A beginner’s guide to ecommerce fulfillment

[Updated post from January 26, 2021]

No matter whether you’re an emerging or an established brand, it’s no secret that ecommerce fulfillment involves a lot of moving parts. Yet there’s still confusion over what should take place once a customer hits ‘purchase’.

If you don’t have a good level of insight into what ecommerce order fulfillment requires to create positive customer experiences, it’s very difficult to make a decision on which order fulfillment model and strategy is best for your business. The wrong decision can have adverse consequences, including delays to order fulfillment and dissatisfied customers – two things that every ecommerce merchant wants to avoid.

Our beginner’s guide to ecommerce fulfillment gives you the ins and outs of what ecommerce order fulfillment is, and how partnering with a 3PL can help you to streamline this process for cost-effective fulfillment and happier customers.

Ecommerce fulfillment, defined

What is ecommerce fulfillment?

Fulfillment in ecommerce refers to the end-to-end process of delivering an online order to the end customer. Once an order has been placed, it's the responsibility of the merchant or retailer to ensure that the order is processed, picked, packed, and shipped as quickly as possible to ensure customer satisfaction. This can be done directly by the merchant or via an outsourcing method such as dropshipping or a Third Party Logistics (3PL) partnership.

How is ecommerce fulfillment different from direct-to-consumer fulfillment?

Direct-to-consumer fulfillment and ecommerce fulfillment often go hand-in-hand, thanks to the rapid growth in online selling during the pandemic. But it's important to note that these two workflows are not the same.

Direct-to-consumer selling is exactly what it sounds like. It's when a brand sells directly to the consumer without the involvement of intermediaries such as distributors or wholesalers. D2C retail requires the complete vertical integration of suppliers, selling/marketing channels, and fulfillment - but it doesn't have to take place online to be considered direct selling.

For example, a boutique retailer on the high street can fulfill orders directly without an ecommerce presence. Moreover, an ecommerce brand selling its products via Amazon could choose not to fulfill orders directly, and instead use either a dropshipping service or Amazon's fulfillment service.

So while there's a big overlap between ecommerce fulfillment and direct-to-consumer fulfillment in terms of workflows and the customer experience, they are still separate strategies that come into play at different times for different merchants. 

Steps of the ecommerce fulfillment process

Consumers don't have to give much thought to the ecommerce order fulfillment process. They simply click 'purchase' on a retailer's website, then wait for the package to arrive at their doorstep. But there's a range of workflows that need to take place between these two touchpoints for seamless delivery:

1. Receiving inventory

To sell and fulfill orders, a business needs to have a steady supply of inventory coming into its possession.

2. Organizing inventory

Inventory needs to be stored efficiently for fast and effective ecommerce fulfillment. No matter whether your inventory is in a warehouse or storage container, you need to be able to locate SKUs quickly to start the packing process and dispatch orders for shipping.

3. Picking and Packing

When orders are being placed, staff will need to be dispatched to gather the necessary items and package them ready for shipping.

4. Shipping

Once an order has been assembled and packed, it's ready to be dispatched to the customer, either by drop-off to a postal service location or a scheduled pick-up at your facility.

5. Exchanges and returns

Although not part of the outbound order fulfillment process, returns and exchanges are an essential part of ecommerce fulfillment. Returned items need to be processed, reconditioned, and made ready for resale as quickly as possible to avoid dead stock from accumulating.

Let's break down each of these steps into the services and workflows necessary for smooth ecommerce fulfillment:

Ecommerce fulfillment services

Order management

Order management involves overseeing the progress of an order from when it’s first received via your OMS to the moment it's dispatched for shipping. It's important to track every order throughout the fulfillment process to ensure there are no delays due to insufficient inventory or inefficient picking processes.

By managing your orders from one central place, it's far easier for ecommerce merchants to pick up on trends in the orders that are being placed e.g. popular SKUs, seasonal peaks, and where your customers are based.

Inventory management

Inventory management is the storing, monitoring, and reporting of all SKUs that make up a merchant's product catalog. Managing inventory levels to meet demand but avoiding excess inventory requires detailed forecasting, as well as coordinating storage space to prevent running out or paying for more than your business needs.

If your inventory levels aren't accurate this can result in stockouts or over-selling, both of which are harmful to the customer experience. This can be prevented by integrating your inventory management system with your ecommerce platform, meaning that inventory counts have automatically adjusted each time a purchase or a return is processed.

Warehousing

Your inventory needs a safe and convenient place to be stored until it’s required to fulfill an order, which makes warehousing an important part of your overall ecommerce fulfillment strategy. Some merchants use an official warehouse for inventory storage or may rely on an office or storage unit if they are still in the startup stage.

There are a couple of different ways that brands can approach warehousing. Some will use a centralized warehouse location to store inventory and fulfill orders, while others may use multiple facilities that are close to their customers. During peak season periods, it may be necessary for brands to seek out additional storage space to prevent overcrowding.

Order fulfillment

Order fulfillment refers to the meat of the ecommerce fulfillment e.g. picking and packing each order to get it ready for shipping. As soon as an online order has been received, the order fulfillment process needs to start as quickly as possible to achieve higher levels of customer satisfaction.

Picking for orders can be completed using a variety of strategies, such as zone picking, where workers only pick SKUs in their dedicated section of the warehouse, or batch picking, where workers are assigned a group of identical orders to pick for. The packing process can be either simple or more complex, depending on the blueprint your business designs, such as using custom packaging in place of generic packaging to enhance the customer experience.

Shipping and delivery

How you choose to ship online orders forms a key part of your value proposition as a brand. Merchants have a wide range of parcel carriers and service levels to choose from. The appropriate option will depend on a variety of factors, including:

• The type of goods you're shipping
• The size/weight of your packages
• Where you're shipping from/to
• Optimizing for speed versus cost

Reverse logistics

Reverse logistics or returns management is the workflow of receiving, processing, and reconditioning returned merchandise to get it ready for resale. The flexibility offered by your ecommerce returns policy regarding return windows and reasons for returning plays a big role in determining your brand's return rate.

Given today's expectations for hassle-free returns in ecommerce, merchants need to be able to handle returns just as efficiently as their outbound orders. This means that the generation of pre-paid shipping labels, speedy refunds, and return tracking are all key strategies to manage customer anxiety and create a customer-centered return process.

How to plan your ecommerce fulfillment strategy

1. Location, location, location

Where you decide to fulfill online orders is the biggest determining factor in the affordability and speed of shipping. Ideally, your fulfillment location should be as close to your end customers as possible. Keeping transit times and shipping distances short reduces operational costs and makes it easiest to meet customer expectations for fast delivery.

For example, if your fulfillment center is located on the west coast, you're looking at sizeable transit times when shipping orders to the Southeast or the east coast. When your customers are nationally distributed rather than belonging to a specific region, it can be complex to navigate which service levels offer the best balance of speed versus cost - especially if your facility isn’t close to major transportation routes.

Another option is to split your inventory between multiple fulfillment locations that are close to key customer hubs, ensuring that you can achieve fast transit times nationwide. This also means you're able to average more affordable ground shipping options, reducing reliance on expensive air freight.

2. Shipping as a customer acquisition strategy

As any ecommerce merchant knows, there's far more to your shipping strategy than just optimizing for cost. With two-day and even same-day delivery now a growing expectation amongst online shoppers, there's very little room for error. Coupled with the belief that brands should be responsible for shouldering the cost of shipping, the result is a very expensive recipe for securing customer loyalty.

Here are some ways you can offer free, fast shipping without breaking the bank:

• Bake the cost of shipping into your product prices.
• Offer economy free shipping alongside paid expedited shipping.
• Add a free shipping threshold.
• Offer free shipping as a premium loyalty program.

3. Set your ecommerce return policy

Ecommerce returns create some of the biggest headaches for merchants. Your returns policy will have a direct impact on how many returns you'll need to process. While it may be tempting to enforce a strict policy that keeps return rates low, this can easily backfire on your business. According to Oracle, 42% of consumers say an exchange/return policy that’s tough to navigate is what defines a poor omnichannel shopping experience.

In sum, the easier it is to return items, the happier your customers will be and the more likely they are to purchase from you in the future.

Your ecommerce return policy needs to strike a careful balance between offering customers flexibility and protecting your business's bottom line. For example, you could have a reduced return window for sale items to ensure that you don't lose resale opportunities for seasonal inventory. Allowing customers to return items due to change of mind can even be valuable for your brand, so long as you are gathering data on their reasons for returning.

Ecommerce fulfillment models: Which is right for your business?

In-house ecommerce fulfillment

In-house order fulfillment, also known as self-fulfillment, is when merchants choose to manage their order fulfillment process internally instead of outsourcing to a third party.

This method is most common to smaller brands who are just starting and have small order volumes., meaning that inventory storage and packing can be done from an office or even a garage.

Although self-fulfillment has a low barrier to entry, it’s very difficult to scale this model effectively. As your order volumes grow it becomes necessary to invest in more storage space, increased staffing, and technological infrastructure to keep up with the demands of your operation.

Because such investments are rarely cost-effective for a single business, the majority of brands will switch to outsourcing their fulfillment once they can no longer manage it independently.

Dropshipping

Dropshipping is a form of outsourced fulfillment where the merchant does not own the goods they're selling. When a customer places an order, the merchant forwards this information to the manufacturer of the product. The manufacturer is responsible for managing inventory, order fulfillment, and shipping orders to the end customer, while the seller acts as a middleman.

Because merchants don’t technically ‘own’ their inventory or pay for storage, dropshipping is an affordable fulfillment option with extremely low overheads. However, this does mean reduced profit margins because the manufacturer takes a sizeable cut for coordinating the fulfillment process. Many manufacturers are based overseas, meaning that shipping times are longer. This may put off consumers who are looking for faster delivery times. 

Amazon FBA

Fulfilled By Amazon (FBA) is an ecommerce fulfillment service by Amazon that allows sellers to utilize their extensive fulfillment network. In this model, brands will send their products to Amazon fulfillment centers. When a customer places an order, Amazon is responsible for picking, packing, and shipping the order, as well as handling any potential returns.

FBA is a popular fulfillment option because products fulfilled using FBA are automatically given a Prime badge and are eligible for Prime free shipping and delivery times. Brands are also eligible for heavily discounted shipping rates. However, using FBA does mean having a lot less control over the customer experience.

But because Amazon's no-questions-asked policy applies, you may end up processing a lot more returns than you would like. Amazon also has some hefty long-term storage fees, which can end up costing you severely if your inventory is slow-moving.

Third-party logistics (3PL)

Third-party logistics is when a merchant partners with an external ecommerce fulfillment provider who manages the end-to-end fulfillment process on their behalf. This includes receiving and storing inventory in their facilities, processing orders, picking/packing, shipping orders, and handling returns.

Fulfillment partners offer a more cost-effective alternative to businesses that are finding it too expensive or time-consuming to keep fulfilling orders on their own. 3PL partnerships enable merchants to leverage both superior infrastructure (including smart warehousing and automation) a scalable labor force, and industry expertise to create a more streamlined ecommerce fulfillment strategy than they can achieve independently.

By taking the extensive responsibilities of ecommerce fulfillment off merchants’ shoulders, 3PLs help to free up more time and resources so they can focus on growing their brand.

In-house fulfillment vs. outsourcing to a 3PL

Many merchants are put off from outsourcing ecommerce fulfillment to a 3PL due to the perceived high costs of going so. However, it's important to consider how the costs of not outsourcing can end up being far greater for your business in the long run.

The cost of in-house fulfillment

The cost of self-fulling orders can be broken down into two main categories: Financial costs and opportunity costs.

Financial costs refer to the obvious investments that merchants need to make to process, pick, pack, and ship online orders to their customers. This includes:

• Storage space
• Labor costs
• Utilities
• Shipping costs
• Packaging materials
• Administrative costs
• Technology systems e.g. OMS or WMS

Opportunity costs are not as straightforward for merchants to measure, but they can have just as much of an impact on a business.

As order volumes grow, ecommerce fulfillment will take more up of your team's time and energy that could be put towards brand-building initiatives and growth opportunities. Over a long period, this can result in your brand stagnating and losing ground to the competition.

What does the ecommerce fulfillment process look like with a 3PL?

If you’re a rapidly-growing ecommerce business that’s finding your order volumes difficult to handle, this is a clear sign that now is the time to consider partnering with a 3PL.

If this is on your radar, you’re probably wondering how a 3PL manages the ecommerce fulfillment process – and how they make it efficient and cost-effective both for your business and your end customer.

Below is a step-by-step overview of what a typical order fulfillment workflow would look like with an ecommerce fulfillment provider like Ryder:

1. Managing inventory

When inventory arrives at a facility, your provider will label and enter the stock into their inventory management system. The amount of warehouse space allocated to your business will depend on your SKU count and order volumes.

The nature of your inventory i.e. whether SKUs are bulky, fragile, or used as part of a product kit will dictate the storage strategy used to prevent stock damage and allow for efficient picking strategies.

The best ecommerce fulfillment partners can connect directly and seamlessly with your online store so that inventory levels are updated in real-time. The Ryder platform offers flawless two-way integration with all major ecommerce platforms including Shopify, making it easier than ever to keep track of your inventory.

2. Picking and packing

When a customer places an order, this will be sent through to your 3PL’s Warehouse Management System, which triggers a notification to begin the picking process. Once retrieved, the order will be packed according to the blueprint chosen by the merchant. This could mean generic packaging materials supplied by the 3PL, or specialist packaging chosen by the merchant and stored at the facility.

With Ryder, it couldn't be easier to manage the packing process according to your brand's needs. Our Order Rules system enables brands to set up detailed packing workflows for individual SKUs that trigger a notification to the warehouse when the packing process begins. Whether you want special packaging or a freebie added to specific orders, Order Rules make this a breeze to coordinate.

3. Shipping

Your 3PL will decide which shipping methods will be most cost-effective for your business using criteria such as product type, dimensional weight, and where you're shipping from/to. Your 3PL should also ensure that the order is being fulfilled at the facility which ensures the fastest delivery time.

Shipping is easily one of the biggest benefits of outsourcing to a 3PL. As huge shipping operations, 3PLs can negotiate with major carriers for more favorable rates than businesses can obtain on their own. On top of wholesale shipping rates, Ryder also offers an intuitive SmartRate Selection tool that allows merchants to compare rates between carriers in real-time to optimize for both cost and speed, making it easier than ever to get the very best rates for your business.

4. Reverse logistics

When your customer initiates a return or an exchange, your 3PL will receive this request and issue an RMA according to your brand's return policy. Once the returned merchandise has been received, warehouse staff will assess it to decide whether it requires any reconditioning or can be classified as ready to resale.

As well as allowing customers to initiate returns via their original confirmation email for a speedier process, Ryder also integrates with industry-leading management systems including Loop, Happy Returns, and Returnly to make returns management as streamlined as possible for both customers and merchants.

Ecommerce order fulfillment: Powered by Ryder

Partnering with a nationwide, tech-enabled 3PL like Ryder for your ecommerce order fulfillment needs enables ecommerce merchants to coordinate a streamlined fulfillment process for their customers. Ryder offers real-time inventory management capabilities in a platform that seamlessly feeds orders and inventory data into your ecommerce website, providing you with complete transparency for all of your ecommerce orders for the very best customer experience. Get in touch today to find out how Ryder can assist your brand with ecommerce fulfillment.