The growth of e-commerce has driven major change in the fulfillment center (FC) landscape with faster item-processing speeds and improved speed-to-market (delivery). Additionally, enhanced electronic communication and notifications originating at the FC level are benefiting the merchant, carrier, and customer. However, it is still a challenge to find the FC that best serves a merchant’s unique requirements as one size does not fit all.
Affordability is also a critically important part of the equation as FC expense quickly eats up margin, and FC charges are going up based on:
- E-commerce driven growth resulting in capacity challenges.
- Increased labor cost due to worker shortages.
- Inflation driving across-board cost increases on everything from boxes to equipment maintenance.
The wrong fulfillment solution will also drive unnecessary cost and service delays, so it is critically important that a merchant selects the correct model, and there are many.
Third-Party (3PL) Fulfillment
Third-party logistics in fulfillment and supply chain management is an organization’s use of third-party businesses to outsource elements of its distribution, warehousing, and fulfillment services. These FCs represent multiple customer-merchants and work with various carriers and carrier types, to support the individual needs of their diverse client base.
Third-party logistics providers, (or 3PLs) offer comprehensive and even one-stop solutions for merchant supply chains in packaging, warehousing, transportation, and order fulfillment support services.
In addition to managing receiving, storage, processing, shipping, and returns, the various types of 3PLs are optimized to provide additional services, like on-demand transportation and data analysis to help organize merchandise and anticipate lead times. 3PLs also provide built-in inventory management software and manage the following elements.
- Order acceptance.
- Generating pick lists and picking products.
- Kitting and assembling items.
- Packing boxes.
- Labelling shipments.
- Shipping orders.
- Multi-carrier shipping solutions.
- Managing returns.
- Software platform integrations.
- Reselling their highly discounted rate programs.
3PL Regional Fulfilment Centers (Networked)
Networked FCs are made up of connected, individual FCs that can provide fulfillment support services across the country. Thanks to their strategic locations, a networked group of FCs managed by a 3PL can usually provide lower cost, 2-day ground service to 90% of the US population, in addition to all the normal fulfillment service requirements.
Micro Fulfillment Center (MFC)
MFCs are automated fulfillment centers, with footprints typically ranging from 10,000 to 20,000 square feet, with some as small as 5,000 square feet. They can be cohoused inside an existing store or placed in a smaller warehouse space or occupy stand-alone facilities. MFCs tend to be located close to the core of major markets and specialize in supporting both same-day and next-day delivery. MFCs tend to manage limited quantities of small household products and must be replenished often.
Smaller MFCs also means that fewer SKUs are available with increased product replenishment cycles. Reliable predictive analytics technology is also a mandatory requirement so that limited product storage space is stocked with product turning over the most.
Drop shipping can be the most efficient and usually the lease costly fulfillment solution as it bypasses the fulfillment center altogether with orders being sourced from the manufacturer or primary distribution center. However, the merchant loses an amount of control via this solution which can result in overall service degradation as a distributor/importer is normally not necessarily expert in fulfillment.
Self-fulfillment with products being sourced from a merchant’s primary DC is an option, but also has its draw backs:
- A trained labor force is a requirement to include management personnel.
- An investment in automated fulfillment technology and hardware is also necessary.
- Capital investment in building expansion will be required as a merchant grows their business.
The correct fulfillment solution will save money and result in an excellent service experience for the customer.