Which Fulfillment Model is Right for Your ecommerce Business?

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Winfred Goodman
6 years ago
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MID-SIZE FACILITY SINGLE LOCATION SOLE OPERATOR LARGE FACILITIES MULTIPLE LOCATIONS OUTSOURCED/ CONTRACTED SMALL FACILITY SINGLE LOCATION SOLE

1 MID-SIZE FACILITY SINGLE LOCATION SOLE OPERATOR LARGE FACILITIES MULTIPLE LOCATIONS OUTSOURCED/ CONTRACTED SMALL FACILITY SINGLE LOCATION SOLE OPERATOR LARGE FACILITIES MULTIPLE LOCATIONS SOLE OPERATOR Which Fulfillment Model is Right for Your ecommerce Business? R RakutenSUPER LOGISTICS

2 INTRODUCTION INTRODUCTION Putting the right people in the right positions with the right training is probably the single most important thing a CEO can do. With the right team, all things are possible. With the wrong team, nothing else matters. ~ Joel Trammell, Entrepreneur When looking to outsource business services, companies often mistakenly view the new solution as simply a means to an end. Let s rethink this concept and, instead, view outsourcing as a tool to leverage resources, optimize processes, and accelerate growth. The above quote aptly describes the end-goal in outsourcing business services. This is particularly true in the realm of supply chain logistics, which are areas that require specialized knowledge, equipment, software and functions to be completed with optimal results. Outsourcing fulfillment and shipping to efficient service providers can help ecommerce companies achieve significant gains, reduce costs and improve efficiencies. 64% 19% of small and midsized businesses outsource some part of their business activities, with 41% planning to expand their outsourcing Among the companies not currently outsourcing, plan to in the near future 19% Whether you are leading a team, a project, or a company, you have an end goal in outsourcing your fulfillment. However, few ecommerce retailers realize the wide breadth of services and business models available from third party logistic providers (3PLs). This ebook is written with you in mind, to help determine which solution will best address the unique pain points within the organization, as well as long-term business objectives set forth by your company s vision for growth. We start by addressing the impact fulfillment has on the different departments within your organization, including: sales, marketing, customer service, operations, and accounting. Then, we will evaluate the different models of third party logistics providers and the benefits that come with each model. It is our hope this ebook will provide you with a clearer understanding of which fulfillment model will help take your business to the next level of growth.

3 FULFILLMENT THE IMPACT OF FULFILLMENT It s easy to lose sight of the big picture when you are looking to solve an immediate problem. For example, suppose sales have recently increased 3x within the last few months due to product features on a number of well-known blogs; your current fulfillment processes are no longer able to keep up with the volume and you must now find an alternative provider ASAP. It s tempting to go with the first solution presented to you able to handle the high volume of shipments, but how well do they fit into your current processes, business practices, and long-term vision? exceeded from the first purchase, through the moment your customer receives their order, to the same customer deciding whether to return to your site for a repeat purchase. When a transaction is completed on your site, the customer is trusting you to deliver. As part of your delivery process, your customer expects easily accessible tracking information, reliable delivery Fulfillment has a tremendous impact on customer experience. A positive customer experience makes for RETURNS MANAGEMENT CUSTOMER SUPPORT a happy customer, which influences increased sales in the form of repeat business and positive reviews. In fact, recent customer service research by New Voice Media, revealed half of the consumers surveyed would use a company more frequently after a positive experience. INVENTORY MANAGEMENT KEY COMPONENTS OF MODERN ECOMMERCE FULFILLMENT SYSTEM INTEGRATION 69% of customers would recommend the company to others after a positive customer experience. FULFILLMENT MANAGEMENT (PICK & PACK) FREIGHT MANAGEMENT (INVENTORY TRANSFER) Customer experience does not stop at the transaction stage. As a merchant, it s important to ensure proper resources are in place to maintain a positive customer experience. Customer expectations must be met or ORDER MANAGEMENT WAREHOUSE MANAGEMENT (RECEIVING)

FULFILLMENT service, quick shipping, low cost/free shipping options, and hassle-free returns.

confusing and complex world of fulfillment, shipping and logistics.

provider is often a sound business decision.

sales, marketing, operations, customer service, and accounting as well as your company s short term and long term goals.

Whether you ve outsourced in the past, are currently outsourcing, or are looking into outsourcing for the first time, the

However, if your current fulfillment process is causing your business to suffer or stagnate, the decision for change may be

4 FULFILLMENT service, quick shipping, low cost/free shipping options, and hassle-free returns. With its ever-changing rules and regulations, it s no wonder that most ecommerce retailers struggle to understand the confusing and complex world of fulfillment, shipping and logistics. Entrusting the sizeable hurdles in fulfillment to an expert by outsourcing to a qualified and dependable fulfillment provider is often a sound business decision. A qualified provider will have a long history of providing professional service at well-documented levels. your company s bottom line. To identify the right provider for your business, take time to consider how changes to your fulfillment process will affect sales, marketing, operations, customer service, and accounting as well as your company s short term and long term goals. Let s take a look at the various effects fulfillment has on your business. Whether you ve outsourced in the past, are currently outsourcing, or are looking into outsourcing for the first time, the same precautions must be measured. Numerous studies have proven that people under stress tend to make poor decisions. However, if your current fulfillment process is causing your business to suffer or stagnate, the decision for change may be unavoidable. The key to good decision making is to align your internal needs and goals with an overall strategy, based on research and information. Regardless of the circumstances that have predicated your search for fulfillment -- just by reading this book you are on the right track for success. It s important to realize even small changes to your day-to-day procedures can have a huge impact on ACCOUNTING SALES OPERATIONS MARKETING FULFILLMENT CUSTOMER SERVICE

5 Fulfillment Impacts Marketing You and your team have worked hard in your marketing efforts to build your brand and promote your products. For some retailers, branding is integral to your overall customer experience. If creating a recognizable brand image and brand experience is important to your company s long-term goals, it is important to understand how your fulfillment can aid or derail your pursuits. Online Store Advertising Trust #1 Strategy Look for a fulfillment solution that allows customization and branding, without being overly generic or imposing their own agenda. Assess the provider s ability to accommodate custom packing materials, packing slips, delivery confirmations, and adding items like samples, gifts and marketing inserts. If your business requires customization, your prospective fulfillment partner must be willing and able to accommodate special requests and other project needs. Product Design & Packaging Brand Identity

6 Fulfillment Impacts Sales A negative customer experience can threaten your company s reputation, and future sales. If there is an error in their order, your customer will not differentiate your business from that of the fulfillment provider. If your provider fails to deliver on customer expectations and negative reviews target your business, how much time and money will it cost to repair your company s reputation? Fast & Accurate Receiving 100% Accurate Picking Customizable Packing Materials Low Cost Shipping Accurate Inventory Levels Repeat Purchases Reviews 29% of consumers will never buy from an ecommerce merchant again if they receive even 1 incorrect order. Unfortunately blaming a third party provider will not absolve you of guilt in the eyes of your customer. Therefore, the right solution must be in place to ensure customer expectations are met 100% of the time. $ 5.0 When assessing potential fulfillment providers, pay close attention to how they communicate. This may provide a clue regarding future communications about held orders, low inventory, receiving delays, damaged inventory, or any number of issues that can go wrong during the freight, receiving, and fulfillment processes. Carefully review potential providers service level agreements and commitments regarding: Order Accuracy Fast, Low Cost Shipping

7 Fulfillment Impacts Customer Service Fulfillment Impacts Operations Optimizing your fulfillment operations can improve customer satisfaction, while lowering customer service requests. The most common customer complaints related to order fulfillment include: Incorrect Orders (wrong items and/or wrong quantity) Delayed or Failed Delivery Shipping Costs and Handling Charges Review your most customer service complaints gain insight on the performance of your current fulfillment solutions. When evaluating fulfillment providers, share this information to determine how they will solve your problems. If your fulfillment evaluation reveals issues with order accuracy, choose a provider who guarantees order accuracy. If speed of delivery is a frequent concern, investing in a provider who can provide 2-day ground shipping may be a benefit that solves a fulfillment pain point, while also lowering shipping costs. If your in-house labor per box or pick and pack fees from an outside provider are out of control, look for a provider that can provide more efficiency. From integrating your shopping cart to setting up your order management platform, it s important to note the depth of support and resources a 3PL must provide to onboard your company for fulfillment. Switching fulfillment providers can be an arduous task. A company that values your partnership will simplify the process and provide assistance along the way. The provider s onboarding team should be able to identify and meet your needs to help set up your fulfillment and get your products ready to ship as quickly and efficiently as possible. If you do not have an in-house IT team, look for a 3PL partner that can offer plug-in integration to your shopping cart. Or, if your shopping cart is not supported, a custom API should be available. An efficient 3PL will have a process and system in place to facilitate the transfer of your inventory to the new warehouse. Look for a clearly communicated system of inventory preparation requirements, which will help ensure accurate and efficient receiving. After reviewing the processes, determine if you will need to add any costs associated with additional labor, and factor the added costs in your decision-making.

8 Fulfillment Impacts Accounting Lastly, we have the financial aspect of fulfillment. While pricing is seen by many merchants as the first and foremost important factor in deciding to switch fulfillment providers, there are a few other cost factors to be taken into consideration. There are many price structures and making sense of which would be best suitable for your business can make a great difference in your end cost of fulfillment. The costs associated with fulfillment and how they are charged is not always as clear as you d expect. Make sure you are aware of all costs associated with fulfillment, including miscellaneous fees and when they will be incurred. Typical fees include: If you carry large, bulky, or heavy items, be sure to provide detailed information to your provider. With the correct information early on, there may be a way to work through weight handling fees or storage fees. If your typical customer s shipment includes a high number of items per order, determine how your provider will charge to accommodate excess picks. A partner should always look out for your best interest and inform you of any potential challenges with your specific products, whether it be hazmat labeling or special wrapping to prevent damage. You want to find a partner who prides itself on open communication and transparency in pricing. Receiving Inbound Shipping Freight or Container Picking/Fulfillment Weight Handling Special Labeling Packaging Materials (Standard or Custom) Assembly Kitting Order Inserts Storage (by Pallet, Cubic Foot or Bin) Account Management Software Licensing Account Setup $

9 FULFILLMENT MODELS TO CONSIDER WHEN OUTSOURCING Pros Small Facility, Single Location, Sole Operator Small, local fulfillment centers provide certain advantages for retailers including lower overall costs, easy onboarding and flexibility. While larger fulfillment providers have minimum requirements for merchants getting started as far as order volume, or length of time the company has been doing business, small, single-location fulfilment centers typically do not. A smaller provider is oftentimes more willing and able to provide a higher level of customization or personalized services, as opposed to a larger fulfillment center that must maintain a defined set of processes to ensure efficiency throughout a larger scale operation. shopping cart may not be available, which will leave order processing up to manual means and a subsequent higher margin for error. To ensure expectations are met on both ends, communication is key. What service level agreements are they prepared to uphold? How responsive and available are they for any issues that may arise? What relationships have they created with vendors to benefit your business such as shipping carriers, shopping cart platforms, and online marketplaces? How much room is available to grow and scale your business? How long before you outgrow the provider and must once again move operations elsewhere? Cons There are also disadvantages that go hand-in-hand with smaller fulfillment centers. A small, local fulfillment MINIMUM ORDER NO MINIMUMS TECHNOLOGY center may lack the resources necessary to carry out a high level of efficiency due to limited labor and capital. Due to the lower volume of shipments, shipping costs will likely be much higher than those offered by a 3PL EASY ONBOARDING CAPITAL doing millions of annual shipments. A smaller operation will at best use an out-of-box order fulfillment software, which will not be able to provide the high-level of customized warehouse and inventory management, CUSTOMIZATION EXPERTISE order processing, shipping and tracking most ecommerce retailers need. Integration with your HIGHER SHIPPING RATES CONS

10 Pros Cons Mid-Large Size Facility, Single Location, Sole Operator While the majority of local fulfillment centers operate on a smaller scale, there are a few which have the resources for much larger operations. These large scale, single location providers have the advantage of increased resources such as labor and capital to promote higher efficiencies. Their larger customer base and greater shipping volumes provide access to lower rates through shipping carriers, which can be passed on to merchants shipping on their accounts. They often offer more flexibility in regards to processes and customization than fulfillment centers with multiple locations. Disadvantages include limitations on growth and ability to scale the business into different regions of the country. Once an ecommerce business s customer base grows to a certain point, the ability to ship out of an east coast and west coast fulfillment center can reduce transit time on deliveries and slash costs on shipping. CAPITAL CUSTOMIZATION LOWER SHIPPING RATES ACCESSIBILITY SLOWER DELIVERY TIMES SCALABILITY

11 Pros Large Facilities, Multiple Locations, Outsourced/Contracted Operations One of the most common third party logistics business models is the large scale provider who subcontracts work to multiple independent fulfillment centers to provide merchants with an extended network of 3PLs. The advantages of partnering with a provider such as this include the ability to grow and scale, not only within one warehouse, but also nationwide. Fulfilling out of multiple locations around the US gives you access to quicker delivery times and lower costs of shipping, as shipments will be traveling much shorter distances. Partnering with a 3PL such as this will give you access to lower shipping rates. These larger companies have economy of scale in their contracts with shipping carriers through their large volume of clients. In this situation, your partner is essentially outsourcing the same fulfillment services you have requested them to manage. A lack of customer support is a common complaint. Retailers are often barred from visiting a fulfillment location to inspect their product. In addition, there can be a lack of consistency between warehouses, leading to a greater likelihood of errors and miscommunication. If a problem comes up, your point of contact may not have much insight or control of the situation as you d like because the fulfillment centers are run independently of each other. FASTER DELIVERY TIMES CUSTOMER SUPPORT Providers of this scale operate their fulfillment operations from custom-built order fulfillment and inventory management software platforms. They re likely to have developed integrations with merchants shopping cart platforms, online marketplaces, and other associated ecommerce softwares. LOWER SHIPPING RATES TECHNOLOGY WAREHOUSE INCONSITENCIES Cons The most notable disadvantage to this particular model of fulfillment is the lack of accountability that comes with contracting independent providers on your behalf.

12 Pros Large Facilities, Multiple Locations, Sole Operator Finally, there are large scale, multiple location fulfillment companies that own and operate all associated fulfillment centers. The advantages of such provider are many. Not only do you receive the same benefits as offered by the previous fulfillment model, you also get peace of mind in knowing each and every warehouse is run exactly the same, by the same management team. Like the previously mentioned large scale provider, 3PLs of this scale often utilize custom-built order fulfillment and inventory management software platforms. They have the staff and resources to maintain a robust offering of plug and play integrations with shopping cart platforms, online marketplaces, and other associated ecommerce softwares. outside the typical range of ecommerce, this type of provider may not be the best match. While a smaller provider may be able to easily implement special requests or customized services without having to take into consideration replication of services, this is a much more difficult task for companies delivering accelerated, high volume fulfillment via multiple locations. However, if you are a fast growing ecommerce retailer with a fairly standardized product and service offering, a large, multi-operation fulfillment provider can help you grow and scale your business quickly and accelerate profits. CUSTOMIZATION LABOR Cons Disadvantages may include less flexibility and increased merchant requirements to do business. The TECHNOLOGY MINIMUM ORDER MINIMUM ORDER REQUIREMENT key to success for businesses of this scale lie in their ability to streamline operations and develop and maintain efficient processes throughout all locations, LOWER SHIPPING RATES certain standards must be kept the same throughout. For some merchants this means less flexibility in CUSTOMER SUPPORT operations and special handling processes. For retailers with products or service offerings that fall

13 CHOOSING THE RIGHT FULFILLMENT MODEL Factors to consider When making a strategic decision to outsource fulfillment, keep in mind the following factors and decide which are most important to your company s short term and long term goals. What volume of orders are you currently experiencing and tracking towards in the upcoming year? What value is placed on the reputation of your business? How does fulfillment play a part in your company s long-term vision? What relationships are crucial for the success of your business? How much of an impact does location have on your business? What effect does pricing structure have on the finances of your business? How much flexibility or customization is required for your business? Complete the table below to identify your starting point: Fulfillment Needs Worksheet Estimate your shipping volume, perhaps in a range such as between orders and orders per month. Where do you need your products shipped to? Local National Continental Global How many backorders do you have? What is your budget? A price range might be best, since you could face variable order volumes. ($ - $ / month) How much do your products weight? Height Width Length What are your product dimensions? Height Width Depth

14 FULFILLMENT MODELS AT A GLANCE CUSTOMER SUPPORT FACILITY SIZE, SMALL, MID-LARGE, LARGE, LARGE, LOCATIONS, OPERATION SINGLE LOCATION, SOLE OPERATOR SINGLE LOCATION, SOLE OPERATOR MULTILOCATION OUTSOURCED/ SUBCONTRACTED MULTILOCATION SOLE OPERATOR TECHNOLOGY CUSTOMIZATION CUSTOMER SUPPORT LOWEST SHIPPING RATES ACCESSIBILITY SCALABILITY BEST FIT ECOMMERCE RETAILERS Small Scale,Startups 0 to 250 Orders per Month Mid-size 250 to 5,000 Orders per Month Mid-large Scale 500 to 50,000+ Orders per Month Mid-large Scale 500 to 50,000+ Orders per Month

15 CONCLUSION At RSL, we understand the key to growing a business is ensuring our customers are well taken care of, from start to finish. To ensure happy customers, we take the Inverted Pyramid approach to organizational structure by focusing on the employees closest to our customers. At Rakuten Super Logistics, we take the time to get to know our clients and ensure we are the right fit for a long term partnership. We acknowledge the individual needs of our customers and always look out for their best interest, advising them along the way to help them reach their goals. Running a fulfillment business, our mission is to ensure you (our customer) are well taken care. We accomplish this by supporting the employees who most closely impact you and your business: the warehouse associates who physically handle your goods and the customer support representatives who communicate with you on a regular basis. If you re looking to make a change in fulfillment to optimize current operations and accelerate growth, contact a fulfillment advisor today to determine how Rakuten Super Logistics can help. Keep in mind no single operation involved in a business should be isolated, rather they should all complement each other-- regardless if being run in-house or outsourced. A business provider of any sort should aid in the efficiencies of your overall business and get you one step closer to reaching the long term goals set by your company s vision for growth. SUCCESS PARTNER + SHIP R RakutenSUPER LOGISTICS CUSTOMER SUPPORT PLANNING Sources: TRUST HELPING TEAMWORK

16 ABOUT RAKUTEN SUPER LOGISTICS Rakuten Super Logistics (RSL) is a dedicated and enthusiastic group of ecommerce professionals committed to providing the best fulfillment solutions to optimize operations and accelerate growth of online businesses, since RSL (formerly Webgistix) is part of Rakuten Group--one of the world s leading Internet service companies. With the mission of empowering people and society through innovation and entrepreneurship, Rakuten continues to expand its ecosystem of ecommerce services. The network of Rakuten companies includes consumer- and business-focused services including ecommerce, ebooks & ereading, travel, banking, securities, credit card, e-money, portal and media, online marketing and professional sport. The Rakuten Ecosystem aims to provide members a one-stop-shop network of trusted, premium services. Through ownership and operation of a strategic nationwide network of fulfillment centers, RSL delivers on customer expectations and accelerates growth of online retailers. Our SmartSuite of ecommerce services includes inventory freight, cloud-based order management and inventory tracking, advanced analytic technology to optimize shipping, and responsive, personalized client support. RSL works with clients to ensure their goods arrive at their destination on time and in perfect condition to deliver on a positive customer experience and promote customer retention. We empower our employees to ensure they are in a position to deliver an exceptional client experience and have retained our customers by providing excellent service and an unwavering commitment to helping them achieve their goals. REQUEST A FREE QUOTE R RakutenSUPER LOGISTICS

DELIVERING GREAT SERVICE. Why Customer Support is Critically Important to Outsourced ecommerce Fulfillment. R Rakuten SUPER LOGISTICS

DELIVERING GREAT SERVICE. Why Customer Support is Critically Important to Outsourced ecommerce Fulfillment. R Rakuten SUPER LOGISTICS DELIVERING GREAT SERVICE Why Customer Support is Critically Important to Outsourced ecommerce Fulfillment R Rakuten SUPER LOGISTICS INTRODUCTION When an ecommerce retailer is seeking a fulfillment provider