Ecommerce Order Fulfillment Guide: Service Types and Strategies

So you’re finally diving into eCommerce, fueled by the positive reception of your product when you first tested the waters. You’ve done the math and the numbers indicate it will be a profitable venture for you. It’s all good - there’s a strong demand for your product, which means the customers are just there, waiting to give you their money.

You forecast a spike in demand as the holidays near. You chuckle and joke that you’ll probably be buried in orders to fulfill you won’t have time to eat and sleep.

That joke, however, is a possibility that happens all too often in real life. While it’s good that you already have a robust customer base hungry for what you have to offer, you need to think about how you are going to fulfill all their orders.

Now this may sound a bit harsh, but it’s true nonetheless: Not being able to have time for yourself because you have to see to this aspect of your operations isn’t a sign of success; it’s a sign you were unable to include order fulfillment in the equation.

What is Order Fulfillment?

When we say order fulfillment, we’re talking about the steps that need to be undertaken between the time your customers place and pay for their orders up to the time they receive their orders.

Proper order fulfillment involves warehouse organization, order and inventory management, packaging and shipping, and customer communication. The specific steps involved would depend on the type of eCommerce fulfillment service you choose for your business.

You may already have an in-house system in place for fulfilling orders, but as the demand for your product starts increasing, you would need additional support to keep your business running.

It’s easy enough to handle 10 orders a day and package and ship them yourself, but if that number grows to a hundred or more a day, you’ll need to consider where you can store your products and how you can track everything to make sure your customers receive their orders as soon as possible. Keep in mind that customer satisfaction depends heavily on your ability to deliver the right item at the shortest amount of waiting time, so you really have to think about ecommerce fulfillment services.

So what are your options? Here’s a closer look at the three most popular ecommerce fulfillment strategies so you can select the right one that will keep your business going and growing.

What are the types of ecommerce fulfillment?

Dropshipping

What is dropshipping?

In the dropshipping model, you don’t own or keep inventory before you make a sale. You act as a middleman who focuses on marketing and selling a product. You don’t actually have the product on hand. Once a sale is made, you have the product shipped directly to the customer from your partner dropshipper or the product’s authorized distributor (most manufacturers don’t do dropshipping - but you can certainly try asking!).

With dropshipping, you essentially outsource the logistics of order fulfillment. You make a profit from the difference between your selling price and the price you pay your dropship source for the product (this includes any other associated costs such as the dropship fee).

How it works

1. You choose the product you want to sell from a list provided by a dropshipper. The dropshipper should also include information about item cost, the minimum monthly order, and the dropship fee (usually charged on a per-item basis to cover the packing and shipping costs). If this information is not provided from the get-go, you need to contact the dropshipper and ask/negotiate.
2. The dropshipper provides you with product photos and item descriptions that you can use for your online store.
3. You put up the item for sale on your online store, setting a retail price that will make you a profit.
4. Your customers place and pay for their orders, and you receive the payment.
5. You place the order for the items with your dropshipper and pay for your order.
6. The dropshipper processes your order and pulls the specified items from their inventory.
7. The dropshipper prepares the items for shipping directly to your customers.
8. The dropshipper sends you the shipping confirmation, often along with the tracking details, once the items are shipped.
9. You forward the tracking information to your customers and wait for delivery confirmation.

Dropshipping Pros and Cons

Pros

• It makes starting an ecommerce business easy to get off the ground - you don’t need to worry about building inventory or having stock on hand and shipping because the dropshipper takes care of these.
• You can focus on branding, marketing, and establishing good relationships with customers.
• You can start selling even with a low overhead, because you only pay for inventory when a sale is made. You don’t need to spend on warehousing and other operational expenses associated with ecommerce fulfillment.
• This order fulfillment model can also be used to test out the viability of a new product in your existing market, or to test out new markets for existing products.
• You don’t need to personally contact and build business relationships with individual suppliers because your dropship partner would already have a ready network. The more dropship partners you do business with, the bigger your own product catalog will be.
• Dropshipping allows you to add more products to your store faster, expanding your customer base and bringing more sales in.

Cons

• Dropshipping doesn’t offer support for custom products, unless your dropship partner functions as a warehouse. The pricing would increase significantly and would cross out the dropshipping benefit of being able to buy products at a low price.
• You don’t have control over product quality. Since you have no hand in the order fulfillment operations, you’re basically entrusting your reputation to another party. If your customer receives a defective product or if there are problems with shipping, you are still held accountable.
• Establishing a unique brand can prove to be difficult. Again, since the product you’re selling is produced by others, you’ll have a reduced brand power.
• The competition can be really, really tough. Because it’s easy to build an online store through dropshipping, you will be competing against several thousand other businesses, making it hard for you to gain a competitive advantage especially if the others are able to set a lower retail price for the same product.
• Scaling up can be a problem. It can be a challenge to keep operations going smoothly when your business scales up and you have to coordinate with multiple dropship partners.

Is dropshipping for you?

Dropshipping is an easy and inexpensive method to get you started in ecommerce or add new products to your online store. Because of its low price of entry, it’s a good order fulfillment strategy for startups and other businesses that want to alleviate the risk of buying too much of a product that won’t sell.

Dropshipping also helps new businesses understand how the market behaves toward a product before fully committing to buying in bulk or creating a custom or exclusive item. If a product doesn’t sell as much as you’d thought, then you won’t be losing money because you haven’t really built up an inventory.

If you’re a startup just breaking into your target market, dropshipping is a good ecommerce fulfillment model to use because it allows you to establish your brand and earn enough income to purchase bulk orders in the future.

Established brands can also use dropshipping to test customer interest in new product lines before fully investing in them.

How to find a dropship supplier

If you think dropshipping is just what you need right now, then you need to forge a partnership with a reliable dropshipper. There are two ways you can do this - let’s assume you already know the product you want to sell.

Through the manufacturer

1. Contact the manufacturer’s sales team through their website/email and ask for their wholesale distributors that have distribution rights (manufacturers rarely offer dropshipping themselves).
2. Get in touch with the distributors and ask if they do dropshipping. If yes, ask for the minimum monthly order requirement and dropshipping costs. Specify where the product will be shipped. In theory, the closer the dropshipper is to your customers, the shorter the delivery time will be, which can result in a higher level of customer satisfaction.
3. Ask the distributors how they process orders - by email, website shopping cart, phone? Choose the distributor that can match your ordering process or make it easier for you to place orders.

Through a dropshipping site

1. Visit a dropshipping directory site where you can see a list of different products from various wholesalers and dropshipping suppliers.
2. Locate the product you have in mind using the Search feature or by browsing through the product categories.
3. Get the dropshipping information from the product description page or click the link to the dropshipper’s website.
4. Contact the dropshipper to discuss the details of your (potential) product orders.

Note that most dropshipping sites contact the suppliers and ship your orders to your customers directly, saving you from the extra step of having to contact and manage suppliers yourself. Also note that some sites require you to sign up and pay for membership in order to access the directory and the site’s features. Here’s a list of some of the best dropshipping companies you can check out.

To sum up, dropshipping as an order fulfillment strategy is good for those just getting into online retail and those who would like to test new markets with new products. As demand for your product/s increases and requires you to invest in bulk purchasing, you may need to change it up and go for another strategy: third-party order fulfillment, or more commonly referred to as 3PL.

Related: How to Find Reliable Dropshipping Suppliers

Third-Party Fulfillment (3PL)

What is Third-Party Fulfillment (3PL?)

In the third-party ecommerce fulfillment model, you own the inventory before a sale is made. You are no longer a middleman. You manufacture or purchase the product but the inventory is stored with the third-party logistics (3PL) provider. Packing and shipping are done by 3PL company. Marketing the product is still up to you.

With 3PL, once a customer places and pays for an order, you already have the inventory and need only to contact your 3PL provider (you can use ecommerce software to automate this process). The 3PL company then packs and ships the item to your customer.

You can look at the 3PL order fulfillment model as having an off-site storage and shipping hub. You outsource part of the fulfillment process (picking, packing, shipping), allowing you to focus on the marketing and customer service side of things.

With dropshipping, you essentially outsource the logistics of order fulfillment. Look at it as having an off-site storage and shipping hub. Your profit is what’s left after you subtract the price you pay for each product and the fees you pay your 3PL provider from the retail price.

How it works

1. You manufacture or purchase your products and ship them to your 3PL fulfillment warehouse.
2. You sync your store’s inventory with that of your 3PL provider.
3. Your customers place and pay for their orders, you receive the payment, and you process the orders.
4. You notify your 3PL provider (through an automated system on your online store) about the orders.
5. Your 3PL fulfillment partner pulls the items from your inventory and packs these for shipping to your customers.
6. The 3PL company sends you the shipping confirmation and tracking information.
7. You forward the tracking details to your customers and wait for delivery confirmation.

3PL Pros and Cons

Pros

• Like with dropshipping, 3PL order fulfillment allows you to focus your time and energy on marketing and strengthening customer relationships instead of picking, packing, and shipping items yourself.
• Most 3PLs can integrate directly with ecommerce platforms. This means that the moment a customer places an order, the system immediately alerts the 3PL provider to do their thing.
• You can purchase inventory in bulk to increase your profit margins.
• You don’t need to put money down for acquiring real estate or warehouse space and purchasing warehouse equipment. You don’t need to pay and manage a workforce for picking, packing, and shipping orders.
• You leave the logistics to logistics experts.
• Your 3PL provider (which handles tens of thousands of orders per month) is sure to get bigger discounts on shipping rates than if you were to ask for discounts on your own.

Cons

• Someone else is still doing this part of the business operations for you, which means you still have no control over picking, packing, and shipping. If something goes wrong in any of these stages, your customer satisfaction rating will definitely take a hit.

Is 3PL for you?

The 3PL ecommerce fulfillment model is ideal for startups and up-and-coming brands that have their own product but no space for inventory. If you’re seeing an increase in demand while also noticing a decrease in your office space, it’s time to move those products out of whatever room you’re in and find a 3PL fulfillment warehouse.

Third-party ecommerce order fulfillment is also ideal for existing small- and mid-size businesses where the distribution aspect remains a weak link. It’s also recommended for seasonal businesses, or companies that anticipate a spike in order volume during certain times of the year, such as the holiday shopping rush.

How to find third-party fulfillment service providers

If you think 3PL is the ecommerce solution for you, you need to find the best fulfillment company for your specific needs.

1. Do a Google search for 3PL providers or visit a fulfillment matchmaker like Fulfillment Companies, which lets you fill out a short survey, reviews your needs, and matches you to fulfillment centers that can best meet your needs. It’s free!
2. When doing your research, keep in mind the product you’re selling. Some fulfillment warehouse companies specialize in crowdfunding projects, others in small, lightweight items, some focus on heavy or oversized goods, while others deal exclusively with valuables.
3. Consider the location too. If you want to keep your shipping costs at a minimum, choose a 3PL provider that is located near your target customers.
4. Once you narrow down your list, get in touch with the 3PL providers and verify if they specialize in fulfillment for businesses like yours, or for your product type’s niche.
5. Ask the 3PL providers how much they charge for their services and what these costs are. Third-party fulfillment companies charge five basic fees: receiving fees, inventory storage fees, picking fees, packing fees, and shipping fees. The amount for each fee varies for each company, so be prepared to do the math.
6. Find out the requirements you need to meet, like a minimum order volume, to determine if partnering up with a particular 3PL provider would be feasible for you.

If you’re going for 3PL ecommerce fulfillment services, it’s vital that you pick the right partner to work with you, so take time to do your research and communications with providers. Tip: you don’t have to work with just one, especially if you handle a lot of international orders. It makes sense then to work with multiple 3PL providers or at least with one provider with multiple warehouses in various regions.

Working with 3PL providers and using a fulfillment warehouse may work for your business, but there are situations where it may be better for your to establish your own product distribution. Let’s get into self-fulfillment!

Self-Fulfillment and Shipping

What is self-fulfillment?

Also direct fulfillment, self-fulfillment is the model in which you not only own the inventory but also fulfill (pick, pack, and ship) orders in-house. It’s probably what you’re doing right now, albeit on a smaller scale. If this is the case, then think of self-fulfillment as a leveling-up of your current fulfillment operations.

When you go into the self-fulfillment route, you lease a warehouse (if you don’t have the extra storage space on site) and hire staff to do the inventory tracking as well as the picking, packing, and shipping of items as orders come in. The warehouse then serves as your distribution hub where all of your order fulfillment operations are conducted.

The inventory should always be updated and monitored; missing and/or depleted stock can cost you a lot of money of you don’t keep track of inventory carefully. This is why it’s imperative that you use a warehouse or inventory management software when you’re doing your fulfillment processes in-house.

In this ecommerce fulfillment model, your profit is the difference between the retail price you set and the costs associated with inventory buying, inventory storing, and order fulfillment.

How it works

1. You manufacture your products, store inventory, and handle orders (pick, pack, ship) in one roof.
2. Your customers place and pay for their orders.
3. As soon as you receive the payment, you process the orders using warehouse management software.
4. Your warehouse staff will be notified of the items that need to be picked, packed, and shipped to your customers. They accomplish those tasks.
5. You receive the shipping confirmation and tracking information from your courier.
6. You forward the tracking details to your customers and wait for delivery confirmation.

Self-fulfillment Pros and Cons

Pros

• You have full control over product quality and order fulfillment - how your items are picked and packed as well as when they are shipped.
• Startups can save money as they do the order fulfillment themselves and just pay for shipping.
• Larger businesses shipping a significant order volume can negotiate with couriers for discounted shipping rates.
• Allows you to customize packing to provide a better delivery experience for customers.

Cons

• Though startups may cut costs via in-house ecommerce fulfillment, the time from order placement to shipment may take a bit longer unless they invest in hiring personnel.
• As your startup begins to grow, self-fulfillment can become costly and burdensome because you need to consider leasing warehouse space, purchasing or renting warehouse equipment, hiring additional staff, and using order fulfillment software with advanced features.

Is self-fulfillment shipping for you?

If you sell handcrafted or customized items, valuable goods, or high-end products, then self-fulfillment would be the viable ecommerce order fulfillment method for you (it would not be wise to send your products to a 3PL fulfillment warehouse).

Startups handling less than 50-100 orders a day will find self-fulfillment to be adequate, allowing them to meet customers’ expectations with same-day delivery. However, once orders really start picking up, they would have to look into other ecommerce fulfillment services - particularly 3PL if they have their own products - to keep customers happy. A waiting period of 5 days just doesn’t cut it anymore; two-day shipping has become the standard.

Even larger organizations with the financial capability to establish an in-house distribution hub may find the endeavor challenging, as they would have to consider rental rates for warehouses, taxes, location (proximity to customers), warehouse machinery, inventory management and warehouse management software, staff hiring and training, shipping rates, and the like.

Final Notes

When choosing an ecommerce fulfillment strategy to use, you need to first determine what your goals are. Are you looking to add a new product to your store or expand your product offerings? Or perhaps save on shipping costs? Or are you aiming to improve your order fulfillment efficiency?

Another thing to consider when thinking about order fulfillment methods is the status of your business. Evaluate what stage it is in and what you hope to achieve with a different order fulfillment strategy. Your assessment will help you decide on which model would best fit for your products and your business as a whole, so think carefully!