How to choose the best order fulfillment services for your growing business
Success in the crowded ecommerce market depends on more than a strong product line and spot-on brand. Order fulfillment is the process of getting your products from your online store into your customers’ hands, smoothly and efficiently. It can make or break your customer experience — and your company as a whole.
When you started out, you may have handled ordering, packing, and shipping internally. But as your company grows, it becomes increasingly time-consuming and unsustainable to DIY the entire fulfillment process. Plus, your operations have to be airtight, ready for unexpected supply chain disruptions like the COVID-19 pandemic.
In this article, we’ll give you five tips to find reliable fulfillment services for your business. First, let’s go over the four ecommerce fulfillment methods.
4 ways to handle your ecommerce order fulfillment
Every business needs a fulfillment system that ensures cost control, consistently high product quality, and on-time delivery. Which strategy you choose — in-house or outsourced fulfillment, dropshipping, or third-party logistics — depends on your industry, business size, order volume, budget, and other factors.
Compare the pros and cons of each option below:
1. In-house fulfillment
Pros: Centralized process, lower cost, and adaptable for unpredictable or small order volumes
Cons: Time-consuming, costly for large businesses, and may require significant capital investment
In-house fulfillment, also known as self-fulfillment, is when you complete each step of the fulfillment process internally. These include:
- Receiving inventory: Ordering new stock and count, examining, labeling, and organizing it when it arrives.
- Inventory storage: Shelving and maintaining your products. New business owners often use their home or rent a warehouse for this stage.
- Order processing: Selecting, inspecting, packing, and preparing items for shipping.
- Shipping orders: Determining a shipping carrier based on the size, weight, and details of the order, and sending off the order.
- Returns processing: Accepting returned items and issuing replacements or refunds. You’ll also decide whether to add the item back to stock and resell, or throw away.
Many new small businesses choose the self-fulfillment route because it’s initially less expensive and also lets the team personally oversee each order. But “do it yourself” doesn’t always mean “easier to manage.”
Most companies need some level of inventory management software to see accurate inventory levels and handle multichannel selling without risking stockouts or overselling.
Callout: If you’re considering in-house fulfillment, make sure you read our 6 tips to improve your inventory management system.
As sales increase, fulfilling orders yourself requires major capital investment in labor and equipment, like warehouse management systems, material handling tools, and sortation and conveyance systems.
Business owners are also responsible for hiring and training new workers, expanding their workforce according to seasonal demand, and securing workers’ compensation insurance and liability insurance.
At any stage, in-house fulfillment takes up time that could be used for ecommerce marketing, sales, and customer service. Growing businesses are typically better off outsourcing their order fulfillment services.
Pros: Low overhead costs, easy to start and scale, and allows you to carry a wide range of products
Cons: Higher service charges and risk of supplier errors and customer dissatisfaction
Dropshipping is a fulfillment method that doesn’t require you to keep any items in stock. In fact, the product never touches your hands.
You buy products from a third party, such as a wholesaler or manufacturer, who is responsible for production, storage, and shipping. When a customer places an order on your ecommerce site, the order is forwarded to the manufacturer. They ship the product directly to the end customer and handle returns.
Dropshippers provide the products, staff the fulfillment centers, and ship the orders. All you need to do is handle sales and marketing. The added time for sales strategy and implementation could give you an edge on the competition.
Callout: Wayfair used dropshipping to go from a small home business to a billion-dollar ecommerce enterprise.
As a fulfillment solution, dropshipping is hands-off. You can sell a broad array of products without forging relationships with every individual supplier, or investing in lengthy research and development. In most cases, you only pay for inventory when you make a sale, so there are fewer operating costs overall, fixed or variable.
As for drawbacks, dropshipping doesn’t allow much room for customization or quality control. If you want to sell custom products or add product features, you’ll have to appeal to the dropshipper. If there’s an issue with the product or shipment, your customer won’t differentiate between you and the dropshipper. Your brand reputation could take a hit each time your supplier makes an error, even though it’s out of your control.
Examples of dropshipping companies include Doba, Oberlo, and Wholesale2B.
3. Third-party logistics (3PL)
Pros: Lower shipping rates, individual account management, faster shipping, and access to advanced technology and data analytics
Cons: Often not available for businesses with unpredictable or low order volumes
A third-party logistics (3PL) company can handle every aspect of the supply chain, including inventory and warehousing, order fulfillment services, kitting and packing, shipping services, and returns, as well as industry-specific services. It’s the go-to fulfillment solution for large enterprises. According to Armstrong & Associates, 90% of U.S. Fortunate 500 companies use 3PL providers for their fulfillment needs.
Callout: Read our article explaining when it’s time to outsource your ecommerce fulfillment to see if you’re ready for a 3PL.
Businesses using a full-service option like a 3PL are able to focus on growth without the headache of processing their own orders. The best 3PLs have long-standing relationships with shipping carriers like FedEx, UPS, and USPS, so you get access to perks like bulk discount rates and priority shipping. Furthermore, 3PLs offer logistical expertise and leverage in-depth data to constantly optimize your supply chain.
A 3PL can offer benefits for businesses at any stage, with a few exceptions. If your monthly order volume is volatile or low, paying for a 3PL may not be cost effective.
Examples of third-party fulfillment companies include Red Stag Fulfillment, Shipbob, Rakuten Super Logistics, and Magento. We’ll cover how to choose a third-party fulfillment company in the next section.
4. Fulfilled by Amazon (FBA): 3PL service and business competitor
Pros: Simple fee structure and full access to Amazon Prime customers
Cons: Higher fees and lack of control over quality and customization
Fulfillment By Amazon (FBA) is a service that allows ecommerce businesses registered on Amazon to tap into the company’s vast network of fulfillment centers across the U.S.
Similar to 3PLs, your inventory is stored and organized in Amazon’s warehouses. When a customer places an order to your online store, Amazon picks, packs, and ships it. They’ll also provide customer support for questions, returns, and refunds.
FBA includes Prime shipping, giving you access to over 100 million Amazon Prime subscribers, or roughly 82% of American households. Prime’s same-day delivery or two-day shipping guarantee could give your sales a welcome boost from frequent shoppers.
But Amazon isn’t just a third-party fulfillment provider — it’s also a retailer selling and promoting its thousands of products. So, while FBA offers some advantages, it puts your wares in direct competition with Amazon’s algorithm, prices, and marketing machine.
How to choose the right 3PL fulfillment services
If you’re beyond the beginning stages of business, selling your own products, or ready to scale, outsourcing fulfillment to a 3PL is worthwhile. Each ecommerce fulfillment company will have different business models, requirements, and benefits.
Here are five considerations to keep in mind when you’re comparing providers:
1. Are fulfillment costs easy to understand?
Some 3PLs charge per pallet, SKU, unit, or item, while others charge by the hour. You may also see fee structures itemized by service, such as setup fees, storage fees, and shipping costs.
No matter what, the fee structure should be transparent and easy to understand so you can anticipate costs. Some of the best 3PLs offer cash guarantees, such as $50 per order, if they damage goods or make a late delivery.
2. Have they worked with similar businesses?
A 3PL with a customer base of similar businesses — industry, vertical, and size — is more likely to take care of your fulfillment needs without charging extra or committing logistical errors.
For instance, if you sell perishables, you’ll need a fulfillment service with a track record of prompt delivery and strict adherence to temperature and light controls. Look for a provider that’s experienced with your niche and has glowing testimonials.
3. Do they support your ecommerce platform?
Most 3PLs offer integrations with major ecommerce sites like Shopify, WooCommerce, and eBay, but that doesn’t mean their systems are optimized for your specific ecommerce store. Make sure the software is compatible with your platform, end to end, from your product listings and shopping cart to your shipping confirmation emails.
4. Do they have an updated tech stack and provide data analytics?
In one survey, 93% of ecommerce companies said strong technology capabilities are an important quality in their 3PL. Working with a 3PL allows you to capitalize on data-driven insights for your ecommerce business. These companies are at the forefront of fulfillment technology and real-time data collection, creating opportunities to improve customer experience and reduce logistical risk.
Look for a fulfillment service provider that does more than just ship orders. Ask about how they’re investing in their software stack, expanding integrations, and helping their customers solve problems using data.
5. Are they prepared for supply chain disruptions?
There’s no silver bullet to fend off the economic effects of pandemics, extreme weather, fraud attacks, severge labor shortages, and other unexpected events. That said, every 3PL should have tools and partnerships that help mitigate losses and prevent slowdowns while preserving health and safety.
Ask your potential ecommerce fulfillment partners about their disaster preparedness plan. How will they keep product lines moving and customers informed?
Signed, sealed, delivered
In-house fulfillment, dropshipping, and third-party logistics (3PL) are all viable options to maximize your sales and customer satisfaction. When your ecommerce company is growing, you don’t need to hire 100 staffers or sign lengthy warehouse leases to manage your logistics. Hand over your ordering, stocking, picking, shipping, and returns to an expert ecommerce fulfillment service, and get back to your core business operations.