Planning to start an online business or already at it for a while? With increased competition among retailers in the online world, one gets a competitive advantage over others by selling across multiple channels, apart from their own online store. However, not everyone who tries to sell online will be able to. Do you know who will survive? Someone who can manage their business as efficiently as Amazon manages its own business. EVERY PENNY COUNTS!
The major area for an efficiency gain that you must have probably thought about is order fulfillment as a process. That generally involves warehouse setup, Inventory management, picking, packing, and shipping.
Overall eCommerce business can be complicated for beginners as first of all product listings need to be made on each channel that you decide to sell on. Then the online store has to be kept up with exact items, cost, and stock information. This seems like a daunting task, however, the usage of an eCommerce inventory management tool can help sellers to do this in an organized way, allowing tighter control over their business.
Why is Fulfillment an Expensive Affair?
Everyone’s primary attention is to gain profit and bring down extra expenses.
eCommerce business is complicated with multiple parties involved (shipping carrier, payment gateway, warehousing & fulfillment, marketing partner i.e. eCommerce marketplace). Hence multiple expense heads appear in your balance sheet. Fulfillment costs are one of the major ones, in this article, we will explore various ways of fulfillment and their impact on the bottom line as well as on customer experience. This should help to choose the way forward for businesses venturing into eCommerce for their fulfillment strategy. Towards the end of the article, we will give you a comparison chart between different fulfillment strategies.
Fulfillment by eCommerce Channel (i.e. Fulfilment by Amazon)
In order to provide better customer service, all major marketplaces have now launched a fulfillment service. You get a warehouse space where you can keep your stock and the entire fulfillment process is outsourced from including the space, staff, packing - the whole thing.
Amazon in this context, without a doubt, has turned into a pioneer of online business. On account of its market strength, numerous brands utilize Amazon as a platform for their online sales. Fulfillment by Amazon (FBA) seems like a convincing option for all the brands selling online. However, using Amazon FBA can be tricky, with pitfalls that even experts fall into. Let's take a look at that:
Advantages of selling on FBA (and other similar services from other marketplaces):
- Brands/sellers will not have to worry about their storage space and the Order fulfillment process and the overhead associated with it.
- They will be eligible for the Prime badge which helps them to win the Buy box (the box on a product detail page where customers can begin the purchasing process by adding items to their shopping carts) more often resulting in boosting the sales.
- Moreover, sellers with a smaller setup can also choose this, as FBA doesn’t have any minimum stock requirement.
Disadvantages of selling on FBA:
- The biggest drawback for the sellers is that once their product is with FBA, they have no control over their inventory. They also don’t have any real-time Inventory status of their stock items. FBA inventory tracking can be daunting.
- FBA has the same packaging process for all the orders. No personal branding on the packaging is possible. It is all done in the Amazon way.
- Sellers have to bear with extra storage charge for unsold products every 6 months, in addition to their monthly inventory storage fees. Their storage fees also vary by product tiers making it even more expensive.
- In addition to this, if products are not sold for a long time and a seller decides on liquidating the stock, FBA levies an additional charge for the same.
- There is also a possibility of commingling of similar products from different sellers. This may result in bad reviews and ratings.
- For FBA Multichannel sellers, in addition to normal storage & processing fees, Amazon charges them extra for fulfilling orders placed on other channels.
- There are strict standards encompassing with respect to how you name and bundle your stock. It’s necessary for sellers to go through the guidelines put forward by FBA before submitting stock, otherwise, it might get rejected. That’s extra work on the packing team (or the supplier) and you will be charged extra on returned products if these standards are not followed accordingly.
Amazon does have major advantages. However, one needs to have a selective strategy before proceeding with FBA.
Don’t worry, Brands do have other fulfillment options!
Outsourcing fulfillment to 3rd Party Logistic (3PL)
There are companies that specialize in eCommerce fulfillment. These companies will keep your stock and the stock can be shipped directly to their warehouse. To go with 3PL, one has to have their integration with an Inventory Management tool in order to manage stock and deliveries in a hassle-free way.
Advantages of outsourcing fulfillment to 3PL companies:
- 3PL is relatively cheaper, predictable, and easy to go with.
- Here, you only have to buy your stocks and get it delivered. The rest will be taken care of by professionals according to their warehouse strategies.
- There won’t be any extra charge involved to sell on multiple channels. It does it all for the same rate.
- They always have their warehouse ready to handle the sudden boost in sales. Few 3PL's even offer special services to sellers getting a higher volume of orders.
- For international deliveries, It can be less expensive than other fulfillment methods, as brands get an option to send their stock abroad to the 3PL using a cargo bearer, and then utilizing domestic transporters to dispatch the order to individual buyers.
Disadvantages of outsourcing the fulfillment to 3PL companies:
- Losing Prime tag:
Amazon has more than 100M subscribers in its prime program and that number is rapidly growing. It's very important to attend to those clients. Now in order to do that, your fulfillment should be prime which by default you get when opting for FBA. Some 3PL providers are prime certified meaning their shipments are considered as prime enabled. Please check with the 3PL provider for this factor for sure before signing the contract.
- Trust Issues:
Trust is a big issue when working with third party companies like that. Please do make sure to check references and visit their warehouses to ensure the facility is actually able to handle your business. Proper due diligence is required before deploying your fulfillment at someone else’s premises.
- Regular check-ups:
Because of the nature of it, brands have to conduct regular check-ups to ensure nothing funny is going on in the warehouse in terms of inventory and order management. We have seen clients where their 3PL partner wasn’t able to handle the order volume and continued to blame other factors since the business stakeholders were sitting remotely. As the brand checked their fulfillment report, they found out more than a week old orders were sitting unfulfilled in their warehouse and had to make a visit to get them cleared. Needless to say, the fulfillment partner was fired subsequently. Extremely important to keep an eye on the 3PL partner.
Sellers store products in their own warehouse and do the entire fulfillment work. This option can be time-consuming and inefficient as it may also require your company to lease warehouse space. However, this gives the maximum control to the brand. Brands can now control SLAs, can do the packaging in the desired way, and use the same stock for other purposes as well besides the online sales.
Pro of Self-fulfillment
- Have control over the order fulfillment process
- Have control over stock and how it is treated
- Packaging with company fliers and name.
Cons of Self-fulfillment
- Requires time, effort, and space for setting up the warehouse
- More human effort is required in managing incoming outgoing stock with the packaging process
- The stock can sometimes be disorganized if not taken care of properly
- No prime badge from Amazon
- With an increase in demand, a bigger space for products might be required.
- Can be expensive
Dropshipping is where brands/sellers work directly with manufacturers who have the ability to ship their products directly to the end customer on their behalf. This works great in case of low volume. However the chances of error by the dropshipping partner are high, hence this option needs strict QC and monitoring.
Pros of the dropshipping process
- You are not required to hold the stock
- No staff is required for the order fulfillment process
- It won’t be required to buy stocks beforehand
Cons related to the dropshipping process
- No control over the order fulfillment process.
- As there can be multiple sellers for one manufacturer, there have to be better relationships with suppliers for more shipments
- You will be responsible as a seller for returns and customer support
Now let’s take a look at different fulfillment strategies in one view:
Choose your options carefully in terms of fulfillment
You can always have your options wide and choose to run a comparison between fulfillment ideas and make an informed decision based on your experience and resource availability. It’s all about creating marketing strategies based on products that will provide you with better efficiency and profit with improved customer satisfaction as a result.
Get multichannel availability
Most of the businesses manage their stocks and multiple channel accounts through one platform by getting hold of the management services tool. One can take care of stock, multiple channels, shipping, accounting, returns, and so on from a single platform.
It’s an independent solution for businesses controlling every process and type of data. Connecting out to marketplaces, web stores, delivery centers which themselves are associated with the tip of the iceberg.
Are you looking for an omnichannel inventory management solution with integrated B2B order management for your eCommerce business? Drop us a line at email@example.com or directly sign up for a demo here.