For businesses engaged in ecommerce, order fulfillment has become a crucial focal point.
After price, shipping speed and cost are the most important factors in a consumer’s decision to make a purchase. A recent Walker Sands Future of Retail study showed that free shipping was the number one incentive people had for shopping online more, followed closely by one-day delivery and free returns.
Basically, it’s becoming just as important for small businesses to deliver their products to customers quickly and inexpensively as it is for them to manufacture their products at all.
That’s why lots of businesses are farming out that side of the business to third-party order fulfillment companies that take care of the storing, sorting, picking, packing, shipping and even returning of inventory.
In fact, there are methods of order fulfillment where retailers and vendors don’t handle or even see the products they technically “sell”. Instead, they act as a sort of conduit between wholesalers and customers.
Meanwhile, the business gets to focus on what makes them unique in their space—their marketing, their advertising, their product development and innovation and so on.
Let’s break down the different ways businesses can fulfill customer orders and decide which one is best for you:
Fulfilling orders on your own
If you want to have total control and oversight over everything, you can store, pick and pack and ship everything out to customers yourself.
With this method, your profit margins will be higher.
There are some real benefits to this method. You can ensure quality control of your inventory; you’ll keep all correspondence with customers in-house to ensure prompt responses to any service issues; your profit margins will be higher (allowing you to either draw a bigger check or re-invest more in your business); and you won’t be accountable for shipping errors made by another company.
Here, you are in complete control of how your company receives orders and gets them out to customers. If you’ve got a quality inventory management system and you feel comfortable coordinating between your various shopping channels (your own site, Shopify, Amazon and any other outlets), you can build a reputation as a reliable order fulfiller.
The ability to add any and all personal touches to your shipments, from your logo to personalized thank-you cards, is another huge branding boost, especially for low-volume sellers.
Standard order fulfillment by a third-party
You can outsource the role of fulfillment to any number of qualified and respect third-party services. There are a few different ways this can work: perhaps your business still manufactures the products, but then the products are shipped to the third-party for storage and eventual shipment. Maybe your supplier sends the products directly to the third-party.
Be sure you enlist a well-known and regarded fulfillment service.
Either way, you’ll be asking another company to handle your order fulfillment, which makes them an integral part of the customer receiving their product. Be sure you enlist a well-known and regarded fulfillment service.
In choosing you this option, you don’t have to worry about the carrying costs of inventory, which start with renting out and maintaining warehouse space but includes things like insurance on your goods. You might think you were done spending money once you bought or produced your inventory, but the truth is you could still end up paying for them while they sit on the shelf, unpurchased.
You can also do mixed order fulfillment, where a fulfillment service handles some orders and your company directly handles others. This is helpful for companies that are mostly regional, but want to expand their brand name and business into new parts of the country or world. You can handle the stuff closer to home, while the fulfillment service handles the orders closer to their warehouse.
Order fulfillment by dropshipping
Another kind of fulfillment is called dropshipping. Unlike other ways that retailers and fulfillment companies work together, in dropshipping, the retailer has nothing to do with the inventory other than sell the idea of it to the customer.
Instead, the retailer essentially buys the product on behalf of the customer from a wholesaler or manufacturer, and tells them “Hey, instead of sending this to me, why don’t you mail it directly to the customer?” Then the retailer takes the difference in the sale price and the price they bought it for as their profit.
It’s a win-win for all parties: The retailer gets access to lots of inventory they wouldn’t be able to handle or store themselves, and the wholesaler or manufacturer doesn’t have to market or advertise the inventory at all in order to make a sale.
If you’re simply a middleman between a customer and the manufacturer, then what about your company will be appealing enough that consumers will choose to go through you rather than search for the inventory on their own?
The one area of concern, then, is your branding. If you’re simply a middleman between a customer and the manufacturer, then what about your company will be appealing enough that consumers will choose to go through you rather than search for the inventory on their own? It won’t do your brand much good if a consumer buys your product and then their package arrives from “Some Other Company, Inc.”
You can work with order fulfillment companies that offer “white label” dropshipping, which includes private labeling. A white label is just a generic packing slip included with the package, so consumers don’t identify the dropshipper and just try to buy through them next time.
But private label dropshipping is when the dropshipper adds the branding and company address of your business to the package, giving the appearance of having come straight from your office. If you’ve got a beautiful logo that you want to keep top-of-mind for customers, or simply want to reinforce the brand name, you can go with this option.
Other benefits of going with a third party
Regardless of whether you go with standard order fulfillment or dropshipping, there are some other benefits to giving up this aspect of the business.
If you’re not focusing on product development, marketing, innovation, sourcing, staffing and customer experience, then you’re not really focusing on what makes your business your business.
First, if you’re not focusing on product development, marketing, innovation, sourcing, staffing and customer experience, then you’re not really focusing on what makes your business your business. Giving up the nuts and bolts of getting a product into the hands of customers allows you to put more of your time and energy towards improving what you’re already good at.
Second, if you used a well-regarded fulfillment company, you’re less likely to have delivery and fulfillment issues that can turn customers off from shopping with you entirely. If you don’t have an item in stock, 23 percent of customers will simply jump to a competitor’s product. That’s how you turn a loyal customer into another company’s loyal customer.
It’s becoming standard operating procedure for companies to outsource parts of the business they’re not as comfortable handling. Order fulfillment is one of those areas that often makes sense as much from a financial standpoint as it does from a logistical one. Focus on what makes your business unique and worth a customer’s time, and let these other companies focus on the things that every business needs: a reliable receiving and shipping process.
Have any questions about order fulfillment? Feel free to ask them in the comments!