The order fulfillment process includes all of the steps a company takes between receiving a new order and delivering it to the customer. An effective order fulfillment strategy is key to ensuring impeccable client service, which builds a good brand reputation for your e-commerce business. About 38% of online customers say that a negative delivery experience will deter them from shopping at that online store again. To prevent such an adverse outcome for your online business, you must manage and implement key steps in the order fulfillment process. Here are some important order fulfillment terms and related pricing.
Order Fulfillment: Key Terms and Definitions
When you are working toward an order fulfillment strategy, knowing the key terms used in planning and executing is essential.
A 3PL, short for third-party logistics, is a vendor you’ll be working with for your order fulfillment needs. 3PL providers help you outsource logistics and warehousing requirements, including storing, inventory management, picking, packing and order shipping. Partnering with a 3PL provider makes sense when your e-commerce business grows to the point where sales volume exceeds your capacity to fulfill orders yourself.
Dropshipping refers to an e-commerce model where the business processes orders from customers but does not stock the product in its own physical location. Instead, the business partners with a provider who handles inventory and also manages the order fulfillment process from end to end. Dropshipping is useful for e-commerce startups who want to test the waters without committing to large-scale investment. Companies that offer dropshipping can also process returns and fulfill any custom packaging requirements for specialty products.
If you have customers in different geographic locations, distributed inventory is a strategy that facilitates fast and efficient order shipping by storing products in warehouses across the country.
The cycle count process is part of inventory control and focuses on counting a small batch of inventory in a specific location on a particular day.
Bill of Lading
A bill of lading (BOL) is a receipt of services issued by a freight carrier that contains the intended destination of a shipment. It also lists the weight of the shipment and the type of commodity. BOLs include three copies for reference – one for the transportation company, one for the 3PL and one for the customer.
A distribution center (DC) is a warehouse facility that stores goods in a safe and product-appropriate setting before being sent to stores. Requirements for the facility can include providing special conditions such as temperature and humidity control and refrigeration.
If you are an online seller, two types of weights determine shipping costs. One is calculated in standard pounds and ounces; the other is the dimensional weight, sometimes called volumetric weight. Dimensional weight is the entire volume that the package occupies. Carriers calculate both the actual weight and dimensional weight and charge according to the higher number.
Each major U.S. carrier calculates dimensional weight using its own unique formula. Retailers can lower shipping costs by packing items as compact as possible, especially if they are large but light items. Generally, it is best practice to cut out any unnecessary space when shipping.
Order Fulfillment Fees
Once you have decided to outsource order fulfillment to a service provider, you will need to carefully assess their pricing. Crunching the numbers is challenging but necessary, as different fulfillment centers have varied fee structures. The following are some commonly used order fulfillment pricing line items along with brief explanations of what they mean.
Pick and Pack Fees
Pick and pack fees are a common service charge levied by most fulfillment centers. These charges cover basic packaging materials, and are usually included as part of the total fulfillment cost. You may need to shell out extra for special packaging requirements or to add more items to each order, such as marketing or promotional materials. Many fulfillment centers offer discounts upon reaching a certain number of monthly orders. When signing a contract with a service provider, ask about any available discounts for bulk order processing.
If you are outsourcing your order fulfillment, you will need to pay for the storage space to keep your items secure until shipped. Most third-party fulfillment vendors calculate storage fees as cost per cubic foot and cost per pallet. Most fulfillment centers optimize their warehouses, so you will only pay based on the space your products occupy.
Third-party providers manage their product handling to receive shipping discounts on large shipment volumes. Shipping charges are based on your product size, weight and carrier charges. Depending on the volume of orders you place with a vendor, you can anticipate shipping discounts, which can save your operation money.
Kitting and Assembly Fees
Kitting and assembly fees are for products that require assembly before shipping. This fee is typically charged on an hourly basis, usually between $30 and $50.
Effective handling of returned items helps you minimize losses and reduce any negative impact on your business. Most fulfillment centers will also handle returns as part of the order fulfillment process. They may, however, charge you for processing faulty or unwanted items returned by customers. This is known as return fees and is a standard component of an order fulfillment pricing structure. Return fees encompass inspecting products for defects, and either returning them to the inventory or disposing of them.