How Online Retailers Can Pick the Right Fulfillment Model

fulfillment

The following is a guest post from Harrison Dromgoole, a Content Creator at Ordoro

Fulfillment may be anything but the most ‘fulfilling’ aspect to running a business for many online retailers, but it’s an essential part that can’t be taken lightly. Most merchants’ fulfillment models fall in three slots; in-house, outsourced, and dropshipping. Like Goldilocks and the three bears, let’s jump straight in and go about figuring out which strategy is just right for your business.

Fulfillment in the House

If you aren’t dropshipping (which we’ll get to later), you’re almost certainly going to be fulfilling in-house just starting out. You pick and pack orders as they arrive to your online site, and you ship them on your own.

Compared to other methods, it’s pretty simple, which is why it’s how e-retailers usually kick off their businesses. The best part about in-house fulfillment is complete control. You control every aspect of the fulfillment process, from taking orders, packaging them, to shipping them out. It’s all on you.

Because of that control, it’s possible to brand and personalize your product’s packaging to give it some TLC that gets customers seeing rainbows. And since you stock and ship your own product, you can also react quickly to changing demand. If a product is flying off the shelves, stock up quickly. When that fad-related product sees a plummet in demand, issue a promotion to clear space in your warehouse.

At the same time, that control is the worst part to in-house. You’re going to have to do this all on your own, and that’s a deep time sink. Rather than spending time on your branding, social strategy, or any of that marketing, you’re likely going to be swamped with the necessary day-to-day task of getting orders out.

But at what point do the costs – in terms of both money and time – get to be too much? Essentially, you must judge whether having complete control of your fulfillment is worth the cost and effort. If it’s not, outsourced fulfillment is another option.

The Benefits of Outsourced Fulfillment

Outsourced fulfillment is all about taking your fulfillment operations – inventory and shipping – and moving them to a privately owned warehouse that takes your orders and ships them off for you. Obviously, both the warehouse space and service come at a cost, but the trade-off is a lot more time to focus on other aspects of your business.

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The chief perk to outsourced fulfillment is not having to deal with fulfillment. You’ll be paying pros to do it all for you. But you’re losing some control in the process. To have the personalization mentioned earlier, you’ll have to work with them to see if it’s possible. Fulfillment centers tend to be highly efficient, and a cost of that efficiency tends to be a drop in the personalization and TLC you can create on your own.

Probably the most serious concern with outsourced fulfillment is a lack of eyes on your inventory. If you’re doing it all yourself, you know how much product you’ve got, the status of each unit, and when you need to restock. It’s absolutely critical that the warehouse either sends over regular updates on inventory, or integrates with your sales channels to keep your back-office organized and prevent out of stock situations.

At the end of the day, calculating your margins and crunching your numbers will help determine whether it’s a good fit for your business. If you reach a level where you’re pulling a consistent volume of orders that warrants a warehouse, or you’re simply getting tired of the fulfillment grind, put it on the table for consideration.

Dropshipping Like It’s Hot

Dropshipping is the dream for some online retailers, particularly beginners. To many, the most appealing part of running an online store is building a brand. Doing the marketing and sales, the customer relations, social media – all of that is the fun part. Handling fulfillment isn’t, and dropshipping prevents merchants from having to get their hands dirty with it.

It’s a fulfillment model where merchants’ suppliers pack and ship out customers’ orders. It sounds similar to outsourced fulfillment, but the big word is ‘supplier.’ Dropshippers have no inventory or warehouses – they have an agreement with a supplier to market and sell that suppliers’ products. Your entire back-office operations are put in their hands, and it’s a possibility to work with multiple suppliers. The merchant’s job is simple: sell the product and send the order to the product’s supplier to be fulfilled.

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But like anything, there are positives and negatives. Unlike in-house and outsourced fulfillment where there are varying amounts of control that a merchant has over getting the order out to the customer, a dropshipper has little to none. While a merchant can definitely inspect and vet the suppliers he or she works with, the quality and quantity of orders and products is out of their hands for the most part.

Like outsourced warehousing, the ability to personalize packaging is sacrificed unless an agreement can be worked out with your supplier. A return policy also needs to hammered out to determine who receives the damaged, incorrect, or unwanted order. Returns are an opportunity to learn what went wrong and correct an issue to keep a customer coming back. If it goes to the supplier’s warehouse, you won’t be able to collect that valuable information.

It isn’t like in-house, where you can react to demand. Your product supply depends on the supplier, so any shortage in stock is out of your control. A customer upset that a product is out of stock is out of luck until the supplier has more. There’s also an underlying risk with dropshipping because you’re technically a middleman between customer and supplier. Ensuring that the supplier doesn’t simply take the customer’s information, cut you out, and sell to them directly is important.

Dropshipping isn’t free either. You may be doing them a favor by getting product out, but suppliers tend to charge premiums for their services. Like any other methods of fulfillment, working out the margins is critical to understanding if dropshipping will work for you.

Which is just right

Long story short, each of the above fulfillment methods lies on a spectrum of control, with in-house having the most and dropshipping the least. All that matters is that you’re aware of the pros and cons of each.

The reality is that your margins and own personal needs will determine which is just right for you. There’s no exact order quantity or revenue number that determines when you should choose one over another. If you’re all about preserving a strong brand and aren’t overwhelmed by fulfillment, having total control may be best. But if you’re completely repulsed by all things fulfillment, experiment with dropshipping. For a mix of both, outsourced may be optimal.

About the author

Harrison Dromgoole is the Content Creator at Ordoro, a shipping and inventory management tool. Ordoro tackles the unsexy but essential function of supply chain and order management, allowing merchants to streamline their back-office processes across all their sales channels so they can focus on growing their business.

Photo Credit : SeikaFlickr

Photo CreditSeattleye, Flickr

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Arie Shpanya

Arie is the COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.