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The Ecommerce Order Fulfillment Process in 4 Stages

Olaf-Sebastian Krysik
Olaf-Sebastian Krysik
HK Digital Co-Founder
5th October 2022

If you have been in ecommerce for a while, you would know that one of the main things that can lose you your customers is if they have a negative experience receiving your product after purchase, or worse: they have a difficult time returning it!

The last thing that you want is your ecommerce order fulfillment strategy to be at the core of your lost customers, so it is essential that you understand exactly what ecommerce order fulfillment is, the process that it requires, and how to source a 3rd-party logistics provider (3PL). 

Keep reading to learn everything you need to know to get your ecommerce order fulfillment system right, from start to scale.

Let's Define Ecommerce Order Fulfillment

If your company 'started in a garage,' you probably recall packing and shipping each order that came through your website. Simply put, that was you fulfilling your customers' orders. 

Order fulfillment covers everything that happens from the moment that your customer places an order to the point where they open the package and, potentially, make a return.

While this all sounds very demand-focused, this very much also involves managing your inventory in a manner where the aforementioned process is never compromised.

Therefore, when it comes to scaling your ecommerce order fulfillment operations, these days, you are likely to operate through a 3PL, because you better have some insane margins, a high AOV, and a brand that relies on a 100% reliable, bespoke shipping, unboxing, and return experience if you decide to go it alone.

At that point, you are a price setter. And even then, I will cover some reasons why you could still find a 3PL that checks all the boxes for your desired customer experience.

Regardless of which route you decide to go, it is important that you understand the 4-stage ecommerce order fulfillment process so that you know exactly what you are looking for when it comes to delivering on your promises.

The 4-stage Ecommerce Order Fulfillment Process Overview

The ecommerce order fulfillment process, especially these days, should be viewed as the interlinking of your value chain, from your suppliers to your demanding customers, and all the steps in between.

At least, this is how you get the 'big picture' in order fulfillment, and that is especially important when it comes to building an efficient and reliable system.

When you are selling at scale, it goes far beyond simply packing your inventory and shipping it. You are trying to get your logistics system as integrated as possible, so that your website automatically executes the start of a new order the moment that your customer places it.

Here are the key stages of the ecommerce order fulfillment process that you need to be familiar with:

  1. Value chain integration
  2. Inventory management
  3. 'Fulfilling' the order
  4. Managing returns

I have set these up in 'stages' because this is the route that you would take if you haven't already set up a rudimentary ecommerce order fulfillment system, however, these stages really end up becoming ongoing sub-processes that describe where any customer's order might be at any given time. 

Therefore, it is important to understand that each of these stages produce different outcomes for your business, and should be managed with those KPIs in mind. Let's dive into the specifics.

Stage I - Value Chain Integration

Firstly, when I say 'value chain integration,' this could imply that you are manufacturing your own products, or that you utilize one or more manufacturers or suppliers for your products, and that you need to get everything between them and your customers integrated with the driver of it all: your website and other sales platforms.

The big idea here is to get your warehouse (or 3PL) set up to deal directly with all of your orders. This means that the warehouse manages your inventory, and your inventory is set up to trigger orders from your suppliers, directly to your warehouse. 

The most important integration in your ecommerce order fulfillment system, though, is between your warehouse and any sales channels from which your customers purchase your products: every time an order is placed, your warehouse then automatically begins the process of actually picking and packing the products, to eventually ship them to your customer.

The warehouse or 3PL is what will define how quickly you are able to fulfill an order, so either you or they need to have a solid IT department for the inevitable integration malfunctions, and the ability to quickly and reliably pick, pack, and ship orders.

Stage II - Inventory Management

While getting things to a warehouse and having them sit there until an order is placed might sound simple, this is actually one of the areas within your ecommerce order fulfillment system where you can lose a lot of time, and product.

That's right. When you place an order from your supplier, it ships directly to your warehouse or 3PL. At that point, it is their priority to get your products on their shelves and updated in your integrated inventory management system.

That is, assuming that they aren't overloaded. If you aren't able to complete that process within a day or two, you need to find a 3PL that can.

In the process, items can be damaged, lost, or even stolen, and you need to be aware of the rates at which that happens. If you are outsourcing, this is typically stipulated in the terms of the contract, and you need to be sure that it doesn't breach more than 7% of your shipment.

Some 3PLs will even bite the costs for you because they are confident in their management practices: it's probably worth finding one of those!

NOTE: Lost inventory has nothing to do with any items that were damaged or missing upon delivery, so it is very important that the warehouse's inspection process is thorough; you can guarantee that a 3PL will do all it can to report any wrong doing on your suppliers' end, to avoid shifting blame to their inventory management practices.

Stage III - 'Fulfilling' the Order

This stage of your ecommerce order fulfillment system is also defined by speed and accuracy. However, instead of quickly getting items into the warehouse and ensuring that most of them stay there, you need to be concerned with how quickly they are able to be picked, packed, and shipped, and how often there is a failed order (e.g. wrong product, never ships, wrong address, etc.).

Essentially, if you can't get your order shipped the same day, you are going to drive your customers mad. 62% of them are expecting delivery in 3 days or less, and that is when they select free shipping!

Unless you want to eat the Bozo-level costs of putting the burden of time on your shipping provider, you better have a tight warehouse or a 3PL that mitigates that risk by taking on the responsibility of delivering on that quick turnover time without compromising the accuracy of the orders shipped.

Stage IV - Managing Returns

If you are in the fashion and apparel industry, you know about the importance of returns all too well. However, this doesn't excuse anyone else from the party. Two thirds of digital consumers check the return policy before making a purchase, and when I asked my mother why she still insists on being disappointed by shopping malls, she said that she fears the return process when shopping online. 

To be fair, the performance of logistics companies in her area don't do the market any justice in this case, however, this is still a major concern for consumers.

In your ecommerce order fulfillment system, it should be up to your warehouse or 3PL to handle the return process, including the customer service, and one of the key KPIs to benchmark when managing your warehouse or selecting your 3PL is the speed to re-inventory.

Remember, some of your returns will be due to damaged products, and your warehouse or 3PL needs to be aware of what to do in that case. You could have a separate site built to sell your damaged products, or simply create a separate Amazon store and integrate your warehouse's inventory system.

HERE'S A THOUGHT: I haven't seen this yet, but I could see it being successful considering the focus on sustainability in today's market, especially in fashion and apparel.

Create a special page on your site where you sell your mildly damaged products at a slight discount but push the fact that you are trying to make a positive change in the market: maybe even dedicate a small portion of the margin to an environmental program to make the statement more impactful.

Becoming a leader in sustainability is basically RedBull for ecommerce these days.

The Reality is, you Will Probably Outsource

There's no getting around it - if you want to scale your ecommerce business, you will need to outsource your order fulfillment.

The benefits are just too good and Amazon has shaken the market so badly that it has forced 3PLs to decrease costs and step up their game, leaving you with a literal world of 3PLs that are trying to specialize in any way possible, with at least one of them being a near-perfect match for your financial situation and logistics needs.

The Clear Scaling Advantages of 3rd-Party Logistics

Even if you aren't experiencing rapid growth that continually challenges your ability to scale your warehouse management practices along with it, there's simply no way that you can get access to some of the perks of going with a 3PL on your own. Here are just a few:

  • 3LPs have a network of warehouses that you can shift your inventory between as you expand your markets,
  • You get to focus entirely on developing your offer and driving sales,
  • 3LPs are specialized in what they do: when it comes to operations at scale, they will save you money,
  • You scale costs by number of sales, not number of lease agreements and warehouse staff.

Sure, 10 sales per day probably isn't going to run your business under, but if you really want to focus on what matters: selling your product, you don't want to be tied up managing a bunch of expensive lease agreements and employment contracts, not to mention the potential for injury on a warehouse floor. Get out of that situation as early as financially possible.

No, This is not Dropshipping

Ecommerce order fulfillment via 3PL is not dropshipping by any means, though a lot of the concerns are similar. Dropshipping takes your lack of responsibility a step further and requires that you integrate your site's systems directly with the sellers of the products, and they are responsible for shipping orders that occur on your site.

In this case, you have no control over when or how that product arrives at its destination and are entirely at the whim of the seller when it comes to the customer experience that you are able to provide after an order is placed.

It is utter chaos and requires a ton of supplier research and management to pull of properly, but can be a very viable model if you are good at it.

In the case of ecommerce order fulfillment via 3PL, you have more control over what happens with your orders: you only have to manage one relationship on that end and ensure that you get your inventory to them in a timely manner. 

Selecting Your Logistics Provider - The 4 Must-Haves

As I mentioned before, you will certainly be able to find a 3PL that fits your needs. This implies that you definitely should have some selection criteria when searching for the right service provider. 

1. Same-day Shipping

I already glossed over how important shipping turnover is in the ecommerce world today, and this is something that is going to be paramount to selecting the right 3PL for your ecommerce order fulfillment strategy. 

When you only have 3 days to impress your customers, you need a 3PL that is able to offer you same day shipping. 

2. Specialization in Your Product Range

3PLs aren't all focused on the same product ranges: they specialize to offer ecommerce companies service packages that can't be found anywhere else.

For example, you will find that some logistics providers specialize in shipping smaller packages and others know how to properly deliver large packages, and might even offer options for assembly.

In this sense, it is very important that you understand all of the shipping needs of your entire product range and find the logistics provider that can best deliver on your ecommerce order fulfillment needs.

3. Proximity to Your Markets

In the short run, you want to ensure that your 3PL has warehouses within a reasonable range of your most active markets. In the long-run, you need a provider that is able to scale that up to a national level, at least.

For instance, DHL offers logistics and warehousing globally, so your products are always close to your customers and you pay shipping rates accordingly.

4. Support on Both Ends

In the case that anything goes wrong with one or more of your orders, you want your 3PL to act more or less like an extension of your own business.

This means that they should be able to handle any of the customer support necessary due to any issues with the fulfillment process, as well as cater to your concerns as your business develops, or as you run into issues elsewhere that affect your fulfillment activities.

Work Smart - Do Your Research

This is literally the last step in providing value to your customers: delivering on your promise. Don't fail them and yourself by choosing a service provider that can't live up to your expectations.

The internet is filled with specialized 3PLs that are eager to showcase the positive experiences that their customers have had, and you can surely find some of the negative reviews on sites like Clutch, which will paint the full picture for what you are getting into.

No matter how you go about finding your 3PL, make sure that you feel certain that they are the one that is going to manage your fulfillment the way that you want, not need.

Ecommerce Order Fulfillment is as Easy as Ever

With the potential of 3rd party logistics providers today, there is no reason why you shouldn't be able to scale your business without having to worry about your fulfillment falling behind. 

Now that you know what it takes to manage your value chain from supply to demand, you have the mindset necessary for both scaling your operations to the point where 3PLs become viable and selecting and managing the best 3PL for your company's future.

Regardless of your offering, accept no less than the best service from any 3rd party, and expect as much from your own process if you are still on your way there: it's your chance to get ahead of your research by setting the standards for what you expect.

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