shipping and fulfillment? A great place to find out the answer to this question is through your reviews. Customer feedback is an honest evaluation of how well your business is running. Multiple complaints or negative feedback is a good indication that your current systems are not working.

If your customers are complaining about the time it takes to receive their orders, your shipping and communication are a problem. Perhaps you’re only limited to one carrier. Maybe your customers are halfway across the United States and you promised 1-day shipping.

Although using multiple carriers can help decrease transit time, it’s crucial that you provide your customers with accurate shipping times. Consider the time it takes to get a product from your facility to a customer’s door. The more accurately you can predict this, the happier your customers will be.

Top 3 Order Fulfillment Methods

Merchant Fulfillment 

– You keep your inventory in your own warehouse, storage space, or even your own home, and then ship it to your customers yourself. Billy keeps boxes of hats in his attic, sells them on eBay, and mails them to buyers. Billy is using merchant fulfillment.

Pros

  • More control. You’re responsible for your own product and know when it’s time to reorder stock.

  • Easier to resolve shipping errors. Instead of having to communicate with a third party, you can resolve any fulfillment errors without having to be the middleman.

  • Establishes buyer trust. Buyers want to feel as if someone is taking personal responsibility for their order. Fulfilling orders yourself helps establish this.

Cons

  • Requires larger initial investment. You’ll have to buy wholesale inventory upfront as well as create an infrastructure for storage and shipping.

  • Not scalable. Unless you want to invest in a warehouse of your own, merchant fulfillment is not a scalable model. As orders grow, it will become increasingly difficult to manage merchant fulfillment.

  • Calls for a separate area of expertise. You have to be good at selling, promotion, supply chain management, inventory management, shipping solutions, and customer service. Ecommerce management systems like ours can streamline and simplify the process, but without software, it’s pretty challenging.

Third-party Fulfillment

 – You outsource the storage and shipping of your products to another company, and then forward that company the orders for fulfillment. Billy sends his boxes of hats to Fulfillment by Amazon or Shipwire and they ship to his customers. Billy is using third-party fulfillment.

 Pros

  • Trusted experts. It’s better to let the experts handle fulfillment for you so you can focus on what you’re best at: selling.

  • Volume. Third-party fulfillment services can house a lot more inventory than you can. This allows you to sell more without space becoming a ceiling. Third-party fulfillment can help you scale your ecommerce business, more so than merchant fulfillment.

Cons

  • Products in transit. What happens as you’re shipping products to your third-party warehouse? What if they get sold while in transit and the order can’t be fulfilled? All this product movement can prevent you from selling freely.

  • High fees. In some cases, it’s actually cheaper to ship your product on your own than to pay FBA fees. The issue is, of course, volume.

  • Middleman. If there are any errors in fulfillment, you become a middleman between your customer and the fulfillment service. The resulting delays in resolving the issue can lead to lower seller ratings.

Dropshipping

 – The product is created and stored by its manufacturer. You find buyers, pay wholesale for the product, forward the sales to the manufacturer, and keep the profits while the manufacturer fulfills the order. Billy has never touched a box of hats, but lists the hats on his website and/or other marketplaces for the manufacturer who handles everything else. Billy is using a dropshipping model.

Remember, dropshipping is a form of third-party fulfillment, and all three methods fall under order fulfillment. It’s not a question of order fulfillment vs. dropshipping, but of which form of order fulfillment is best for you.

As a retailer, you need to decide which process will work best for your business. We’ve sourced the pros and cons of each to help you decide on the right method.

Pros

  • Low initial investment. Listing fees for marketplaces and hosting fees for your website are basically the only initial costs you’ll pay to potentially start selling dozens or even hundreds of items.

  • Fully hands-off with software. If you were to use ecomdash’s software to manage your dropshipping, orders are automatically routed from your sales channels to your supplier, making dropshipping completely automated. All you do is keep your site updated and collect the profit.

  • Product diversity. Anything can be dropshipped. Since volume is no problem, you can sell a diverse catalog of products.

Cons

  • Thin profit margin. Because the dropshipper handles so much of the overhead, profit margins are very thin. For some products like phone chargers and headphones, profits can be less than 1 cent per sale.

  • Competition. Your dropshipper is working with lots of sellers. You’re competing for sales against people selling the exact same item as you at the exact same cost. It’s tough to stand out.

  • Middleman. Again, you end up as the middleman when you’re trying to resolve customer service issues. When a customer emails you with concerns, they expect you to be able to help them. Frustration rises when you’re not able to.

Which Order Fulfillment Method is Best?

You should now be familiar with each fulfillment method available to online sellers. The next step is to choose which one fits your ecommerce store best. Luckily, this decision doesn’t have to be difficult since many online merchants utilize all three in some form. The hard part is finding that balance.

We hope this helps you navigate how you’ll provide items for your online stores and sales channels. Using some combination of all three methods might be the best idea for some businesses. Use a software system that supports multiwarehouse selling if that’s you. Happy selling!