If you’re new to the ecommerce world of selling, the term fulfillment center might sound familiar but you’re not a hundred percent sure how it fits into your ecommerce business.
A fulfillment operation is when a third party, or third-party logistics (3PL) provider, fulfills the customer order for an ecommerce retailer. This includes warehousing, shipping, inventory management, and more.
These steps are completed in an order fulfillment facility and the fulfillment service process is helpful for many reasons. It allows the seller to hand off fulfillment activities to someone else and be able to focus on other business duties, such as product selection, marketing, and more.
What Does a Fulfillment Center Do
The role of a fulfillment center is essentially to handle the leg of the supply chain involving the physical handling of products. This includes the receiving, storing, and shipping out of goods to customers. We will take a closer look at these steps later, but for now here is a basic breakdown.
While some fulfillment providers offer value-added services, the core functions of a fulfillment center are:
- Receive goods from client
- Store goods in warehouse
- Receive orders from client’s system
- Pick and pack orders
- Deliver orders to customers
As you can see, a fulfillment center, in effect, makes it so a company never needs to handle their physical products. This can greatly simplify their business processes and need for labor, equipment, and real estate.
Warehousing vs. Fulfillment
You may also have heard the term warehousing thrown around and wondered if these two terms mean the same thing. They don’t.
What these terms do have in common is that they help ecommerce sellers complete their orders and get their products to the customers quickly and easily. When you hire a fulfillment company to provide shipping order services for your company, you better make sure this provider is an expert in the field. When you consider that 84% of consumers state they won’t return to a brand if they experience even one bad shipping experience, you can easily see the harm of mistakes.
With a traditional warehouse, companies can control their inventory and efficiently manage orders and deliveries. The high cost associated with buying or renting property can be a significant challenge for startups on a tight budget.
Storing large amounts of inventory often requires additional staffing and equipment that can be costly to maintain.
Fulfillment centers are often a more affordable option. These facilities typically operate on a subscription model, with several different tiers of pricing available that make them accessible to many ecommerce businesses.
The streamlined order fulfillment process means that staffing requirements are generally minimal. However, the lack of control over inventory can be an issue for some.
You’re going to want to learn more about these concepts because you’ll find they can help you fulfill your product orders efficiently and make your life a whole lot easier.
Before you decide if a distribution center or simple warehouse are helpful ecommerce tools for your business model, you need to understand their role in the supply chain.
From how do fulfillment centers work to why warehousing is put to good use by online sellers, the following content will guide you along the way and make these concepts clearer.
How Fulfillment Centers Work
Fulfillment centers are well-oiled machines. They operate in an extremely functional and methodical manner, enabling the retailer to rest easy knowing this part of the ecommerce sales process is in capable hands. An example of an order fulfillment process is one such as Fulfillment by Amazon (FBA). But there are many other fulfillment centers besides FBA.
It’s important to note that fulfillment centers differ from drop shipping providers. Dropshipping companies are product manufacturers or distributors that send the products right to the customers while the centers are third party companies hired to fulfill the orders.
Here’s how most fulfillment centers work:
Ecommerce Business Supplier Sends Products to Fulfillment Center
The ecommerce company hires an outsourced fulfillment provider to handle their fulfillment needs. Once this business relationship is established, the product supplier will send the products directly to the fulfillment center.
Fulfillment Center Is Stocked with Ecommerce Seller’s Items
The retail fulfillment center will store the inventory in bulk in their warehouse and have it ready to package up and ship orders out once processed. The order fulfillment center will also provide inventory management to keep the flow of inventory moving as smoothly as possible and alert the seller of excess inventory.
Online Customer Buys from Ecommerce Seller
The online customer will shop on the ecommerce seller’s website and select items they want to purchase. Customers will then place their online orders and pay for the products via the ecommerce store.
Order Goes to Fulfillment Center
Once the customer’s order is placed, the order information completed through the website is automatically sent over to the fulfillment center. This is done via an app or integration platform, so it’s completely automated. The order fulfillment process is ready to be put into motion by the fulfillment center.
Inventory Is Packaged and Shipped at the Fulfillment Center
The fulfillment center will then get to work on the fulfillment process, pulling inventory, packaging it, and shipping the order to the customer.
Customer Receives the Product
The last piece of the fulfillment center’s puzzle is complete when the customer receives their products from the fulfillment center.
Sometimes a fulfillment center will be tasked with additional duties, such as returns, while other times, it just handles the typical warehouse storage, packaging, and shipping duties.
How Does Warehousing Work?
Warehousing in the ecommerce context involves a facility that stores products for online companies until they sell them to consumers or other businesses.
The warehouse center can store products in their facility for long periods of time. Leasing on-demand warehouse space is usually more cost-effective for small and medium-sized businesses that need a place to store their products but don’t have their own real estate.
What Is a Fulfillment Warehouse?
A fulfillment warehouse is where goods are stored until they are sold. This is done for several reasons, such as reducing inventory costs, increasing delivery speeds, and ensuring that customers receive the right product. Fulfillment warehouses can help retailers reduce shipping costs and overhead.
Warehouses and fulfillment centers operate differently. The fulfillment center has more steps to complete as it processes each order that comes through the facility. Warehouses are only responsible for storing products, leaving the rest up to you.
On the other hand, the fulfillment center handles most of the following duties:
- Receives inventory
- Generates pick lists
- Assembles items and kits
- Packs boxes
- Labels shipments
- Ships freight
- Handles returns
Benefits of Using a 3PL
There are many benefits to using a 3PL or fulfillment center. Whether you run a small business or operate a large online entity, taking advantage of all a 3PL has to offer will help your business to be an effective and lucrative one.
Here are some reasons to use a 3PL for your online business:
Eliminate Having to Store Inventory
A 3PL makes it possible to have your products safely stored in a 3PL warehouse, rather than using your garage to store physical product and packing materials. The products will be within easy reach at the fulfillment center to pull whenever they are needed. This speeds up the time it will take your products to reach your customers, which makes for happy, satisfied buyers.
No Packing and Shipping Hassles
Using fulfillment distribution centers takes away your shipping and packing worries. Put the responsibility in someone else’s capable hands and rest easy knowing your products will be packed and shipped quickly and efficiently. Plus, you may not have to pay a la carte shipping costs as you would with other methods.
Spend Your Time Building Your Business
When you use a 3PL provider, you’re handing off a large number of your daily business duties to another company to fulfill for you. This gives you extra time to work on building your business and drawing in new customers while meeting current customer expectations.
When you delegate duties to a 3PL provider, you can focus on marketing duties, new product purchases, industry news, and customer service.
Tasks Are Handled By the Experts
When you have to complete order fulfillment tasks, you want them to be done correctly. By using a fulfillment hub to handle the high volume order fulfillment, including packing, shipping, and item storage, you are entrusting these tasks to experts in the field.
Automate Fulfillment and Shipping
A 3PL provider that can integrate with your order entry software can automate much of the process to reduce errors and reduce fulfillment time. This automation aspect means you don’t even have to manually notify the fulfillment center of each order. They will automatically receive the information they need and get to work right away.
Take Advantage of Additional Services
Some 3PLs offer kitting and bundling services, which are particularly useful if you run a subscription box business or want to easily offer multiple related products rather than just wholesale orders. Two-day day delivery from Amazon fulfillment centers is another example of very valuable fulfillment center services.
How Shipping Impacts Customer Service
Shipping is an extremely vital part of the online shopping experience when it comes to customer satisfaction and positive customer feedback. In fact, 80% of consumers say that what stands out the most in their overall online shopping experience is the fulfillment experience.
Is the delivery timely? Is the package damaged? Was the product shipped correctly? All of these questions point to the fulfillment experience.
Since you’re handing this duty over to another company to fulfill, you want to make sure the process accurate and efficient. If your customers have a bad experience, you can’t point the finger at the fulfillment companies. Your reputation is at stake when you outsource to a 3PL, so choose wisely.
Fulfillment Center Examples
While the core function of all fulfillment centers is the same, the methodology and full offerings of each company can vary significantly. For example, some services specialize in industrial-scale logistics while others handle personalized kitting for individual orders.
You are probably more familiar with some of the entries on this list than others, as they serve different areas of the greater supply chain:
- Falcon Fulfillment
- Ryder E-Commerce by Whiplash
- Simpl Fulfillment
- Badger Fulfillment
- Phase V Fulfillment
- eFulfillment Service
- Red Stag Fulfillment
These are only a sampling of leading fulfillment providers, and more are coming onto the market every day as ecommerce continues to boom.
Choosing a 3PL Provider
If you choose to hire fulfillment companies and hand off these duties to another, you’ll want to choose a 3PL provider that is nothing short of exceptional. As you review your options, here are some factors to consider when choosing a 3PL provider:
Do Your Research
Before you sign the contract and hire a 3PL provider, do your research. Don’t choose the first company you come across. You may want to explore options further, such as learning more about topics including what is Amazon fulfillment center and how does it operate.
3PL providers will vary in many ways, from the services they offer to the prices they charge. By doing your research, you can pick the fulfillment provider that’s right for you.
When you consider the different 3PL providers, inquire about their product offerings and capabilities. Make sure that what the company offers will be able to handle all your storage and fulfillment needs.
Some other questions you should ask include:
- What is your fulfillment window?
- What are your shipping rates?
- Do you offer 2-day shipping?
- How many warehouses do you have? What is the size of your fulfillment center network?
- Where are your fulfillment centers located? Do you have fulfillment center staff on-site at all times?
- What is the amount of physical space available for my products? What if I need to send extra inventory?
- What time frame can I expect for my inbound inventory to be processed?
- Do you offer international shipments?
- How do you handle customer returns?
- What fulfillment fees do you charge? Are overall fulfillment costs fixed?
- Are there any special fulfillment requirements I have to abide by as I prepare my inbound shipments?
- Do you offer wholesale fulfillment for B2B customers?
Be sure to consider all products offered by the fulfillment company. Even if you won’t use all of them now, your business may expand its reach in the future, and other fulfillment center products may be useful.
Technology Is Key
Technology is everything these days. It offers efficiency, speed, and expanded reach. Ask the fulfillment company to describe its technology process and capabilities and make sure the company’s technology capabilities match up with your own. What kind of customer intelligence and inventory management data do they collect? Can they share this data with you to help you make better business decisions? How does their technology enable faster fulfillment?
For example, if you want fulfillment center operations to be carried out in an automated manner, you have to be sure you and the 3PL company you plan to use directly integrate with your ecommerce platform.
The reputation of the companies you’re considering is also essential. You want to work with a company that’s known for its reliability, cost-effectiveness, and highly applauded fulfillment services. You shouldn’t base your decision solely on reputation, but it’s a good factor to add to the checklist. Research reviews, read forums, ask questions in Facebook groups, and more.
Keep Scalability and Flexibility in Mind
When you start working with a fulfillment company, your products and current orders may be different than how they are in the future. As the years in business progress, your product offerings may be more expansive than when you started. You might add different categories of products to the overall orders, too.
When you ask the fulfillment company what services they offer and how many orders they can handle every day, make sure they’re able to keep up with your orders going forward. Also, ensure that they are flexible with their service offerings if your business takes a turn one way or another down the road.
It’s also important to note if the fulfillment company requires any minimum monthly orders and what the minimum is. Some companies may not have minimum monthly order requirements, but they’re not able to handle higher order volumes once your company reaches that stage.
Cost Is a Factor
Cost is one piece of the puzzle but a very important piece. You don’t want to rely solely on how much the fulfillment services cost, but you do want to make sure you can afford them. If you find a 3PL company that offers everything you want and is available to work with you, see if they are willing to offer affordable service bundles or package deals in order to get the most for your money.
Larger retailers stand to save a lot of money and effort by not having to run different types of warehouses, communicate with freight companies, or operate a complex warehouse management system. Similarly, smaller merchants can usually benefit from transportation coordination and a ready-to-go ecommerce fulfillment strategy that can scale with them as they grow. A fulfillment service provider can reduce risk and be a cost-effective way to get started.
Fulfillment Center FAQs
Decide if a Fulfillment Partner Is Right for You
Now that we’ve answered the question of what is a fulfillment center and talked about warehouse providers, too, you can decide which option is best for your online business. Third-party fulfillment centers are the best choice for businesses that want flexible fulfillment, as they help you get more control over the entire fulfillment cost.
If you need a place to simply store your products and plan on handling the shipping aspect yourself, a warehouse setup might be best. On the other hand, if you are impressed with ecommerce fulfillment centers and want them to handle all aspects of order coverage, including inventory management, a 3PL company is ideal. You can place the multiple selling duties into their capable hands and sit back, relax, and watch your ecommerce company orders be handled for you. If you want to hire a fulfillment center, check out this article.