The average eCommerce business faces a few ominous statistics in 2024’s increasingly competitive online shopping space. According to Baymard, over 70% of purchases are abandoned in the shopping cart, with nearly half of those shoppers citing shipping costs and additional fees as the reason.
These are scary statistics, scary enough for 74% of global supply chain leaders to make demand planning their number one priority for digitization since 2022. However, refining your existing fulfillment process may not be enough. For many businesses, the eCommerce fulfillment method they choose is the most significant factor in determining how efficiently they can ship purchases to their customers, lowering cart abandonment and increasing customer loyalty in the process.
What distinguishes each method? How can businesses accurately match the method to their fulfillment structure? This guide will answer those questions and explore the top 6 methods to fulfill orders for eCommerce businesses.
Many businesses use the term “fulfillment” without understanding its scope. Order fulfillment is the complete process of managing a customer’s order from the time it is bought in their cart to the time it is in their hands. This single word challenges every step of an eCommerce business’s supply chain, from receiving the bulk goods or materials and storing them in the warehouse to picking, packing, and shipping them to the customer.
The fulfillment methods that businesses must choose between each have their own take on a specific step in that process, whether it’s changing where the item is stored, who ships it, or how it is picked for shipment from the warehouse. Each method comes with advantages and disadvantages for businesses to compare to their logistical needs.
Versatile fulfillment software solutions like Sellware come with the benefit of tailoring the solution to the need, particularly for multi-channel fulfillment structures. Yet, businesses still need to know how different methods will impact their fulfillment process.
Different fulfillment methods fit broadly into the categories of self-fulfillment or outsourced fulfillment. Simply put, businesses that use self-fulfillment strategies store inventory, process orders, pick and pack merchandise, ship orders, and perform customer service functions all in-house. Businesses that outsource fulfillment hire another retailer, logistics company, or warehouse to manage part or all of the process for them.
Which should a business adopt? Well, self-fulfillment is easier to start and offers more control at the cost of higher overheads and time-consuming management processes. On the other hand, outsourced fulfillment strategies tend to be easier to scale with the benefit of the third party’s experience at the cost of a lack of control.
Whether your business chooses to handle the process in-house or hire a third party, the fulfillment method you use will still need to be matched to your logistical needs.
Dropshipping takes the crucial aspect of storing and shipping a business’s merchandise and gives control over that step to the manufacturer. When customers order a product from your online store, the manufacturer picks, packs, and ships it for you without ever needing to store it in a warehouse.
Businesses that utilize dropshipping naturally cut down on storage costs. Inventory management becomes easier because suppliers handle storage and stock updates for you.
Additionally, when testing a new market with products they don’t want to store or when breaking into a market with limited startup resources, businesses can benefit from using dropshipping to focus on marketing, leaving the logistics to the manufacturer.
Disadvantages of dropshipping
Despite these benefits, dropshipping comes at a cost. The big one is limiting your control over shipping, which means that unforeseen circumstances may cause delays beyond your control since you don’t have the product in your warehouse. When using dropshipping, the supplier’s stock solely determines a business’s ability to fulfill an order.
Dropshipping can result in higher fulfillment costs for businesses with high order volume since they no longer reap the benefits of buying from manufacturers in bulk.
In this method, an eCommerce business hires a 3PL company, which offers its warehouses and fulfillment infrastructure to take over the entire fulfillment process.
The main advantage of this method is reducing operations costs and reaping the benefits of the 3PL company’s expertise in the industry. For businesses looking to scale up their operations, a 3PL can be a valuable resource for analytics, strategies, and insights. They offer increases in efficiency over most in-house fulfillment models because, quite simply, they probably know more about scalable fulfillment models in your industry than your in-house team does.
Disadvantages of 3PL fulfillment
Despite the ease of use, 3PL fulfillment comes with challenges. The biggest one is choosing a third-party company that works with rather than against your business’s existing infrastructure, which includes not only your processes but also your values. If they don’t align with your customer service model or your expansion plans, the 3PL could hurt more than help.
As with all outsourced fulfillment methods, businesses lose some control over the process when they offload the burden to other companies. Plus, you need to make sure the cost is worth it. Since a 3PL is doing all the work, they will expect a large percent of the revenue, which eats into your profits.
Just-in-time inventory management is a self-fulfillment method that changes how you replenish your inventory in an attempt to cut costs. The JIT method states that inventory should only be ordered after customers have already bought it, or in the case of raw materials, only as it is needed in the manufacturing process.
This method comes with some advantages, namely a reduction in inventory costs and waste due to the stricter control over as-needed supply. Inventory tracking is also much easier since less is being shipped from suppliers to your warehouses at any given time.
The businesses best suited for JIT inventory management are those whose demand levels fluctuate more widely and suddenly, which in normal circumstances could result in costly overstock and spoilage. Businesses that sell high-value goods can also use just-in-time inventory management to lower the risks of storing valuable items for long periods.
Disadvantages of just-in-time inventory
Just-in-time inventory management places a lot of pressure on suppliers to be consistent. Since your warehouses won’t be storing orders in advance, unforeseen circumstances that break down the transport chain like bad weather, resource shortages, or labor strikes can have a much more destructive effect on your ability to fulfill orders.
Also, your orders will rarely be eligible for volume discounts because you will only order minimal quantities of items to meet present demand. Thus, your order fulfillment costs will be higher under JIT than they would be under other methods that encourage stocking up on inventory.
With first-in, first-out inventory management, products are shipped in the order in which they were received by the warehouse. This means that merchandise closest to its expiration date is shipped first, which is particularly useful in the food & beverage industry since spoilage is such a costly concern.
By selling the oldest items first, you can avoid obsolescent inventory that is costly to store, as well as prevent expiration in perishable items. Additionally, the FIFO method makes balance sheets more accurate since you’re selling off your older stock rather than holding onto it.
Disadvantages of first-in, first-out inventory
In periods of high inflation, the FIFO method may raise a business’s taxable income because it raises the net income compared to other methods. This would work to a business’s advantage in times when inflation is trending down, but this would be rare.
The mirror image of FIFO is last-in, first-out or LIFO inventory management. It does as it sounds: businesses prioritize shipping the newest inventory items rather than the oldest. This has the reverse advantage to the problem of inflated net incomes for businesses practicing FIFO since LIFO companies can deduct their recently acquired inventory items.
This means that in strained pricing markets, LIFO can save businesses on their taxes. The method incentivizes businesses to invest in their inventories for the long term, which can make your supply chain more resilient to change, particularly when inflation is high.
Disadvantages of last-in, first-out inventory
The main disadvantage of LIFO is the complex accounting procedures it requires. Since product costs are deducted when they are sold rather than purchased, a business’s taxes quickly become complicated.
You should also be careful not to accidentally let this lead to more product spoilage. It is not ideal for items with expiration dates.
The perpetual inventory management method tracks and replenishes inventory in real time. This self-fulfillment method requires continual software updates to work, which makes it necessary to invest in a versatile inventory management solution that centralizes inventory control through one program.
Programs like Sellware offer 360-degree visibility of eCommerce listings, orders, inventory levels, suppliers, and sales channels. Operations are streamlined and updated in real time so businesses are always in the loop of their own inventory status.
When a business practicing perpetual inventory makes a purchase, sale, or return, the system automatically updates, usually through the use of barcode scanning, SKU tracking, and automated stock monitoring.
ECommerce businesses of any size can use perpetual inventory management to their advantage, though those with multi-channel fulfillment processes or high sales volume will benefit the most.
By tracking and analyzing inventory data in real time, these systems allow businesses to avoid costly human errors in stocking and replenishment. The centralized data insights also make forecasting demand much easier.
Disadvantages of perpetual inventory management
Perpetual inventory management requires a large upfront investment to work. It cannot be performed by hand, so the monitoring system, barcode scanning system, and more have to be bought before the method can be implemented, which is why it’s so vital to choose a software platform capable of personalizing the solution to your business’s growing needs.
If you want to elevate your eCommerce game, check out this blog post to learn all you need to know about the top techniques and software to stay ahead of the competition.