Fulfilment and its importance for online stores

The online trade market has been actively developing for many years now. Users have highly appreciated this solution, as they have been able to buy the goods or services they need without leaving their homes. Businesses also receive a lot of benefits from online sales. However, there are still a number of nuances that have a direct impact on the efficiency of the business, the level of satisfaction from consumers and, as a result, the level of income.

We will dwell on one of these points in detail in today's review. In particular, we are talking about the organization of logistics for online businesses. Here it is necessary to purchase or rent a room where the goods will be stored, hire personnel who will accept and ship the products. You cannot do without effective inventory management, because the stability of the delivery of orders to customers depends on it, and illiquid goods are excluded from lying around in warehouses. And all this requires a lot of time, effort, and material investments.

Is there a way to simplify work with online business logistics? Yes. This is fulfillment for an online store. What exactly is this, we will now consider in more detail. In particular, we will get acquainted with what fulfillment is and what tasks of an online store it will help to solve. We will highlight its main advantages and disadvantages. We will provide the main areas where its use will give excellent results in practice. We will get acquainted in detail with the models and schemes of fulfillment that are used in modern practice.

We will also describe in detail all the services that this solution includes. We will tell you what points you should pay attention to when choosing a fulfillment operator. Let's talk about pricing for these services. We'll show you what a business that doesn't use fulfillment loses. The information provided will allow you to get a detailed understanding of the fulfillment issue and understand the need to use this solution for your online store, as well as choose a suitable assistant who will take on a solution to a wide range of logistics tasks.

Perhaps you will be interested in studying the issue of automating SEO tasks for an online store using artificial intelligence.

Fulfillment: what is it

Fulfillment — This is a fairly impressive set of logistics services, including the acceptance of goods, their processing and subsequent storage, as well as packaging and sending to customers. If we speak more simply and clearly, then in this case we are talking about outsourcing absolutely all operations related to warehouse storage, transportation. And here the fulfillment operator comes into play - a specialized company that will solve all these problems, completely relieving the online store of logistics-related issues.

In practice, this solution will work as follows:

• the online store organizes the delivery of its products to the fulfillment operator's warehouse;
• as soon as an order is placed on the website, this information is automatically transferred to the warehouse;
• the staff finds the appropriate products, assembles the order, selects suitable packaging for it and transfers it to the delivery service.

It turns out that this entire process occurs without the direct participation of the owner or managers of the online store. That is, online retailers can fully focus on their core business, focus on promoting goods, organizing their sales, while the fulfillment operator will take on all warehouse and logistics tasks. As a result, you get rid of the need to maintain your own warehouse and hire a staff. The contractor also takes control over the availability of goods. As soon as the warehouse runs out of the corresponding products, you will receive a corresponding notification and will be able to replenish stocks in a timely manner.

The use of fulfillment will be especially useful for companies that are just starting to develop in the market, small online stores.

Why online stores should use fulfillment

Fulfillment for online stores currently plays a very important role. It allows you to delegate a fairly wide range of tasks related to responsible storage and logistics of goods to specialists. Thanks to this, the work of a business on the market becomes more efficient, in many cases even less costly in financial terms. So, using fulfillment in practice, you will be able to solve a number of key tasks within your business:

1. Ensure time savings. In this case, you outsource routine daily work, freeing up time to solve really important business problems. While trained specialists will develop logistics schemes for you, you will be able to develop effective marketing strategies, select products that meet the constantly changing demands of the target audience, analyze the results achieved, think over a strategy for developing and scaling the business, attract a new audience and offer interesting solutions to regular customers.
2. Expand the geography of sales. Using the fulfillment scheme in your work will help you easily and quickly enter international markets. This is largely ensured by the ability to select warehouses and the operators themselves in close proximity to the consumer market. As a result, this leads to a reduction in material and time costs for transporting products.
3. Minimize operating costs. Most fulfillment operators simultaneously service several online stores. This allows them to optimize the costs of renting warehouse space, purchasing specialized equipment, and paying staff. At the same time, you will be required to make timely payments for the services actually received. Practice shows that such scaling has a positive effect on the cost of the fulfillment operator's work: there is a tangible benefit compared to independently organizing the entire logistics process.
4. Significantly speed up the delivery time of goods to customers. Most such warehouses are located in close proximity to sorting centers, large logistics hubs, and transport hubs. Also, today there are many services that have established direct cooperation with various courier delivery services. Thanks to this, they have post offices located almost throughout the entire territory of a given country. Accordingly, the time for transporting orders is significantly reduced. Most customers receive their goods literally 1-2 days after placing the order.
5. Significantly improve the quality of service and the level of customer satisfaction from cooperation. All those fulfillment centers operating today in most countries of the world use a single WMS management system. They use universal bar codes, special scanners and a number of related technologies that significantly improve the quality of work, minimizing the risks associated with the human factor. The risk of damage or loss of goods, missorting is significantly reduced. And here you can set up direct integration with the online store. Thanks to this, you will be constantly aware of up-to-date information about the balance of goods in warehouses, you will be able to control the shipment status for each individual order literally in real time.
6. Ensure simple and convenient scaling of the business. Independent work with logistics — this is something that can lead to a lot of problems and errors if the number of orders increases. Practice shows that in such conditions, parcels are often lost, packaging is damaged, which immediately causes an increase in returns, requires lengthy proceedings with customer claims. And all this will require a lot of time and effort from you. Often, you will have to sacrifice something here. And in most cases, this has a negative impact on internal business processes. Fulfillment operators help to avoid all this. Their work is structured in such a way that maximum efficiency and stability in processing and shipping orders is ensured if your store receives 10, 20, or even 100 orders daily. In most cases, this is ensured by a well-established approach, the presence of a large staff of specialists who have learned to cope well with their daily duties. There are no problems here even under peak loads.
7. Stability in work within absolutely any business. Until relatively recently, it was believed that fulfillment should be used in practice only in the work of large online stores. But today the situation has changed quite dramatically. On the contrary, the advantages of delegating all work related to the storage and logistics of orders to specialized services have begun to be felt more by small sites and even those who sell individual goods. The fact is that here the fee is charged only for the services actually involved. That is, the more goods you store in warehouses, the more deliveries you make, the more you will have to pay fulfillment operators and vice versa. This means that almost any online store can easily outsource the solution of its business logistics tasks.

As you can see, the benefits of using fulfillment for online stores are quite impressive.

The main advantages of using fulfillment

If we analyze all the features that we talked about above, we can highlight a number of key advantages of fulfillment. In particular, we are talking about the following points:

• a noticeable reduction in logistics costs, which will be appreciated not only by beginning entrepreneurs, but also by those who have been working in the market for a long time: everything that is not spent can be recorded as profit;
• the ability to choose a suitable localization that ensures faster delivery of goods, which will have a positive impact on the formation of a positive user experience, reduce the number of non-redemptions, returns, cancellations, as well as logistics costs;
• compliance with the current standards of external platforms that reduce sanctions, the number and amount of fines for non-compliance with standards;
• significant savings, since the online store does not pay for the placement and storage of products, does not waste time and effort on order management;
• the ability to organize work according to different schemes FBO, FBS, DBS even within one warehouse (we will consider in more detail below);
• delegation of a number of additional powers to fulfillment operators, including communication with clients on delivery issues, processing returns and transactions with a negative result, sending notifications about the shipment of a parcel;
• in case of return of the goods, they will be delivered to the same warehouse from which they were delivered, which greatly simplifies processing: in comparison with marketplaces, where these works take several weeks, here everything is resolved as quickly as possible.

Also do not forget that in addition you get detailed analytics, a set of ready-made iterations, one work account for absolutely all sales channels, a significant reduction in staff and, accordingly, costs for payment of wages. And if you take into account the fact that fulfillment operators have fixed rates, you can easily perform unit economics calculations and plan your work as efficiently as possible.

Disadvantages of using fulfillment

Along with such more than significant advantages of fulfillment, there are still points that you need to know in advance and be sure to take them into account before starting work. Let us note right away that there are not many of them and they depend primarily on the operator with whom you decide to cooperate. If you decide to expand the chain of logistics processes by including intermediaries, then, accordingly, the risks associated with the loss of products, their spoilage, expiration of the shelf life will also increase. So, from the disadvantages of fulfillment it is worth highlighting:

• Significant loss of control over logistics. In this case, you delegate all tasks related to storage and logistics to the contractor. This means that if he makes a mistake, if the product spoils, gets damaged, or is delayed on the way due to his fault, then all claims from buyers will be sent to you. Accordingly, there is a risk of negative reviews that can worsen your reputation in the market.
• Additional expenses. This point is quite relative and you can understand whether this is really the case only after a detailed calculation. On the one hand, you will have to pay the fulfillment operator for his services. Along with basic operations, you may also be required to pay for sending SMS notifications to buyers, labeling goods and other additional services. Therefore, it is necessary to carefully study the terms of cooperation in order to understand in advance what and how much you will have to pay for. This is the only way you can avoid unpleasant "surprises" associated with additional costs. But on the other hand, you save on warehouse rent and staff salaries.
• Higher risk of damage or loss of property. If you delegate the management of your warehouse stock to a third-party organization, then you will have to rely on their reliability and competence. Responsible operators always try to minimize such risks by strictly monitoring quality, launching automation processes, and insuring cargo.

We would also like to draw your attention to the fact that, according to standard contracts, absolutely all deliveries are subject to mandatory insurance. This means that your interests as a seller will be protected. All these negative aspects can be minimized if you choose a truly reliable fulfillment operator, and also correctly specify the areas of responsibility in the contract.

Who should use fulfillment and when

Now we have come close to determining who needs fulfillment, which business representatives will get the most benefit from it in practice. By and large, such a solution will be useful for many business representatives, since delegating responsibilities related to responsible storage and logistics relieves you of many routine and monotonous tasks, allowing you to focus on solving more important problems. But still, there are a number of situations when fulfillment will be truly irreplaceable:

1. Bringing a new project to the market. When you are just launching an online store, it is difficult to predict what the demand and volume of work will be, whether this or that product will appeal to the audience. And initially, in such conditions, renting warehouse space, hiring personnel and building business processes from scratch will be too risky, and also costly in material terms. And here you risk nothing if you contact fulfillment operators. Let us repeat that here the payment will be charged for the work actually done. That is, if there is no demand for the product, you will not pay for the services.
2. High sales turnover. The more clients you have, the more profitable it is to outsource some of your business processes. This will also be relevant for logistics. Thanks to this, you will be able to minimize the load on your staff and eliminate the need to involve third-party specialists. Moreover, you will be sure that all orders will be processed as correctly as possible even if the volumes are higher than initially expected.
3. Scaling the business. Relevant for cases when you decide to enter new regions or countries. There are always problems with logistics here. It is necessary to select appropriate warehouses that would be located in close proximity to customers, recruit staff, and also build a supply chain. Implementing this from scratch is extremely expensive both in time and money. Why all this, if in each country, region you can find an operator who has all the necessary infrastructure and is ready to take on all the upcoming work? It independently integrates your online store into its work, guaranteeing the fastest possible delivery of orders.
4. Sale of the most simple and popular goods. Here we are talking about products that do not require special storage conditions and special pre-sale preparation, and are not perishable. That is, if you sell clothes, accessories, household appliances, office supplies, then fulfillment will suit you just fine. In this case, the risks associated with less than responsible storage are minimized.
5. Launch of sales on marketplaces. If you are familiar with the specifics of these platforms in general, then you probably understand that your own logistics are completely pointless here. It is much easier to use the capabilities that are built into the platform or to involve third-party operators in the work.

If you recognize yourself in at least one of these points, then it is time to study the issue of fulfillment in more detail in order to implement this technology in your work.

Fulfillment models that a modern online store can use

If you still decide to use this technology in your business, then the first thing you need to do is choose the most suitable fulfillment model for yourself. There are several options here:

• Own logistics. If you have already worked with marketplaces, then you know that this scheme is called DBS, that is, Delivery by Seller. It assumes that the online store takes on all work related to the delivery of orders. This option should be used by small projects with a limited number of orders or, on the contrary, by large companies that have already built all business processes.
• Transferring logistics to the operator. If we compare it with marketplaces again, this model is called FBO, that is, Fulfillment by Operator. Here you delegate all functions and tasks for monitoring orders to the corresponding fulfillment operator. You deliver the goods to their warehouse, and they take on all subsequent work.
• Partial fulfillment. On marketplaces, this approach is called FBS, that is, Fulfillment by Seller. The point is that certain online stores use a hybrid scheme, in which they perform some of the logistics operations themselves, while other work is transferred to operators. Alternatively, sellers can pack their goods themselves, assemble orders for each client, and the actual delivery will be taken on by the performers.
• Combined fulfillment model. This is a hybrid approach that involves the use of various channels of interaction with the consumer audience. Ideal for stores that sell different product categories. In this case, a separate model of work from the above is selected for each product group. Alternatively, you can decide to send large-sized goods yourself, while entrusting the transportation of small ones to contractors.

To choose the right fulfillment model for you, you need to evaluate what product categories you work with, what sales volume you plan to have.

Fulfillment schemes

Fulfillment operators can use several basic schemes in their work:

1. B2B. This is about processing orders that will be conducted between different companies. These can be large batches of products, wholesale purchases, corporate inventory management, and any other deliveries for another business.
2. B2C. This will be processing orders that come from end customers. This is the scheme most often assumed by fulfillment for online stores. It turns out that specialized operators take full control of all processes related to the responsible storage and delivery of goods to the consumer.
3. 3PL. A classic solution in which the service acts as a third party between the buyer and the seller. That is, here you keep sales and marketing under your control, and transfer all related logistics functions, including packaging, storage, transportation, and return management, to the fulfillment operator.
4. 4PL. This scheme provides more comprehensive management of all logistics routes. Often, additional coordination of the work of several suppliers from the 3PL category is already provided here, which allows you to optimize the entire logistics chain and increase its efficiency.
5. D2C. Within the framework of this scheme, companies directly sell their products to consumers using their own channels, such as online stores. In this case, the fulfillment operator takes on the storage, packaging and delivery of goods, but the business takes on the entire process of sales management and interaction with customers.
6. Cross-docking. Within the framework of this fulfillment scheme, the operator will accept goods from the supplier and immediately send them to the buyer, eliminating long-term storage in warehouses. One of the most significant advantages here is a significant reduction in the time spent on processing and delivering orders.
7. Warehouse fulfillment. With this scheme, the operator takes on all tasks related to the storage and management of orders. If necessary, third-party services are involved in the implementation of other operations, be it packaging or delivery.
8. Multi-level fulfillment. Here, several channels are used to sell products, such as online stores, retail chains, and marketplaces. To organize the work in this case, it will be necessary to connect additional systems and provide for complex coordination over logistics.

To choose the right fulfillment scheme, you need to evaluate the features and specifics of your business, sales volumes, determine what level of control and integration you want to ensure.

List of classic fulfillment services for online stores

Fulfillment for an online store is a comprehensive service that includes a fairly impressive set of individual processes. Most modern businesses delegate the following tasks to operators:

• Reception of goods. To carry out such work, fulfillment operators have a trained staff of specialists. Their responsibilities include checking each delivery for its compliance with the invoice, comparing the number of received items with what was specified in the documentation, monitoring the integrity. In the event that certain discrepancies or damage are detected, then acceptance is not processed until all the details are agreed upon with the supplier. Considering that each individual product item is checked during the check, these works take a certain period of time. Accordingly, the larger the volume of the delivery, the longer it will be processed. Without this, it is impossible to ensure comprehensive accounting and quality control. As a result, each item that has passed the check is marked with a special barcode, which will subsequently be used to track its movement or location in the warehouse.
• Storage of products. After your goods have passed the acceptance stage, they are placed in accordance with the appropriate storage conditions. Mostly, pallets, racks, and, if necessary, refrigeration and freezing chambers are used. Storage fees are mostly charged based on the amount of space occupied. Before you transfer a product for storage, you should take into account that there are currently legislative restrictions on the sale of certain types of goods. In particular, this applies to tobacco, alcoholic products, medicines and certain categories of jewelry. This means that they cannot be stored in the operators' warehouses. Certain nuances also apply to food products. Most of them require individual packaging and certificates of conformity. That is, fulfillment does not apply to food products that require packaging before shipment.
• Picking up user orders. The operator's responsibilities will include preparing goods for shipment in accordance with the incoming purchases. Here, the optimal packaging option is selected, the goods are prepared for shipment. If necessary, additional picking is carried out from related warehouses. To calculate the cost, simply take into account the number of goods shipped. The barcode, which was applied to each individual item at the acceptance stage, significantly simplifies and speeds up the upcoming process, improves the quality and accuracy of the work performed, and significantly reduces the risk of shipping items. Please note that in the event that it is necessary to perform an additional check of the product before sending, for example, to make sure it is in good working order, the fulfillment operator will charge an additional fee for this. At the direction of the head of the online store, at the packaging stage, warehouse employees can add various bonuses for customers to parcels, be it product samples, discount coupons, various booklets, etc.
• Order delivery. Most fulfillment operators enter into delivery contracts with transport services. Here, the courier service will pick up the prepared orders, deliver them to the terminal for subsequent shipment. Thanks to this solution, the online store significantly speeds up the shipping process, and also increases the convenience of customers when receiving their order.
• Accepting payments from consumers. If necessary, you can delegate to the fulfillment operator the responsibility for transferring funds from buyers to the online store; in this case, this service will act as a payment agent. Initially, the money will be credited to the service's current account, and then redirected to the seller minus the amount of its own services for this operation. As a result, you get rid of the need to launch an online cash register, and accepting money is simplified. But here you need to be prepared for the fact that money transfers from the operator's accounts will take a certain amount of time. Most service providers make such transfers twice a month. That is, it is almost impossible to find an operator who would transfer you money for each order sent literally right away. As a result, a business that does not have an impressive amount of working capital may face certain cash gaps. There is a high probability that there will simply be nothing to buy new goods for. Large operators have their own accounting department, which will monitor all financial flows, prepare reporting documentation for the relevant government agencies, as well as for you personally.
• Acceptance of returns from customers. Here you yourself provide for how the execution of these works will be organized. In particular, you can specify in the contract that returns will be sent to the operator's warehouse or directly to you. In the first case, warehouse employees will check the condition of the goods, identify the reason for the return, and establish its objectivity. And based on this information, make an appropriate decision, whether it is a return to the shelf pending new orders, sending to you, or a markdown.

As you can see, the list of works that can be delegated to fulfillment operators is quite wide. This means that you can shift a lot of tasks to an organization that will perform them with the highest quality and professionalism.

Choosing the right fulfillment operator: basic recommendations

Considering the advantages and disadvantages of fulfillment for an online store, we said that the efficiency and reliability of using this solution directly depends on which operator you choose as your assistant. To avoid mistakes at this stage, you need to pay attention to a number of key points:

1. Cost of services. You should not choose an operator whose fulfillment price is too low. You just need to get your bearings in the state of the market as a whole, determine its policy and bet on something in the middle. Next, it is important to pay attention to the range of services that this operator will offer. In particular, you need to understand what exactly you will receive for the specified price. Particular attention should be paid to the period of free storage, the availability of discounts, bonuses for ongoing cooperation and other individual conditions.
2. Sales channels. Here you should look for a solution based on which sales channels you use. It is one thing if it is only an online store and completely different if you also work with marketplaces and social networks. It is important to find an executor who would take on the solution of all these tasks. Otherwise, you will have to delegate responsibilities to different contractors, which will significantly complicate the sales process, as well as monitoring the effectiveness of their work.
3. Services provided. Here it is worth looking for flexible solutions. It is important to focus on those operators who agree to take on exactly the work that you are ready to delegate to them. So, some online stores will only need storage and delivery, others expect to receive assistance when entering the market as a whole, etc. But it is also important to pay attention to small details. As an option, it is good if operators unpack goods and video record their packaging in case of return, preventing fraud on the part of the buyer. Also evaluate whether you need payment acceptance, the presence of special widgets for sites, reporting. That is, if you do not need any of the services provided, you should be able to refuse it without the slightest problems and risks. This is where the individuality of the approach is largely manifested.
4. Geography of activity. Here you should also focus on the city, country, region in which you plan to conduct your business. This is especially true for cases where the sales geography is as wide as possible. It is optimal that you can delegate all logistics tasks to one contractor. And of course, the rule remains relevant that the closer the fulfillment operator's warehouse is to your buyer, the faster and cheaper the delivery will be.
5. Additional points. Here we recommend paying attention to the level of automation of the operator, how quickly and professionally their support service works. Also evaluate the available resources. That is, here you should understand what tools are offered to you, and also evaluate their usefulness for your online store.

Only having oriented yourself in each of these points, you will be able to choose a fulfillment operator that will best meet your needs in terms of the range of services provided, as well as their cost.

How is the fulfillment price formed?

The price of fulfillment is another question that will be extremely relevant for any online store. It is important to estimate approximately how much their services will cost you before starting work with the operator. It is clear that you will be able to find out the final cost only after a detailed discussion of the terms of cooperation with a specific operator, but you can still get an approximate idea of the market pricing policy in advance. A large number of different factors have a significant impact on the formation of the fulfillment price:

• Payment for acceptance of goods. This will include unloading, quality control, sorting and labeling. Tariffs are on average 5-10 rubles per unit of goods (100-200 rubles per pallet). That is, you can perform simple calculations to understand how much it will cost you to accept the goods.
• Payment for storage of products. Here, the necessary storage conditions have a significant impact, as an option, standard conditions will cost much less than the need for special temperature zones. In most cases, one pallet space or a cubic meter of goods is used as the initial information for calculations. On average, this is 20-50 rubles per day of storage for each unit.
• Payment for assembly and packaging. Here, the price of fulfillment is affected by the complexity of assembly, as well as the selected type of packaging. In most cases, the tariffs here are 10-20 rubles per unit or 50-100 rubles. for the entire order.
• Delivery fee. It is affected by the weight of the parcel, the distance it needs to be delivered, and the chosen method of transportation. In most cases, for large cities, the rates are around 150 rubles, while for regions the price can be 2 times higher.
• Payment for processing returns. At this stage, money will be charged for checking the condition of the product, the need for repackaging, and disposal. If we take the average figures, then each return will cost the business approximately 50-100 rubles.

Now take your sales figures to roughly calculate the fulfillment price for yourself.

The impact of fulfillment on the development of an online store

If you approach the issue of fulfillment for an online store superficially, it may seem that these are just additional expenses. But this opinion will change dramatically after a deeper and more detailed study. You should understand that manually organized logistics can provoke operational chaos, will cause a lot of negative feedback from consumers, etc. Here are just a few points that the lack of fulfillment in your business can entail:

1. Errors related to the human factor. In most cases, the work of packing and sending orders in online stores is assigned to managers, that is, those who must also perform a number of related tasks. The lack of barcodes, scanners, automation leads to confusion. As a result, buyers receive the wrong product, there is no gift in the parcels, delivery is delayed. This is what increases the likelihood of returns, worsens the user experience.
2. Decreased trust in the brand. This follows from the previous point. If a person receives the wrong order, if it is delayed in sending, if you forget to give him a bonus, then, with a high degree of probability, he will simply not come back to you. All these minor moments have a negative impact on the development of the business as a whole, reduce the brand's reputation, require additional expenses to attract new customers, most of whom will never be transformed into regular customers.
3. The tie is in the routine. If you or your managers are constantly looking for lost parcels, picking up packaging, taking parcels to the delivery service, spending time sorting out complaints, then you can forget about finding ideas for development, scaling the business. Such a routine is really addictive and requires a lot of effort, which ultimately leads to a deterioration in the business as a whole.

And this means that you still need to think about using fulfillment in online stores.

Let's sum it up

Fulfillment for an online store is not only about convenience. This is your chance to ensure the most effective development of your own business, aim for new heights, but at the same time optimize your costs, eliminate the need to hire new staff. This is an opportunity to increase the quality and quantity of orders processed, reduce warehouse maintenance costs, and focus your efforts on generating profits rather than on routine work. At the same time, the speed and quality of customer service will also improve, which will contribute to increased customer loyalty.

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