Comparing eCommerce Order Fulfilment Models

Everyone knows what order fulfilment is, right? It's a way to process customer orders so that they receive the right goods in a reasonable amount of time.

But this simple definition doesn't give it the necessary weight it deserves in your business.

In the current retail environment, the customer is king. When you run an online store, you compete with the whole internet for attention. Customers don't have to give you repeat business, and they rely on the opinions of others to inform their buying decisions.

Once they hit the "buy" button, they expect a high level of service and efficiency.

Now more than ever, effective order fulfilment can make or break your brand in the online retail space. If you don't get it right, you won't be able to retain customers, build a strong business—or run at a profit!

The reason is simple: without a constant flow of sales, your business is toast. And without proper order fulfilment, your sales will tank.

Which means that the effectiveness of its order fulfilment can make or break an eCommerce company. You have to get order fulfilment right.

Fortunately, there are plenty of good order fulfilment systems available in the market. There are also several order fulfilment options available to suit your type of business, budget, and customer expectations.

In this article, we will go through the order fulfilment models that are the most common in the market. We will also look at the positives and negatives of each, so that you will be able to evaluate the suitability of each for your business.

Model 1: In-house order fulfilment

This model is used by start-ups as well as much larger and established companies. In a nutshell, it means that you handle every step of the order fulfilment of your eCommerce venture in-house.

This model is often the go-to method for the smallest of eCommerce ventures. When your order volumes are very low, it doesn't make sense using third-party vendors to outsource your fulfilment. It would just be too expensive.

If your company only handles a couple of shipments a week, it makes sense picking, packing and shipping the products yourself and then handing it to a courier for delivery.

The attraction for in-house fulfilment for larger companies is that they can oversee the entire process themselves and ensure that customers always get the best possible experience.

Look at the gold standard of online retail, Amazon. They handle all their order fulfilment processes themselves. They even expanded their capacity to such an extent that they are able to provide fulfilment services to other, smaller outfits.

Handling all your fulfilment duties yourself has several benefits, and quite a number of drawbacks.

Positives

• Control the process from end to end. When you handle the entire fulfilment process yourself, you're in charge. You will be able to monitor exactly how the order proceeds and what you have to change to optimise your system.
• Lower initial investment. When you start out your eCommerce venture, you're able to store your products at home and ship them out as orders come in. Which means you don't have to invest in securing warehouse space or outsourcing other services.
• Low barrier to entry. If you have enough physical space to store all the products you wish to sell and all the packing materials you need to process orders, it is possible to do your fulfilment from home. Which means you can start moving products into the market right away.

Negatives

• Time intensive. One of the biggest drawbacks of fulfilling orders yourself is the amount of time it takes—time that could perhaps be spent on marketing and sales efforts.
• Costs tend to balloon once your business takes off. When you start to take more orders than you can handle from your house, you will have to pay for external warehousing and extra staff—which can get very expensive very quickly. If you don't, you won't be able to handle larger order volumes and your business will suffer.
  

Model 2: Using third party fulfilment

In this model, you will outsource all fulfilment duties to a third-party specialist. Many businesses choose this option because they don't have the room to keep the necessary inventory. Or they need to focus their time and energy on other parts of the business—for example handling customer service or scouting for better products.

When you make use of a Third-Party Logistics (3PL) company, they take over most of the steps in the fulfilment process. They will take goods into inventory and send out the correct items to customers as the orders roll in.

Many 3PL partners will also be able to handle all returns or exchange goods for customers when necessary. In this way you ensure that customers always get the best possible experience.

Positives

• Time Efficient. As a business owner, you won't have to do all the picking, packing and shipping of orders yourself. This frees up time for you to focus on marketing and growing your business.
• Gain valuable industry experience. When you sign up with an established 3PL partner, you're guaranteed the expertise that comes from serving the market for several years. This will benefit your customers as they will get their order shipped faster and more efficiently.
• More options and choices. There are several excellent 3PL companies in the market offering their services. Which means you have plenty of choice in a 3PL partner and would be able to get a good fit that will meet both your budget and specialised needs.
• The 3PL will be able to negotiate rates on your behalf.  A good 3PL will have the clout to negotiate better shipping rates and prices from retailers. Due to the sheer volume of goods they ship out each month, they will be able to get better deals than your company would be able to get on your own.
• Lower startup investment. When you make use of a 3PL partner, you don't have to put down your own money to secure warehouse space and shipping staff.

Negatives

• You cannot control the fulfilment process. When you make use of 3PL, you only have a limited number of options as to how your orders are processed. For example, the 3PL might choose to use their own vehicles or another carrier to deliver orders. If you want them to use a different carrier, you might have to pay extra.
• You risk a low-quality experience. When you use a 3PL partner, you effectively hand a large chunk of your customer interaction to an external party. If the 3PL company screws up, it could seriously impact your customer satisfaction—so choose a 3PL that is trusted and has a good reputation in the market.
  

Model 3: Using Dropshipping

In this fulfilment model, goods are shipped directly from manufacturers to your customers. The manufacturer attaches your branding and documentation to the goods. So customers remain blissfully ignorant of the fact that the goods didn't come directly from your company but from a third party.

Your company signs a contract with the dropshipping wholesalers to send the orders directly to the customers when they complete an order on your website. You will then forward all your orders and customer information to the dropshipping company for fulfilment.

The main benefit of this kind of setup is that you don't have to carry the risk of keeping and managing inventory. The downside is that you will have to forfeit a larger part of your profit to the wholesaler.

Positives

• The lowest overheads of all the fulfilment models. This is a major benefit of dropshipping. You don't have to fork out capital to buy inventory, you don't have to pay for any storage, and you don't have to assemble a fulfilment team. This frees up cash to invest in growing your business.
• You minimise risk. Since you don't have to hold and keep track of stock, you don't have to monitor and replenish inventory levels. You also don't have to carry the risk of overselling or losing stock due to theft or spoilage. All of the responsibility for keeping and maintaining inventory goes to the dropshipper.
• Freedom to experiment. Since you don't have to spend any money on new product lines, you're free to experiment with your product offerings to gauge customer reaction. You will be able to respond quickly to new market trends and open up new income streams.
• Easy entry to market. This is the fastest possible way to start selling directly to the public. Once you've signed on with a dropshipping company, you can open up your e-store for business.
• It becomes a simple matter to scale your business. When your sales double, you won't have to do double the work. Your dropshipping partner will manage the increased workload which removes a major barrier to growing your business.

Negatives

• You sacrifice high profit margins.  Dropshippers often charge a premium for rebranding their goods before sending them to your customers. Which means your margins will be a lot tighter. You will have to build a customer base willing to pay a premium for your goods.
• Customer service becomes complicated. It might be difficult to achieve high customer satisfaction, because if something goes wrong, you have to liaise with the dropshipping company to solve the customer's problems. This process is slow and cumbersome and creates extra work for your team.
• Pricing becomes complicated. You will often have to work with several dropshippers at once to maintain a fully stocked webstore. Each dropshipping partner will have different rates, so it becomes complicated keeping track of costs and pricing your goods appropriately.
  

Model 4: A Hybrid order fulfilment system

Many companies opt for a fulfilment system that is a hybrid of the previous three models. This will depend on the types of products you wish to sell as well as the expectations of your customers.

A hybrid model is best if you have to deal with a diverse supply chain. For example, for customers located close to your home base you might opt to do your own fulfilment. But for customers further afield, it might make more sense to use a 3PL partner for the job. Additionally, to increase the number of products and variety you offer on your webstore, you might want to use a dropshipper to handle additional product lines or a range of accessories.

Conclusion

In the last couple of years, online shopping has seen a major boost. One factor was the COVID-19 epidemic which forced many customers to stay indoors and order goods online instead of visiting physical stores.

In fact, it is projected that the eCommerce industry recently topped $5 trillion dollars and is expected to reach $8 trillion by 2026. Those are massive numbers, and represent an incredible opportunity for online retailers.

As retail business goes online and consumers flock to their phones and connected devices to make daily purchases, many companies are shifting a large portion of their focus to their e-stores.

This isn't without risk, however. How products get in the hands of online customers is now more important than ever. Delivery times have to be kept low, and customer service has to be kept high if you want to compete in the busy eCommerce playing field.

We've all seen the logistical nightmares that the epidemic has unleashed on global supply chains. You have to choose fulfilment methods that are both efficient and resilient.

In fact, online customers are known for often picking online retailers based on their fulfilment methods and reputation—not only for their low prices or product range.

The fulfilment method you use as an online retailer is crucial for your success. Fortunately, there are several fulfilment strategies commonly used and readily available.

You should choose the method that's the best fit for your brand, business model, as well as your customer needs. The model also has to fit your budget. Often a company would have to try different fulfilment methods to find a winning formula. And no one prevents you from changing strategy as your business grows and the market evolves.

You can use this article as a basis for further investigation. Try out some of the ideas laid out in this article as it might just help you grow your business, boost profits, and improve customer satisfaction.

Compare your current order fulfilment processes against these models. The goal is to optimise your current setup, identify areas where you can still improve fulfilment, as well as identify methods and models that you might have overlooked in the past—fulfilment methods that might just be the answer for your current predicament.