To answer the title question, we will examine eCommerce fulfillment services, of several kinds, and conclude with a listing of what a full-service fulfillment service does. In essence, the order fulfillment company is a part of the supply chain, getting the product or products from the manufacturer or retail seller to the customer who wishes to buy it.
We will look at in-house fulfillment, dropshipping fulfillment, and 3PL fulfillment, and also we’ll take a look at types of businesses selling online, i.e. what the different types of sellers look like.
So what does a fulfillment service do? The fulfillment service company serves as the operational arm for brands and completes the sale by shipping orders to buyers or consumers. In the world of eCommerce, sales are made online through a lot of different platforms and means involving shopping cart ordering technology, where order information is sent via electronic means replacing in-store purchases at retail locations, or paper-based means such as purchase orders or direct mail orders that were once common with at home catalog sales. What the fulfillment service does is receive the order, pull it out of the warehouse storage locations, pack it, and ship it, thereby completing the sale on behalf of the seller or brand.
In-House Fulfillment Services
There is a great deal of variety in how orders are fulfilled, but we will point to three main fulfillment options under which one would find the variety – In-house order fulfillment, dropshipping order fulfillment, and the 3PL order fulfillment company (third-party logistics). They are distinctly different so we’ll just give an overview.
In-house is exactly what one would think – it is when a business that manufactures products, wholesales or distributes products, warehouses the products, and ships them either in a business selling-to-business manner (B2B) or business selling-to-consumer (B2C) manner. So, this is a seller that completes the sale in-house by managing order fulfillment within its own warehouse and with in-house warehouse labor.
Everything involved in the sale is accomplished by the business. This includes all storage, picking and packing, customer service, payment and refunds/returns, administration, hiring and training of personnel. This is easily understandable – the company has complete control of the process. Complete control is considered the major benefit of in-house fulfillment service. A second advantage would be the ability to ensure that the ‘branding’ of the packaging is exactly how a brand wants it to be for customer satisfaction in the unboxing experience.
In-house fulfillment centers can be those of very small companies, picking and packing products in the garage to a fairly large fulfillment center handling many orders. Brands that operate in-house do oftentimes turn to a 3PL fulfillment center if they grow out of their space or do not have the necessary technology or warehouse automation to meet the order volume demands, and satisfying consumers becomes difficult as service demands are not being met.
For in-house operations, communication can be positive regarding returns which is informative and helpful to the brand, as the company looks for knowledge about why items are returned. Quality inspections and refurbishment of the items are more likely to meet the company’s standards. The negative about in-house for all facets of the operation, including inventory storage, order processing, and returns processing is that scaling is more difficult, as it often requires adding additional facilities or moving facilities, capital expenditures to add warehouse automation, storage racking, and other necessary equipment. If the business needs more space, it can become expensive and complex. Higher order volume means higher costs for knowledgeable employees from the fulfillment industry, along with space and a considerable amount of time spent as well from company leadership as major attention is required to create operational excellence.
The general rule is that if the operation is small, with a few hundred items sold in a month, then in-house is the best option. In-house is good for retailers who sell on Etsy and other C2C platforms. With more than a few hundred orders in monthly sales, the company will likely need to invest in a warehouse, labor, and equipment.
Advantages
- Easiest to implement
- Control over the entire process
- Oversight of customized packaging for the consumers.
- Low start-up costs (but only if fulfilling at home)
Disadvantages
- Storage space is limited.
- Labor would be limited or a challenge to manage.
- Seller’s focus on operations versus marketing or product development.
- Shipping costs are less with a 3PL due to discounts.
- Overall inability to scale.
Dropshipping Fulfillment Services
Dropshipping is an interesting form of buying and selling online wherein the seller does not see or touch the product at all. At no point does the retailer have to purchase the product, store it, pick or pack the product, or ship it. How does that fulfillment process work?
The fulfillment of a dropshipped order is done entirely by the supplier of the product. The retailer will utilize an eCommerce platform. On this platform, they can locate a supplier, and pick items to sell from a vast array of products. It could be clothes, beauty products, even high-end brands. The person creates a store, and selects products to sell, then promotes the store to bring it in front of customers.
So, the retailer in this case will be focused on stocking a store and marketing it, creating interest in the store and their selected products. When the shopper buys a product they are buying from the supplier with a small amount of profit for the retailer who sold it.
The retailer lists the products, determines the pricing, writes the description of the product, and once the sale comes in the supplier will package and ship the product to the consumer. The supplier does the fulfillment.
The positives about dropshipping are that getting started costs very little, the retailer doesn’t need space for warehousing, the retailer can select the number of products they want to display and they have a great number of choices. The dropshipping business can be located wherever the retailer is, the workflows can be automated, and the business can grow.
The negatives would be that there is a lot of competition, profits will be low due to the competition, the eCommerce retailer is not able to control quality standards, and the supplier sets the rules, does the packaging and shipping, and does customer service. And, since the suppliers can be anywhere in the world, shipping times are impacted.
Some eCommerce retailers may utilize dropshipping along with their in-house business. Perhaps they will offer special products that they create, maybe branded products, some may include lessons and/or information, and also sell some products via dropshipping.
3PL Fulfillment Services
Order fulfillment companies can be geared toward smaller clients and offer basic fulfillment services to their clients while others may offer full services with the capacity to handle a very wide variety of business-to-business (B2B) and business-to-consumer (B2C) fulfillment. We will go over the basic fulfillment service options first.
A fulfillment service company will receive the inventory of the seller, unload the inventory, scan or enter the inventory information into the warehouse management system, and double-triple check counts for accuracy confirming that what the manufacturer said was shipped was actually received. Later we will talk more about the receiving process.
Next is to place the inventory into inventory locations within the warehouse and the warehouse management system, so the amounts and locations are known by the seller and the fulfillment partner.
When an order comes in, the orders will be processed in the most efficient way possible, and products for the orders get picked, and then moved to pack stations where it is properly packed according to the seller’s wishes, and labeled for shipping through a shipping manifest system that allows orders to ship by a variety of small parcel carriers. There is far more detail to this process we will cover when reviewing the full-service fulfillment process.
Shipping is an area where the fulfillment service really can save the retailer money as compared to in-house fulfillment. Because of the volume of shipping and the technology, the 3PL can secure the lowest shipping cost for each order and the fastest delivery times, especially when the fulfillment service company has multiple warehouses as shipping locations.
This is the basic fulfillment process: receiving, warehousing, inventory management, returns processing, pick and pack, kitting and special assembly projects, and shipping. For many eCommerce retail businesses (B2C) moving from in-house to a third-party fulfillment service (3PL), these are the fulfillment services needed.
The advantages to the eCommerce seller moving from in-house to a 3PL are that they can take advantage of the industry expertise of the fulfillment service provider, their staff, their training, and the quality of the process. They will no longer need to bear the operating costs of warehousing and fulfillment. Their shipping services will be optimized, their data will be greater for forecasting, and they will be able to scale without any issues. Shipping, expertise, order fulfillment capacity, and ability to scale are the major benefits.
The major detriment is that the in-house process allows complete control, and utilizing a fulfillment service puts the fulfillment process in the hands of a partner. While this may be quite a lot to give up for some, it is the right choice for a company no longer able to handle the growth and expansion and keep the customers happy. It is important to choose a fulfillment partner that has high-quality client service capabilities where people will engage and communicate with the brand and operate in accordance with the company’s unique specifications.
We have covered what most people consider the three types of fulfillment. Before moving into what a full-service 3PL provides, we should review some industry language for better understanding.
How does a fulfillment company work? As we ask this question, we are going to examine some things we should know about the industry. First – what is the difference between a 3PL and 4PL? Next, what is the difference in fulfillment services for B2B and B2C companies and how does this affect fulfillment?
A quick answer is that the 3PL focuses on order fulfillment and a 4PL manages the supply chain including fulfillment, transportation, and technology. But let’s go into it a bit more.
4PL Order Fulfillment Company
The 4PL, sometimes called lead logistics providers (LLPs) take on the role of a 3PL but also manages multiple 3PLs and delegates transportation of goods. The 4PL will have 3PLs within its network, operating them independently with each 3PL setting its own standards.
The 4PL has relationships with different 3PL providers and also takes on tasks like transportation, inventory management, and technology. The Shopify fulfillment network is an example of a 4PL. There are advantages to a 4PL such as adding warehouses to their network quickly, but the key disadvantages are a lack of quality control and customer support.
Most 4PLs don’t own or lease assets, they coordinate transportation, warehousing, and shipping services of 3PLs. They will act as a single point of contact for operational support as the 4PL takes on an operational role. The customer doesn’t have to worry about managing relationships with multiple vendors, however, since every warehouse operates independently it can cause inconsistencies.
3PL Order Fulfillment Company
The 3PL becomes an eCommerce business partner with its clients who wish to outsource fulfillment. The 3PL partner will manage the entire fulfillment process. A company or brand that develops and sells products to consumers can outsource its fulfillment to a 3PL and if it’s a full-service fulfillment provider the seller can turn over many different tasks to the 3PL and focus on product development, branding, and marketing.
An eCommerce retailer can outsource fulfillment to a single 3PL partner. In doing so, they will eliminate managing a warehouse, tracking inventory, locating orders, picking and packing , and shipping orders. With a full-service 3PL, they can also eliminate handling returns, customer service duties, bundling, all kinds of specialty value add services, back-office administrative functions, and much more.
Most companies moving from in-house to outsourcing their eCommerce fulfillment can find a 3PL fulfillment service that matches what they need to be done. A full-service 3PL order fulfillment company will support all kinds of eCommerce business including Amazon shipping, dropshipping, subscriptions, flash sales, high volumes, specialty pack-outs, branded packaging, gift wrapping, and so forth.
B2B & B2C eCommerce Fulfillment Services
B2B stands for business-to-business commerce – when one business buys online from another business it’s B2B eCommerce. The fulfillment of business-to-business orders is quite different from fulfilling the orders of a business selling to a single consumer (B2C).
When the inventory of a B2B seller arrives at the appropriate warehouse it will be examined for accuracy and possible damage, recorded in the inventory management system, and stored according to the warehouse management system. B2B orders are larger. They take up more space in the warehouse and they are picked, packed, and shipped quite differently than the business-to-consumer inventory.
There will be separate teams for B2B and B2C and different processes. Some of the orders will come in through electronic data interchange (EDI) and some through the integrated systems with clients. B2C orders will be picked and packed at their appropriate stations and according to client instructions and shipped via the usual carriers, USPS, FedEx, UPS, and so forth. Shipping of the B2B orders will likely be by freight, truckload, less-than-truckload (LTL), and sometimes may ship small parcels (e.g. UPS Ground).
And there are more options beyond B2B and B2C. We have D2C which is direct to the consumer, FBA which is fulfillment by Amazon, MFN merchant fulfilled network or FBM fulfilled by merchant, and SFP seller-fulfilled prime. There are immense numbers of products making their way through the supply chain, and fulfillment services exist to handle the fulfillment portion of the chain.
Full-Service eCommerce Fulfillment Services
We will now look into the details of what fulfillment services are provided by the full-service 3PL. We mentioned receiving inventory in a previous section but it was a glance into the process. Let’s look a little closer, as receiving really sets the stage for success.
When the products arrive at the warehouse, all of the data should be there in advance detailing what products, what SKUs (stock keeping units), and the quantity for each SKU – the fulfillment company has the information in advance through a variety of means, including integration with the brand’s ERP software (enterprise resource planning). This detailed information exchange will have been accomplished during the onboarding process as the technology of the client and that of the fulfillment company have been integrated.
The products are unloaded from inbound containers or on inbound pallets. If the fulfillment company is a ‘green’ company, the packaging, plastic, and paper, will be bundled and recycled. The inbound cartons of the product are counted (often scanned if the cartons are properly barcoded), and SKUs and quantities get recorded within the warehouse management system, a portion of the cartons may be opened to verify that the contents and quantities match expectations (issues discovered during QC will escalate the number of cartons that are checked for accuracy), and the product is then put away into inventory locations within the warehouse.
Of course, receiving can be different for B2C eCommerce sellers and B2B sellers who sell wholesale to retailers. The inventory received for B2B may come in larger amounts and may be located in its own section of the warehouse. B2C inventory may go straight into floor-level pick-and-pack locations if received with more modest quantities by SKU. The goal of the receiving process is to get everything put away according to the pre-determined location in the warehouse, have it all received with perfect accuracy within the inventory management system, and have the whole process completed in a short timeframe, which is generally 24-48 hours from the time of delivery.
Picking and Packing Order Fulfillment
The process of picking and packing in a fulfillment company should be, first and foremost, the most efficient method that the fulfillment company has available, which makes the most out of employee movement and in turn reduces strain on the physical body. Some pick and pack processes are automated and in other cases, sophisticated warehouse management systems will create batches of orders that allow multiple orders to be picked in a single run around the warehouse, and the system works to reduce travel time or the number of steps while the items are picked in an efficient sequence.
In an order fulfillment company serving business to consumer market, the goal is always to pick the most product possible when stopping at a pick location or pick bin, while at the same time limiting the number of steps or travel time. Sometimes eCommerce sellers will sell products in bundles where specific SKUs are sold together as a single SKU. In these situations, the fulfillment company and the seller may agree to “pre-bundle” the product into a single picking unit which limits the number of picks on a bundle order, or if the choice is not to pre-assemble the product into a single SKU, the fulfillment company will often locate the product close together in the warehouse which creates efficiencies in the pick-pack process.
In a business-to-business sale, on the other hand, the orders are shipped in larger amounts, utilizing different equipment and picking processes, requiring extensive documentation which we will cover next.
The B2B ‘Pick and Pack’ Fulfillment Process
The Warehouse Management System may place B2B inventory in a separate location within the warehouse for more efficiencies in pick-pack fulfillment as well as inventory management. The inventory will have arrived in bulk and when orders come in they will be for larger bulk orders being shipped to the retail customer utilizing freight, LTL, or FTL rather than by common carriers, although occasionally common carriers or regional carriers will be used. The outgoing order will often be palletized, sometimes floor loaded onto 53’ containers, and sometimes boxed when shipping via small parcel, and the paperwork will be quite different than B2C and more extensive.
Business documents will be exchanged via electronic data interchange (EDI) which means electronic data transmissions between the brand’s ERP, a vendor bridge (e.g. SPS Commerce) which translates the electronic data between the ERP, and the operating system of the retail customer (e.g. Target, Walmart, Sephora…etc.). The inventory being shipped will have very specific labeling requirements, where the format of the label and the placement of the label match the requirements of the retail customer.
These labels are often referred to as GS1-128 or UCC-128 labels. The shipments will need to arrive at the business destination during business hours and within a specific routing window or short span of days in which the product is required to arrive. In B2B, shipping is often handled “pre-paid” where the retailer chooses the LTL/TL carrier and the 3PL fulfillment service company will arrange for pick-up by that carrier through retailer-specific routing portals or via the EDI integration.
Labeling is an important part of the B2B process, with any international shipments requiring the transmission of HTS (harmonized tariff schedule) codes by SKU which provides a specific description of the product being sold into the country (also true for B2C international shipments) , any hazardous materials needing special labeling, and carton labels required by the retail recipient which are generally GS1-128/UCC-128 labels specific to the retailer. So, the B2B process of picking and packing an order from the warehouse, preparing a shipment for its transit, arranging appropriate shipment and delivery, and notifying the recipient is quite different from delivery to an individual consumer.
The B2C Pick and Pack Fulfillment Process
The inventory from the eCommerce seller has been received and properly located in the warehouse with every SKU in the Inventory Management system. Business to Consumer Pick and Pack begins when orders are received and inventory is allocated to the orders. The inventory is picked and packed in a variety of methods, depending on what makes the most sense for the order volumes and order metrics (e.g. single-unit orders, multi-unit orders, orders with multiple picks of the same SKU…etc.).
Many different methods of picking and packing are employed by 3PL fulfillment service providers. Fulfillment companies will most often batch orders together for efficiency when it comes to the picking process, sometimes onto batch order carts that can accommodate 20-30-40 or more orders onto a single cart, and sometimes product can be pulled with 100-200-300 or more orders when the fulfillment company has automation that will then sort the product into separate orders, such as a put-wall where lights will tell the employee where to place product after the product’s UPC barcode is scanned.
When it comes to packing an order, in some cases there is automation such as an “auto-bagger” where an employee will drop the product into a bag which blows open, and then the bag gets automatically sealed and labeled in a very efficient manner. For orders that require boxing, branded packaging, or protection from breakage, they are brought to pack stations where an employee packs the order according to the company’s or brand’s specifications. Labeling for shipping often takes place at the packing station, after the weight and dimensions of the package are captured in the warehouse management system, and the shipping system can choose the best shipping method when rate shopping is employed. Other times the carrier is pre-selected and the label is generated for that carrier, using either the system weight or scale weight of the order. There are other shipping methods as well, such as overhead print and apply labeling, and sorters that separate ready-to-go packages by small parcel carrier.
Value add services (VAS) for B2C eCommerce sales take place before shipping, and those would include special labeling requirements for international sales or content, gift-wrapping or re-packing, repair work, price and UPC/barcode stickers, product assembly, quality inspections, hang tags or hangars, shrinkwrapping, bagging and sealing, kitting subscription boxes, and other requirements. All of these processes are optimized, most often through structured assembly line processes that may include pace line conveyance to maximize productivity.
The packing is done either using the fulfillment company’s envelopes, boxes, and filler, or utilizing the branded packing and process of the client. Full-service fulfillment companies can also purchase branded packaging on behalf of the company or brand. If the fulfillment company uses biodegradable packaging that is a big plus. Some specialized branded packing is considered a value add service, with gift wrap or custom gift notes amongst other services. Once the items are packed, sealed, and labeled for shipping, the packaged order will be sorted for outbound pick-up by the carrier or ultimate shippers such as UPS, USPS, or DHL to name a few.
Back Office – Order Fulfillment Services
One of the significant advantages of a full-service fulfillment provider is what is called back office or Business Process Outsourcing (BPO). With the capacity to outsource business processes, an eCommerce or B2B retailer can not only have orders fulfilled by a 3PL but also have several administrative services provided as well.
Those activities begin with inventory management and expand to include many services. Some major services would be EDI retail routing support and compliance (for B2B fulfillment), accounting and financial reporting, customer service, order entry, and building customer profiles. Companies can also outsource eCommerce development and shopping cart support, payment processing, sales rep support and commission payments, and most other administrative tasks to a full-service fulfillment provider.
For these processes to take place, the eCommerce seller and/or wholesale B2B seller and the fulfillment service must collaborate closely and truly work as partners. A full-service fulfillment company will have the capacity to deal with consumers, buyers, brick-and-mortar retailers, distributors, sales reps, and more. The accounting personnel of the full-service 3PL must be able to manage basic functions such as setup within the accounting ERP or system as well as many other functions such as invoicing, collections, accounts payable and receivable, and financial reporting.
Back office services are utilized by eCommerce sellers who wish to focus on product development and marketing. When the retailer can turn over all of their product fulfillment and business processes to a full-service fulfillment provider, the relationship will need to be one of trust, communication, and full partnership – the fulfillment provider sees itself as an arm of the business. For this to take place there does need to be a very comprehensive onboarding process, with all areas of partnership discussed.
Shipping Order Fulfillment Services
One of the great advantages of outsourcing fulfillment is the expertise and savings that a 3PL can bring to the table with shipping for order fulfillment. Fulfillment providers will have long-standing relationships with carriers, and the best providers will also have technology through which to find the best rates in the shortest amount of time. Many sellers want to be able to offer free shipping, and others want to offer 2-day delivery and the fulfillment service provider should serve as the shipping expert on behalf of the eCommerce seller.
The 3PL will seek to meet the demands of its clients, whether that is the lowest cost or the fastest delivery, or both. In addition, the fulfillment provider will audit transactions for their clients. With the fulfillment provider will come experience and the capacity for negotiation with carriers, expertise in international shipping concerning labeling and regulations, expertise in hazardous goods shipping, experience in freight services (LTL/TL), and delivery from a variety of warehouse locations, reducing both cost and delivery time.
As said, one of the major advantages of transferring from in-house fulfillment to a 3PL fulfillment service is the general fulfillment expertise and particularly the expertise in shipping. Fulfillment companies ship many thousands of packages via the major carriers – UPS, DHL, FedEx, USPS – as well as international shipping via Passport or Global-e. This allows for relationships and negotiations that the in-house service will not have.
Returns Management Order Fulfillment Services
We have covered in detail some of the services of a full-service fulfillment provider, including receiving, inventory management, warehouse management, pick and pack, value add services, back office services, and shipping. As our last offering, we will describe how a full-service fulfillment provider will handle returns for their clients.
The full-service fulfillment company will have a Returns Team that is well-versed in how the clients want their returns handled. The team will receive the return and have the task of evaluating the product in terms of its condition, using business rules that are developed by the brand or selling company. The returns team will then mark the return with a reason code based on the paperwork received, or the return may arrive with all reason codes made in advance when consumers use return services such as Loop or Happy Returns. Returns services such as these help to streamline the returns process for 3PL fulfillment service providers, offering easy look ups for the returned package where the original order is quickly brought to the screen.
When the product comes in, the ideal outcome is to find it in good condition and return it to active and sellable inventory. If it needs re-packaging, that will be done as part of the refurbishment process. When a product is returned to inventory that will minimize the cost to the retailer. If the product needs to be refurbished, the team will follow guidelines produced in conjunction with the eCommerce seller, which may include cleaning or steaming, and get the product in shape to be a shippable finished goods. These instances are for B2C returns.
Business-to-business returns are received in the fulfillment center warehouse by the Returns Team, processed by the team, and the confirmation and itemization will be sent to both the business that purchased the order and the business that sold the order. Most circumstances involve an RMA (return merchandise authorization) where the retail return is approved and documented by the seller within their ERP, and the RMA information is electronically sent to the full-service 3PL fulfillment company. Barcode scanners will be used to itemize exactly what was returned so the data can be sent to the seller. The fulfillment client will make the decisions regarding returning to inventory, refunding, replacing, and so forth.
What happens in a B2C return when the product is broken or not in shape to be returned to inventory? The fulfillment center will follow the guidelines of the seller, and donate the product, recycle the product, or dispose of it if necessary. For companies concerned with the environment, disposal in a landfill is to be avoided if at all possible, and reputable companies can be contracted to ensure that disposal and destruction of products are not only guaranteed to have occurred but also disposed of in the most environmentally friendly manner.
Use AMS Fulfillment as Your Full-Service Fulfillment Provider
Hopefully, we have answered the title question and readers understand the three major types of fulfillment services – in-house, dropshipping, and 3PL Fulfillment. Within these categories, we understand how the process of fulfilling orders works.
How does a fulfillment company work? Or better yet, how does a full-service fulfillment provider work? Let’s answer that by looking at a fulfillment provider that is not only full-service but a B Corporation as well – AMS Fulfillment. AMS is headquartered in Valencia, California near the LA ports. The company is bi-coastal with warehouses in Pennsylvania and Delaware as well. All of the full-service processes mentioned in this writing are the offerings of AMS. The company handles numerous B2C and B2B clients, serving their needs as accurately and efficiently as possible, as the operational arm of their businesses – a true partner.
There is one more benefit to AMS Fulfillment that very few companies can claim – AMS is a B Corporation. What is a fulfillment B Corporation? It is a for-profit company that has committed to putting purpose before profit. This means that the company is concerned with the environment and is focused on being Green. It also means that the company is focused on its employees and the community that surrounds it while still being focused on service to the clients.
These four concerns are in reference to four stakeholders in the business decisions – the employees, the community, the environment, and the clients. A B Corporation is dedicated to having a purpose beyond profitability in business, a purpose to Do Good while doing business.
At AMS our clients are offered biodegradable packaging, everything we unwrap we bundle and recycle, every possible energy-saving technique is used in our warehouses, and more. AMS has a Green Team, and they are sincere. No “greenwashing” at AMS.
Our employees are protected and trained by a Safety Team, as safety matters to us. Our employees are offered free college-level training during work hours, as we work to develop the skills of individuals, many of whom come from underserved communities. We make efforts to hire from the community those having difficulty gaining employment due to justice involvement, homelessness, or disability. We are involved with the community in volunteering as well. And we serve our clients as if their business was our own because as our clients succeed, we succeed. Our clients are always stakeholders in our decisions.
If you are looking for a full-service fulfillment provider and certified B Corporation, please Contact Us today.