Even before the pandemic, brick-and-mortar stores were declining as online shopping was on the rise. The events of 2020 accelerated that shift and the future is increasingly digital, with more people than ever online. While e-commerce will never fully replace physical stores, we do know that it’s here to stay and has fundamentally changed the way people shop.
Within e-commerce, the direct-to-consumer (D-to-C) model is also growing rapidly as it bypasses the need for the traditional wholesale and retail middlemen, which maximizes profits and gives brands more control of the customer relationship. Of all the functions within the D-to-C model, fulfillment is one of the most important for a variety of reasons. The third-party logistics provider (3PL) holds all the inventory and is charged with getting the products to customers on time and as ordered. This is a vital part of providing an exceptional customer experience.
When e-commerce brands start their business, fulfillment is often thought to be a “back office” function and the last and easiest step in the order lifecycle. It soon becomes clear that in addition to its role in providing a seamless customer experience, fulfillment can get complex — and fast.
Managing fulfillment in-house is a large undertaking for e-commerce retailers, particularly within the D-to-C model. It requires storing, tracking and replenishing inventory; accurately picking and packing orders; sourcing shipping options; and handling returns. Any sort of hiccup along the way can cause customer service challenges.
In addition to the customer service impact from delayed or wrong orders, it’s expensive to make order mistakes. The National Retail Federation reported that in 2020, consumers returned an estimated $428 billion in merchandise. Industry experts estimate that return rates for goods bought online run three times higher than in-store purchases.
Beyond returns, fulfillment is often one of the largest line-item costs, right behind material goods. An independent study by Fulfillment Companies found that fulfillment costs averaged 10 percent to 15 percent and could reach up to 20 percent if there’s little automation in place.
Because fulfillment is so complex and critical, many brands opt to partner with a third-party logistics provider (3PL), eliminating the need to invest in warehouse space, technology, transportation and employees to fulfill and transport orders. Outsourcing fulfillment takes a lot of burden off of retailers and allows them to focus on other parts of their businesses.
Here are some factors to think about for brands weighing their fulfillment options:
Online brands are prone to dramatic spikes in volume, and this can easily overwhelm the fulfillment process, cause inventory shortages, and result in shipping delays. Warehouse automation can enable brands to quickly scale to meet demand during peak periods.
Supply Chain Scale
Shopify, the leading shopping platform for D-to-C brands, recommends that when an e-commerce business reaches an average of 200 to 500 orders per day, it’s time to shop for an ERP system to help it analyze data and drive down costs. At this point, it’s time to re-examine all internal supply chain systems to ensure the business can meet the increased order levels. The inability to provide the right technologies, data and real-time visibility into operations will make scaling difficult and can result in lost sales or, worse, lost customers.
No matter how you look at it, every aspect of e-commerce enablement is determined by the brand’s fulfillment capabilities. Strategic partnerships, seamless integrations, and easy access to technology and automation can make all the difference as the business scales.
The speed, accuracy and efficiency of the fulfillment function will impact customer satisfaction and the bottom line. Selecting the right 3PL to manage this part of the sales process is a critical step to ensure a successful e-commerce strategy.
Esther Kestenbaum Prozan is president of Ruby Has Fulfillment. She has held leadership and C-suite roles within e-commerce and retail technology companies for 20 years.