A Quick Look At The Most Commonly Used eCommerce Fulfillment Terminologies
Even if you’re an eCommerce retailer selling the best product in the industry, with the smoothest website that easily gets your customers through checkout, without proper eCommerce fulfillment, your business will be an utter flop.
Fulfillment in eCommerce is not an exciting topic, however, it is a crucial element required to run a successful online business in retail. Well structured and accurate eCommerce fulfillment is the key to making your customers happy and getting positive reviews. Especially since the eCommerce industry has been growing tremendously over the past decade due to fluctuating consumer demands that lean towards online shopping despite the best strategies in brick-and-mortar stores.
If you have been trying to master the art of efficient eCommerce fulfillment, this post is for you. Here, we are going to discuss some of the most common terminologies in eCommerce fulfillment along with the basics of how it works.
1) What is eCommerce Fulfillment?
eCommerce fulfillment is an integral part of any online business setup that ensures streamlined and timely delivery of products to customers. The process includes several elements such as getting the product onto the warehouse shelves, picking and packing orders, shipping, and the list goes on.
Let’s take a look at the process of fulfillment to get a better understanding of how it contributes to the overall success of an eCommerce business.
2) What is the eCommerce fulfillment process?
Fulfillment is the foundation to eCommerce operations and a better understanding of the operations will help you efficiently manage your customer service as well as monitor your outsourced eCommerce fulfillment provider.
Most eCommerce businesses outsource their fulfillment requirements, and if you’re doing the same, then it’s important to think of your fulfillment provider as an extension of your business instead of a third-party provider. Outsourcing comes with several benefits, including making your business more agile.
The eCommerce fulfillment process can be broken down into four essential components.
2.1) Omnichannel Integration
Your business should have seamless integration with your eCommerce fulfillment center. This means that the products being sold should directly go to the people who are going to pack and ship them. To be able to do so, your fulfillment provider must integrate themselves with every website/platform you sell your products on and have a specific channel for those that weren’t able to get integrated.
2.2) Receiving and Inventory Management
For most businesses, clusters of products are shipped to fulfillment warehouses, after which they are recorded as inventory and placed on the shelves, ready to be packed for customers. However, quite often, a majority of fulfillment warehouses fall short of space while receiving products and the shipment ends up sitting on a loading dock instead. This translates to a deadlock situation where no inventory means no sales.
This is where your eCommerce fulfillment provider comes into the picture. The provider essentially places the stock into its inventory within a day or two of receiving it. After this, you can log into your inventory management platform and track the inventory in real-time, without having to worry about storage space at your end.
2.3) Order Fulfillment
As and when an order is placed, your eCommerce warehouse receives it and puts the right items in the right boxes which are then packed and made ready to be shipped out to your customer. To carry out all of this effectively and within the stipulated timelines, the eCommerce fulfillment provider must be centrally located and should be able to deliver the order within the same or next day.
In any eCommerce business, returns are inevitable. Ease of returns is a crucial and major factor that drives customers to purchase repeatedly from a seller. Thus, an important function of an eCommerce fulfillment provider should be to be able to log returns efficiently. The faster the returns are processed the faster the customer gets a refund. Additionally, the stock is back on the shelf quickly, ready to be sold again.
Now that we have a basic understanding of what exactly is eCommerce fulfillment and how it works, let’s take a look at some key benefits your eCommerce business can avail by getting a third-party to carry out your fulfillment operations.
3) Should you outsource your eCommerce fulfillment?
If you already have a solid in-house order fulfillment process and your orders are flat, you may not need to outsource your eCommerce fulfillment. However, as your business starts growing, in-house fulfillment tends to become a burden and stunts business growth.
Apart from being economical, outsourcing fulfillment comes with quite a few benefits, including:
* Shelf space that is flexible and can easily be scaled up as you grow.
* Orders that are picked and packed by professionals who are specialists in fulfillment, which leaves little room for error. In turn, this helps you in saving time and money.
* To manage inventory, there’s no need to get a lease for an expensive space that you may or may not even use. The fulfillment provider has got you covered.
* A centrally located eCommerce fulfillment center helps ship orders faster to customers.
Moving on, let us come to one of the most important aspects of eCommerce fulfillment - commonly used terminology.
4) Common terminologies of eCommerce fulfillment
When dealing with eCommerce fulfillment, you’re sure to run into terms and abbreviations that are specific to this field. Many times, phrases that may seem usual to others may be a little too hard to grasp for new entrepreneurs.
If you’re new to online selling, to save you from the hassle of looking up the meaning of the most commonly used terms in eCommerce fulfillment, we’ve put together a small glossary of common terms that are used in the area. Have a look -
4.1) Third-Party Logistics or 3PL
3PL stands for Third-Party Logistics providers that support eCommerce business by allowing them to outsource either whole or part of the logistics. The logistic processes essentially include warehousing and order fulfillment services. These logistics providers specialize in integrating operations, warehousing and transportation which can be customized for each eCommerce business.
4.2) Fulfillment Center
An eCommerce fulfillment center is where all activities regarding inventory management and order fulfillment for eCommerce businesses takes place, under one roof. From receiving inventory to shipping orders out to customers, everything takes place under this hub.
4.3) Distribution Center
A distribution center is a hub used for receiving, temporarily storing inventory and redistributing products based on the orders. It is easy to confuse a warehouse and a distribution center, but there is a fundamental difference between the two. The main focus of a distribution center is an efficient turnover of goods, i.e, the inventory is there for a short amount of time. On the other hand, a warehouse is used to store the products for a long period.
In brief, dropshipping is when the manufacturer directly completes order fulfillment instead of the seller. The order is received by the seller and immediately forwarded to the manufacturer for fulfillment.
Dropshipping is the most cost-effective order fulfillment process for businesses that are just starting and entering the market.
4.5) Inventory Management
As the name suggests, inventory management is the operation of managing inventory, deliveries and sales. The process includes tracking, warehousing and processing inventory to ensure there is enough stock at any given time, including raw materials, intermediary components, and finished items.
Self-fulfillment is a procedure where the eCommerce merchant carries out each procedure of order fulfillment by himself, without any help from a third-party logistics provider. This is most common among small businesses and businesses that pack orders from their homes.
Typically, a barcode is a form of data representation that can be read by scanning machines to identify products and all relevant information regarding them. A barcode carries all the information regarding the order.
Barcodes on shipments can essentially identify the order and contain information such as the items in the carton, customer name, delivery address and mode of shipping. Barcodes on documents of purchase or return contain the record from the server.
Stock Keeping Unit, a.k.a SKU, for an eCommerce business is a unique number that is associated with a certain type of inventory. This number is typically used to track the inventory of the business and provide information regarding the characteristics of the product, including price, style, color, size, brand, etc.
Warehouse Management Systems or WMS is software that is used to automate and control the operations of a warehouse. The software is used in warehouses, essentially to increase the efficiency of business operations. This software helps in day to day planning, staffing, organizing, controlling and directing the warehouse management team to use the resources available to move inventory into the warehouse.
Additionally, WMS provides support to staff while monitoring the performance of the storage and movement of products in the warehouse.
SLA or Service Level Agreement is a contract given to the eCommerce business owner by the eCommerce fulfillment provider to let them know how that fulfillment center will be handling the incoming orders and their overall role in the business arrangement.
SLAs provide a report on order accuracy, the number of orders being shipped daily, shortage in inventory etc. These reports are an essential element of order management as it gives a clear picture of the expectations as well as the realities of the deliveries made by the fulfillment provider.
First In First Out, a.k.a FIFO, is a warehousing method where the items that entered first to the warehouse leave the place first. The concept is quite simple, items that arrive first are held for a long time which makes them close to expiration as time goes by. Thus, these products are sold first before they perish and become worthless in the warehouse.
4.12) Storage Fees
As the name suggests, storage fees are the fee charged by the eCommerce fulfillment center for storing inventory.
4.13) Cross Docking
Cross docking is a process where the goods directly reach either the customer, or the supplier or manufacturing unit without any storage in between. This generally takes place in a terminal that has minimal storage space or at a distribution docking station. The products received during a cross-dock are called inbound dock, which is then transferred to the outbound dock. The products are sorted based on their destination and then carried out to the outbound dock.
4.14) Warehouse Kitting
Warehouse Kitting is related to SKUs, for it is a process where related SKUs are combined to form a new SKU. This procedure entails fulfilling orders by assembling single orders to kits that are ready to be shipped immediately, instead of picking and packing every item individually.
For example, if a consumer buys shampoo, he might have also ordered a conditioner and a hair mask with it. In such cases, the eCommerce fulfillment provider or supplier will assemble these items in a kit and ship them to the customer altogether.
5) To sum it up
The eCommerce fulfillment terms we have provided are the most widely used in online retail, and each one of them is essential to the fulfillment process. It all comes together to form a continuous stream of events that take place every day in such a business. And as already mentioned, the overall success of an eCommerce business depends on how efficient and effective its fulfillment process is.
We hope that the concepts discussed in this article and the eCommerce fulfillment glossary we shared helped improve your understanding of fulfillment in eCommerce. For more information about other crucial aspects of eCommerce businesses, check out our other blogs.