3 Tips for Choosing the Right Fulfillment Option

Feb 22, 2012 3:10 AM  By

For any merchant that sells online, order fulfillment is a crucial part of its business. It’s an important final step in creating a positive, consistent experience for your customers. It can mean the difference between a one-time buyer and a lifelong brand advocate. And, if done right, it can make your business more competitive, flexible and profitable.

There’s no one-size-fits-all approach when it comes to order fulfillment. The right solution depends on your business, products and customers. So before evaluating your options — in-house or outsourcing all or some of your fulfillment — here are 3 things you should do.

1. Determine Your Per Order Fulfillment Cost

Start by figuring out your per order fulfillment cost. By doing so, you’re able to more effectively analyze various fulfillment options for your business. How do you accurately calculate these costs?

Start by looking at your total orders for the previous year, which will allow you to account for any seasonal spikes and/or lulls. Then take a look at your expense report for the same period of time, and divide all fulfillment-related expenditures, including shipping, by your total number of orders.

Here’s an example. Let’s say you currently handle order fulfillment in-house and last year you shipped 20,000 orders. Now, looking at expenses for the year, including shipping, labor (don’t forget taxes and benefits), rent, utilities and depreciation, you find that total costs were $250,000. By dividing $250,000 by 20,000 orders, you find that your per order fulfillment cost is $12.50.

This will be an important number to remember as you evaluate fulfillment options, but it should not be the only consideration.

2. Determine Your Unique Business Needs

Depending on your business and the products you sell, your fulfillment needs may be fairly straightforward, or quite intricate.

For example, if all of your orders are less than 2 pounds and shipped exclusively via USPS First Class Mail to U.S. consumers, your shipping needs are fairly straightforward, making it easier when evaluating shipping rates and services of outsourced fulfillment providers.

But if you have hundreds of SKUs of varying weights, you ship internationally, and/or you have products that have special requirements, such as refrigeration, your needs are a bit more complex, and you may find that you have fewer options when it comes to finding a suitable fulfillment solution.

Beyond your shipping needs, there are other factors to consider when evaluating fulfillment options. Here are some questions to ask yourself:

Do you require custom packaging, such as a special filler, non-standard box, or a custom insert?

Do your products require kitting?

Do you need any add-on services, such as custom printing?

How do you plan to handle returns?

Can you handle online support systems, or do you prefer to talk with people?

What are your business plans/goals, and how do those relate to foreseeable scalability requirements?

As your needs become more complex or customized, you will find that some fulfillment companies will not be able to meet all of them. This makes it important to determine which aspects are most significant to your business, and to ensure that you’re weighing factors beyond cost.

3. Determine Your Technology & Integration Requirements

Another important factor to consider is technology. As a multichannel merchant, your requirements relative to inventory/order management, tracking and control become more complex. As you evaluate whether to outsource some or all of your fulfillment, make sure to consider any order management technology you’re currently using, or plan to use in the future, and how that will integrate with systems used by third-party fulfillment companies.

Also consider shopping cart technology. For multichannel sellers, orders often come in from multiple sources, such as their own web store, Amazon, eBay, or Facebook. Talk with fulfillment providers about your current and planned sources of online orders, and if and how their systems can integrate with each.

After you consider everything, you may find that, even though outsourcing is cheaper, in-house fulfillment actually makes more sense for your business. Or you may find that outsourcing all or some of your fulfillment offers the most advantages.

Order fulfillment shouldn’t be a burden. It should be a seamless value add for your business. Achieving that isn’t always easy, and getting there starts with a hard look at your short- and long-term plans, needs and objectives.

Stephen Bulger is marketing manager for eFulfillment Service.