A fulfillment company is a location that specializes in handling inventory, processing orders, and shipping goods for other businesses—effectively freeing up precious time and resources to put toward driving growth elsewhere. The term fulfillment refers to all functions of the supply chain related to receiving, processing, and delivering customer orders.
For many ecommerce retailers, the strain of handling fulfillment operations in-house leaves them at a loss for crucial resources like space and time. Fortunately for merchants, wholesalers, and manufacturers alike, these tasks can be outsourced to third-party partners called fulfillment companies such as ShipBob or Red Stag Fulfillment.
What Order Fulfillment Companies Do
Each step of the fulfillment process is important to ensuring your orders go out smoothly and your customer experience remains positive. Some merchants, especially as they’re just starting a retail business, find that these tasks can be efficiently performed in-house. When order volume outgrows available space, labor, and time, it makes sense to hand those duties off to a partner company. The graphic below shows how order fulfillment services work.
Here is an in-depth look at the six steps involved in order fulfillment.
1. Inventory Is Delivered To Your Fulfillment Company
The first step in working with a fulfillment company is getting your inventory to them. Depending on where your stock originates, there are multiple ways this can happen.
If you purchase goods for resale, your orders can simply be routed from your supplier directly to your fulfillment company. Then, when a stock shipment is en route, you’ll forward the details of the shipment to your fulfillment partner. Often, your purchase order or supplier’s order confirmation is all the fulfillment center needs to properly receive the shipment.
If you manufacture goods in your own facility, you’ll ship stock to your fulfillment company yourself via truck freight or parcel shippers like UPS or FedEx. Shipment details are provided when you notify the company of the inbound delivery, and the partner company takes it from there when the goods arrive.
2. Your Fulfillment Company Sorts Your Goods
Once it has made it to the fulfillment center, your stock is received and sorted by the partner company’s staff. Fulfillment companies receive inventory shipments in much the same way that any ecommerce warehouse or retail store accepts new inventory. Using the shipment details you provided, they check-in your stock by verifying quantities and inspecting for damage. It’s standard for them to confirm receipt and communicate any discrepancies before proceeding—giving you the opportunity to work with your supplier or shipping company to be credited for damaged or lost goods.
Once received, your products are managed and organized within the fulfillment center through a tagging system, just like in any warehouse or brick-and-mortar store. There are different methods used for this task, and the type of system utilized is largely dependent on the partner company you choose. Many companies offer the ability to coordinate with your personal SKU system for use in their tagging and organization; this usually comes along with fees based on SKU quantities and bin requirements.
Some fulfillment centers specialize in advanced Warehouse Management Systems (WMS) such as RFID tracking, video monitoring, and automation. These options are popular with merchants who sell high-value goods.
Did You Know?
ShipBob, a well-known order fulfillment company reports a 99.95% accuracy rate when fulfilling client orders. More than 5,000 ecommerce businesses use their service. 99.89% of their reported orders ship on time.
3. Inventory Is Stored By Your Fulfillment Company
With expert tagging and organization systems in place, your goods then move into storage. As opposed to a traditional warehouse meant for static, long-term holding, a fulfillment center is designed for optimized logistics and fast turnover. Keeping a healthy amount of merchandise available must be balanced against storage fees that incur when your excess stock sits around taking up space. Experts recommend preventing your goods from being stored in a fulfillment center for longer than one month.
Sellers should keep regular shipments coming in to ensure available stock is always sufficient to meet order demand. Data provided by your fulfillment partner can assist you in maintaining that balance. Growth of your company results in a more profitable partnership for them, so your fulfillment service provider is always happy to work with you in refining your processes.
Depending on the type of merchandise you sell, optional features like climate control and increased security measures can be added to your storage service to keep your goods in shape. Assess your specific needs and have them in mind when choosing which fulfillment company to use.
4. Customer Orders Route to Your Fulfillment Company
Now that your inventory is safely delivered to, received by, and stored within your fulfillment company, it’s ready to process your customers’ purchases.
No matter which system you choose to manage your orders, fulfillment companies go the distance to make connectivity simple. If you don’t have an order-receiving system in place, they can provide an online portal for manual order entry. Some fulfillment partners will even take care of this task for you, or offer customer service options to accept your orders via phone or email.
Here are some of the most common order-routing options.
Complete integration with your retail point-of-sale (POS) system, ecommerce platform, or order management software is the best way for your business to relay orders to a partner fulfillment company. This option automatically routes your orders into your fulfillment company’s internal system, allowing them to receive comprehensive order information—including product specifications, customer info, and shipping method—as soon as it is placed.
Complete integration is common between most fulfillment companies and top ecommerce platforms, POS systems, and order management systems. Since integration increases the efficiency of their operations, most fulfillment companies heavily promote this capability and offer it at no additional cost. When shopping for a fulfillment partner, look out for compatibility with your existing order-receiving system.
CSV File Order Submission
If your fulfillment company doesn’t fully integrate with the system you use, you can send orders in bulk using a comma-separated value (CSV) spreadsheet. This file type is a universal data format that most systems recognize. Virtually every spreadsheet program, POS system, ecommerce platform, and order management tool allows you to save your order data in a CSV file.
Most fulfillment companies have either a client portal to upload these files or an account representative who can take care of CSV entry for you. Depending on your sales volume, you may need to export order sheets multiple times per day, once per day, or even just a few times each week. The CSV file method requires more labor and attention than other streamlined options, but once the process is set up, it’s simple to perform.
Manual Order Entry
Most fulfillment company’s client portals also have a feature that allows for manual order input. It’s the least efficient method of transmitting order data to your partner company—each piece of order information is either manually typed or copied and pasted into the page, requiring lots of time and leaving your orders prone to error.
For sellers who prefer to keep their setup as simple as possible or maintain independence from technology, this rudimentary option comes in handy. Even for businesses who use the other order-submission methods explained above, manual entry is often the best means of entering phone orders, shipping sample requests, or handling other special order needs.
5. Your Fulfillment Company Processes and Ships Your Orders
Once your partner company receives your orders, they’ll process them for shipment and get them on their way to your customers. This part of the operation is commonly called pick, pack, and ship. Here’s how each step works:
“Picking” describes the process of selecting and retrieving ordered items from stored inventory. Often your fulfillment center will keep a small amount of stock near its packing station for efficiency, and reserve a larger portion in storage to periodically pull from. Fulfillment staff scans or checks the products that they pick against your order information then moves your items into the packing stage to prepare each shipment.
In packing, staff double-checks the accuracy of the picked items, then packages them accordingly. If your goods require assembly, many fulfillment companies offer the option to add specialty labor to this step.
Fulfillment centers are equipped to offer a range of shipping boxes, mailers, and packing materials to ensure the safe delivery of your items—they can even help you develop customized packaging for a branded unboxing experience, or assemble several products into a packaged group (an option called kitting). In response to the rising popularity of curated subscription boxes, many fulfillment partners offer kitting services tailored to this format.
Order receipts, return labels, and any other inserts are then added in the packing phase, which all can be easily customized as well.
Once everything is properly packed, the fulfillment staff seals boxes, weighs orders, and labels them for shipment. If a specific shipping method or carrier was designated on the order, staff will route the package accordingly. In all other cases, the partner company will rate-shop to find the lowest rate and most reasonable delivery time for each order.
Rate-shopping helps cut your shipping costs while keeping customers happy with quick deliveries. Since fulfillment companies usually ship in great volume with all carriers, you’ll enjoy far lower rates than you’d get shipping packages on your own.
Depending on the size and weight of your goods, partnering with a fulfillment company that specializes in shipping heavier products may make the most economical sense for your business. Red Stag Fulfillment’s capabilities are geared toward larger, weightier parcels averaging 10 pounds or more, and it offers a 30-day risk-free trial to find out if their service is a good match.
Once shipped, your fulfillment company will update the order status to your ecommerce platform, POS, or order management system. You can even set up automatic email notifications that send shipping information to your customers, allowing them to receive confirmation and track the status of their delivery.
Did You Know?
40% of online shoppers say that the time period after they place their order is the most important in regards to the brand experience. 75% state that communication about their delivery is essential as well as 73.6% state that the delivery experience overall is the most significant part of their customer experience. (Source: Convey)
6. Your Fulfillment Company Processes Your Customer’s Returns
Upon arrival of the order, the fulfillment process is complete—unless your customer wants to return the goods they purchased. Fortunately, partnering with a fulfillment company makes this procedure easy for you and your customers alike.
Most fulfillment companies receive and process returns as part of your basic service. By listing their address on any return information you publish or labels you send out, customers simply ship their unwanted goods directly to the fulfillment center where they are handled. You define the condition requirements for items to be added back to inventory, sold on clearance, or discarded, and your fulfillment company’s staff handles returned merchandise accordingly. Reports you receive from them for each returned item can be used to issue refunds or credit back to your customers depending on your store’s policy.
Some fulfillment companies charge restocking fees or returns-processing costs, so it’s important to know their pricing structure before partnering. If you sell goods with a high return rate—such as fashion apparel or electronics—be sure to consider this step of the cycle when shopping for fulfillment services.
Why Use a Fulfillment Company
With an understanding of how these services work, you might be wondering if your business could benefit from partnering with a fulfillment company. While performing these tasks in-house makes sense for many small-scale sellers, 60% of ecommerce retailers choose to outsource some or all of their fulfillment needs to a third party, according to a DHL survey. Here are the top reasons why:
Time and Priorities
The fulfillment process is complex and demanding; it requires a significant amount of time, attention, and space to be performed effectively. One of the greatest benefits of handing off fulfillment tasks to a third party is being able to redirect your time to areas where it may be better spent. Owners often find that the profitability increase they see from committing more attention to marketing, product sourcing, or development outweighs the cost of outsourcing fulfillment. If your daily priority is handling orders to be packed and sent out the door, important tasks that actually help to grow your business often take a back seat.
Flexibility and Scaling
Fulfillment companies can easily scale services based on order volume, which is another major benefit to outsourcing this function. Since they allocate space and staff across many accounts, you only pay for what your business actually uses. Then, when growth or seasonal fluctuations change your fulfillment needs, a flexible fulfillment partner can quickly allocate more resources to keep things running smoothly.
Performing your fulfillment operations in-house means adjusting labor and space capacity to handle shifts in order volume. This comes along with the increased workload of handling warehouse leases, payroll management, overhead expenses, and more. Then, when business naturally slows down, you can be left with an unwieldy excess of resources. By letting a fulfillment company manage these details for you, your business can be ready for anything—making it a popular option with dynamic ventures like crowdfunding projects.
“Promotional activities like a Kickstarter campaign, a new product roll-out, or unexpected attention from TV coverage or viral social media posts all lead to sudden spikes in order volume. Handling a surprise influx of orders efficiently is critical to gaining new customers and sustaining growth. You need a fulfillment company that can seamlessly scale to meet any changes in order volume without a hitch.”
— Anthony Watson, Vice President of Strategy, ShipBob
Leaving It to The Pros
Partnering with a fulfillment company is like hiring a team of experts to do what they do best. Fulfilling orders is a complex process with lots of moving parts, and any oversight or inaccuracy can have a big impact on customer experience. By outsourcing it to specialists, accuracy and efficiency are guaranteed, and their success is supported by a laser-focused operation.
In addition to expertise, fulfillment partners offer cost benefits from their unique relationships with shipping and supply companies. Since they purchase packing supplies and shipping services in great volumes, they can negotiate far better deals than any small business could hope to get on their own. Most fulfillment companies pass these savings on to their clients to gain and secure their business. When you run the numbers, the savings on shipping and packing materials alone often covers a large portion of your overall fulfillment costs.
Using services provided by a partner fulfillment company to handle the logistics of managing inventory, processing orders, and shipping goods allows you to focus on growing your business. Outsourcing these functions provides a host of other benefits as well that can facilitate development and optimize resources.
The fulfillment requirements of each seller are unique, and a vast range of different partners and services are available to choose from. Knowing how your needs stack up against your fulfillment options is crucial to finding the right match. Check out our recommended order fulfillment companies to learn more about how these services can work for your small business.
FulfillmentCompanies.net also provides a matchmaking service that compares your needs to prescreened potential partners.