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Are You Ready for (E-commerce) Fulfillment?

Posted on 10.12.2008

Order or product fulfillment is when a fulfillment warehouse sends a customer the product ordered or requested as opposed to the merchant themselves. In the e-commerce industry, fulfillment refers to the services provide a company that stores product, receives orders, packages products and finally ships the items to the customer. When e-commerce companies struggle with shipping on their own, they often turn to fulfillment houses to remove some of the burden. How do you know when it's right for your e-commerce enterprise?

Most fulfillment companies provide three services; storage/warehousing, packing services and shipping. Let's look at how these relate to Internet retailers and the advantages they can provide your enterprise.

Warehousing provides the storage of goods. Some warehouses are completely automated; items are moved with a system of automated conveyors and storage and retrieval machines coordinated by programmable logic controllers and computers running logistics automation software. If it sounds fancy, it is. How a fulfillment provider stores product impacts price so understanding the variables in offerings is essential. Fulfillment houses charge storage fees (which vary by provider) consisting of per item fees, per pallet fees or dimensional storage fees based on the volume of space your inventory occupies.

Packing (or pick and pack as it is known in fulfillment circles) is another part of supply-chain management and an important consideration that needs to be made by Web retailers. The process entails receiving and separating product shipments, selecting products for specific destinations and then repackaging them with shipping labels and invoices. Fulfillment providers that do not have completely automated warehouses have individuals who pull products from shelves and ship them manually. Typically, the more automated the picking and packing phase of fulfillment, the more efficient the overall process. Fulfillment companies generate profit by charging fees per order and per item shipped. There may be other fees including those for receiving merchandise, program management fees, return fees, report fees and others. Selecting a fulfillment house that bundles all pricing and provides a set price per order fulfilled is the optimal way to go for company looking for accurately forecast results.

Shipping is the final service provided by fulfillment companies. As you might imagine, due to the slim margins associated with shipping, most fulfillment providers do not offer courier services on their own, instead opting for small parcel carriers such as UPS, DHL or FedEx to secure bulk discounts - sometimes upwards of 30% less. Unless you are shipping thousands of items per month, you probably won't qualify, but it is important to ask at the outset what the baseline is for qualifying. Shipping materials are another aspect of shipping where a fulfillment house may be able to help merchants save money - perhaps as much as 50% off retail prices.

Deciding when to take the step towards using an order fulfillment house is a major one. If you are ready to simplify operations, fulfillment houses give you an opportunity to reduce order processing and warehousing costs, receive larger shipping discounts, cut back on employees, and spend more of your time marketing products. Not only will you grow more profitable with each sale, you'll be better prepared for the future.

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