Brick and mortar retail is dead. At least that was what many people thought when 300 retail stores filed for bankruptcy in 2017. It was painful to see beloved companies, such as Toys R Us, close their doors and once-vibrant shopping malls become ghost towns.

The reality is that brick and mortar stores are still relevant, but the way they sell to customers has changed. Ecommerce has become an important part of their business models, which is what enables them to effectively compete against businesses that sell exclusively online. In fact, CNBC states that $4.2 trillion is earned in the US retail industry with $475 billion (or roughly 13%) of these sales occurring online.

Smart brick and mortar stores offer a multi-faceted customer experience that involves in-store and online experiences. These stores, along with their online e-commerce competitors, often face challenges with order fulfillment. Shopping online may seem like a blessing in disguise for the consumer, but it can be a nightmare for retailers that do not use the right order fulfillment services.

What are order fulfillment services?

Order fulfillment services are best described as inventory management platforms that help businesses receive, process and deliver orders to customers. There are over 600 order fulfillment services worldwide. Some of the best are FedEx, ShipBob, Red Stag, FBA, Rakuten, Shipwire, Shipstationand Shipmonk.

How do e-commerce fulfillment services work?

Order fulfillment services make it easier to provide customers with the best buying experience. It may seem feasible for a small e-commerce business that sells less than 10 products daily to store inventory in the owner’s garage and manage its own order fulfillment. And in reality, this is probably the best thing to do with such a small business. Managing inventory and fulfilling orders can become quite tedious when thousands of e-commerce orders are being processed on a monthly, weekly or daily basis.

This is where order fulfillment providers fill the gap. Each order fulfillment service company covers 4 broad phases of order fulfillment: managing stock, receiving orders, packing orders and shipping orders direct to consumer. Here is a breakdown of what happens during each phase.

Phase 1: Managing stock

An order fulfillment service company receives products from the manufacturer, sorts them and stores them in a warehouse. Notification is required, usually in the form of a purchase order, prior to the shipment arriving at the warehouse.

One of the benefits of this stage of the process is that the order fulfillment service company will record damaged inventory and notify the e-commerce business immediately. Notifications will also be sent if the delivery is short. The team at the e-commerce business can then follow-up with the manufacturer to get a reimbursement or have another batch of goods shipped.

Order fulfillment services use Stock Keeping Unit (SKU) numbers and barcodes to organize inventory received from an array of e-commerce stores. The company may either assign its own unique identifiers to the e-commerce business’ products or use identifiers that the business already has. When goods are received, they are labeled and moved to storage.

Storage is either front-of-the-house or back-of-the-house. Front-of-the-house storage makes goods easily accessible when customer orders need to be filled. High quantities of the best performing products tend to be stored at the front-of-the-house for easy access when customer orders need to be filled. Excess or low performing products are stored in the back-of-the-house which is sometimes a basement storage area. The performance of inventory is tracked so that the order fulfillment services company knows where best to store the products and can guide the e-commerce business with inventory purchases from the manufacturer. 

Phase 2: Receiving orders

A customer clicks the “Buy Now” button. What happens next? The speed with which the order is processed depends on whether the e-commerce company uses: an order management system, a top e-commerce platform (such as Shopify), or neither. Most order fulfillment services can integrate their software platforms with an existing order management system or top e-commerce platform. If neither of these options exists, orders can be manually keyed into the order fulfillment service’s customer portal by the e-commerce company’s team.

Complete integration is the best option. It ensures that an order is registered the moment a customer clicks the “Buy Now” button. The order is fulfilled at a faster rate using this option. On the other hand, manually inputting the information means that it has to pass through the hands of more than one person and is more prone to human errors. It will also take longer to fulfill customer orders. 

Phase 3: Packing orders

The team at the order fulfillment services company collects the ordered product(s) from the storage area and matches them against the customer’s order. The product(s) is then carefully packed, with correct labeling and inserts, into appropriate shipping boxes or envelopes to ensure safe delivery. Several products can be packaged together to create a group of products that customers can purchase. 

Phase 4: Shipping orders

It is shipping time! Packed orders are sealed, weighed and labeled for shipment using the shipping method chosen by the customer. If no shipping method was chosen, the order fulfillment services company will use the most affordable shipping solution. These companies tend to batch orders from different e-commerce businesses together for shipment thus reducing shipping costs. This process is called kitting.

How do order fulfillment services handle customer returns?

Managing customer returns can be challenging. An order fulfillment service company can handle customer returns at a cost. Most of these companies will declare their fees upfront in their packages. However, it may be necessary to discuss these fees so that there is a clear understanding of how much it will cost the e-commerce business. Return costs can burn a hole through the e-commerce business’ bottom line, especially if the business operates in an industry with a high return rate.

Here is how the process works if the customer returns service is used.

  1. The customer sends a message to the order fulfillment company’s support staff indicating the need to return an item.
  2. The support staff directs the customer to the return address on the packaging. This is the order fulfillment service company’s address.
  3. The customer returns the item to the address.
  4. The order fulfillment service company’s team unpacks the item and examines it to determine if it follows the e-commerce company’s return policy. 
  5. The e-commerce company decides if the item is resealable, can be used in a clearance sale or needs to be thrown out.

Is it better to use several third-party service providers or one order fulfillment service?

The order fulfillment process has several components. Some companies specialize in one element of the process but order fulfillment service companies provide support for all phases. For instance, business process outsourcing (BPO) companies can handle customer support queries related to orders but they tend not to handle storing, packaging and shipping products.

Large e-commerce businesses usually have a strong logistics system and may not benefit from outsourcing all of the order fulfillment process. However, they may benefit from outsourcing elements such as customer service. Small e-commerce businesses benefit more from hiring an order fulfillment service company because they need support for all stages of the process, not a few.

Are order fulfillment services better than in-house fulfillment?

Both have their pros and cons. In-house fulfillment occurs when the business completes all elements of the order fulfillment process internally. The major benefit of this form of fulfillment is that managers have a better handle on what is happening at each stage of the process, especially if inventory size is very small. However, it can become increasingly costly and over-complicate the logistics process.

The benefits of an order fulfillment service are described in another section of this article. However, lack of control is a major pitfall of using an order fulfillment service. Trust is paramount in the relationship between the e-commerce business and the order fulfillment service company. This makes it very important to choose the order fulfillment service company wisely because the wrong company can mar the business’ reputation. Details about what to look for are provided in another section of this article.

Why are order fulfillment services important?

The simplest answer is that order fulfillment services make running an e-commerce business easier. Inventory management and customer returns are time-consuming, labor-intensive processes that can eat away at an e-commerce business’ human, monetary and physical resources.  There are six ways that order fulfillment services make running an e-commerce business simpler:

  1. Reduce shipping costs
  2. Lessen operating expenses
  3. Provide statistics about product performance
  4. Expand geographic reach
  5. Improve customer service
  6. Facilitate quick order processing

Reduce shipping costs

An e-commerce store that does its own order fulfillment will experience high shipping costs. High shipping costs increase the selling price of products and ultimately turn away customers. Some e-commerce companies may attempt to counteract the loss of customers by drastically reducing the selling price to a point where the business’ expenses cannot be covered.

An Online Shopping Customer Experience Study conducted by UPS revealed that “73 percent of shoppers expect affordable, fast deliveries when they shop online.” One of the ways order fulfillment services make it possible to sell products at affordable rates is by lowering shipping prices in 2 ways.

Firstly, these companies get lower rates from shipping companies because of the number of products they ship. Remember that order fulfillment services ship products for a wide range of companies. Therefore, shipments are done in large batches and the shipping company provides a discount.

Secondly, an e-commerce company can work with order fulfillment services in various locations. Proximity reduces shipping costs. For instance, an e-commerce store may sell products to customers in New York and Florida. Shipping from a central location in America can be beneficial. However, using order fulfillment services that have warehouses in New York and Florida will drastically reduce shipping costs to customers in those areas. Furthermore, shipping from a central location can become a logistics nightmare if orders are from customers located far away. 

Lessen operating expenses

Running a warehouse is expensive. There are labor fees, storage fees, loading and unloading fees, shipping fees, return fees, maintenance fees, risk management fees… too many fees to keep track of. Order fulfillment services absorb those fees and charge online retailers a monthly fee based on storage space occupied and services required. The monthly fee is far less than what it would cost to run a full-fledged warehouse.

Product performance statistics

An online store hosting website, such as Shopify, can provide an e-commerce store with all the statistics needed to track sales. However, an order fulfillment service company takes it a step further by providing details about inventory storage and handling. For instance, the order fulfillment service company can provide details about how quickly products sell, and therefore where they are stored in the warehouse, based on the orders received on a monthly basis directly from the e-commerce website. The company can also provide details about the number of damaged goods supplied by a manufacturer on a monthly basis. This information can help identify a pattern and determine whether a new manufacturer is necessary. 

Expand geographic reach

The logistics of international, and even state-to-state, shipping can be a lot to manage. Most order fulfillment services have established a robust network of order fulfillment partners that make it possible to ship anywhere in the world. The e-commerce business can, therefore, expand into new territory.

Improve customer service

Order fulfillment services offer round the clock telephone and email customer support for an additional fee. Therefore, the burden of handling customer returns, exchanges and refunds no longer rests solely on the online retailer’s shoulders. This is an important point because Harris Interactive reports that “89 percent of consumers have switched to doing business with a competitor following a poor customer experience.” Order fulfillment services have customer service units that work like well-oiled machines; the aim is to always ensure that each customer’s issue is resolved. 

Facilitate quick order processing

This was mentioned earlier but it is so important that it is being mentioned again. Customers demand quick shipping and a variety of delivery options. Complete integration with the order fulfillment service’s order management system makes it much easier to meet these customer demands. Customers will be happier and the e-commerce business will grow. 

What are the most important things to look for in order fulfillment services?

The R-I-C-H principle can help an online retailer identify the most important things to look for in order fulfillment services. 

R – Reviews and referrals

The best way to understand how well an order fulfillment service works is to read reviews and ask other businesses for referrals. Online retailers can follow these steps to get honest reviews about order fulfillment services.

  1. Visit the order fulfillment service’s website
  2. Identify three of the clients listed
  3. Visit the client’s website and get the contact information for someone who may provide a review
  4. Contact the person and ask if there have been any challenges with using the service

This may seem like a feasible idea on paper. However, it may be difficult to get feedback this way; people are busy and may be reluctant to provide an honest review when approached this way. Another option could be to contact other online retailers and ask for feedback on the order fulfillment services they use.

Another option is to read the review of 8 of the best order fulfillment service companies provided at the end of this article. This review provides an unbiased opinion of these companies. Therefore, an online retailer can use it as a guide for choosing the best order fulfillment service.

I – Innovation

The online retail industry is constantly changing. Online fulfillment services must remain current and be able to meet the new customer order demands. Some questions to ask include:

  • Is the technology that the company uses outdated?
  • Does the company use logistics best practices?
  • Are the fulfillment solutions easy to understand and representative of the modern consumer?

C – Credentials and experience

Trust is important for any relationship with an order fulfillment service. A trustworthy order fulfillment service company will have these credentials:

  • Business license
  • Storage warehouse license
  • Liability insurance
  • Relevant permits such as a food handler permit if the company deals with food-related products

An experienced order fulfillment service navigates the order fulfillment process with minimal mistakes. Inexperienced order fulfillment service companies tend to learn as they go and an online retailer would not want this company to take risks with their products. 

H – Holistic view of the business

It is important to get a bird’s eye view of the order fulfillment service company because there are several factors that can affect the order fulfillment process. These factors include:

  • Pricing
  • Size of warehouse
  • Number of employees
  • Location
  • Specialization
  • Shipping services offered
  • Error policy
  • Length of contract
  • Branding Options

Pricing will be discussed in further detail in the next section. Further information about the other factors is provided below.

Size of warehouse and number of employees

Online retailers only pay for space they occupy in an order fulfillment services’ warehouse which results in huge cost savings. However, the size of an order fulfillment service company’s warehouse can indicate the number of customers it has and, therefore, its size. The same is true for the number of employees the company has; more employees indicates a larger order fulfillment company and, therefore, hire service charges. Startup order fulfillment companies typically have smaller warehouses, less staff, and lower rates when compared with their more experienced counterparts.

Another important consideration is whether the online retailer sells enough products to establish a financially viable relationship with an order fulfillment company. More experienced order fulfillment companies with larger storage facilities tend not to establish relationships with companies that sell a low volume of goods. On the other hand, an order fulfillment company with a smaller storage facility may be willing to accept such a company.  

Location of the warehouse

Alluded to earlier, shipping costs are drastically reduced for customers when the warehouse is close to them. Therefore, customers are more inclined to purchase additional products. Online retailers consider 1 or more of these factors when deciding whether an order fulfillment services’ location is ideal:

  • Proximity to the manufacturer
  • Proximity to the customer
  • Proximity to the online retailer’s physical location

In an ideal world, the warehouse would have the right combination of all 3 thus reducing overall shipping costs. 

Specialization of the warehouse

Order fulfillment service companies tend to specialize in specific products. For instance, an order fulfillment service company that specializes in food and beverage products will have the required storage and shipping equipment to keep the products at industry standards. 

Shipping services offered

An order fulfillment company can offer to ship through its own fleet or through a special contractual arrangement with a shipping company. Knowing the option offered is important because it affects the shipping rates passed on to online retailers. It also affects the discounts online retailers can access from the order fulfillment company.

Error policy

Errors are bound to occur with any order fulfillment company. More experienced companies will make fewer errors but errors will always exist. Paying for errors is costly so it should be clear from the get-go who will foot the bill. Credible order fulfillment companies will absorb these costs and have a strategy in place for correcting the errors.

Length of contract

Some order fulfillment service companies will lock the online retailer into a long-term contract with strict penalties if the contract is broken. Others may offer shorter contracts with no penalties. The online retailer should assess whether the length and terms of the contract will result in long-term issues as the company grows.

Branding options

Order fulfillment companies do not display their branding on the packages they distribute. In fact, online retailers can customize product packaging and include special notes to customers. The customers would never know that the product was not shipped directly from the online retailer.

What is the typical pricing structure for order fulfillment services?

Price is another important consideration when choosing an order fulfillment service company. Pricing structures differ from one order fulfillment company to the next, but rates are given on a per order basis and tend to be broken down into the following areas:

  • Stock receiving
  • Stock sorting and storage
  • Order packaging
  • Shipping
  • Kitting
  • Customer service

Generally, one of the pricing models shown in the table below is used. However, there is no steadfast rule that says order fulfillment services should stick to a prescribed pricing structure. Ecommerce store managers should, therefore, visit the order fulfillment service company’s website to get further details about the pricing structure used.

Order Fulfillment Service Order-by-Order Pricing Model Unit Pricing Model
Receiving packages By the shipment By the unit
Sorting and storing By the cubic feet occupied By the unit
Packaging By the order By the pallet
Shipping  By the order By the unit
Kitting By the kit By the hour
Customer service Flat rate By the hour

Most order fulfillment service companies bill on a monthly basis and prices can exceed $5,000 per month depending on:

  • Storage space occupied
  • Number of goods received from the manufacturer
  • Number of goods shipped
  • Number of kitting services required
  • How often customer service is used

What are the best fulfillment services for 2019?

Order fulfillment services are godsends for small e-commerce businesses.  There are over 600 to choose from but this article looks at the 8 best online fulfillment services in the market. The owner of a small e-commerce business can use this comparative analysis to make an informed decision about the best order fulfillment service for the business.


 

FedEx Fulfillment

FedEx logo

  • Overall: 3
  • Features: 3.5
  • Price: 3
  • Ease of Use: 3
  • Customer Service: 3

FedEx Fulfillment began in 2017 to specifically meet the logistics needs of small and medium enterprises (SMEs). Online retailers can benefit from the track-record of FedEx Fulfillment’s parent company, FedEx, which has 48 years of third-party logistics experience. The best features of this order fulfillment service are its:

  • Multi-platform integration with online marketplaces and websites
  • Ability to reach customers around the world with international shipping
  • Ability to meet the specific logistics needs of the SME
  • Reverse logistics that enable efficient processing of customer returns
  • Inventory tracking
  • Trend analysis

There have been complaints about discrepancies with tracking large inventory, however. FedEx Fulfillment is better for online retailers that stock less than 100 products on a monthly basis, as well as this who have heavy international fulfillment needs.


 

Fulfillment by Amazon (FBA)

fulfillment by amazon

  • Overall: 4
  • Features: 4
  • Price: 3.5
  • Ease of Use:  4
  • Customer Service: 4

Amazon is arguably the leading marketplace for buying and selling goods online, thanks in part to it’s extremely popular Amazon Prime option for super fast shipping. It is a no-brainer for most online retailers to use Amazon as a platform to easily ship products to consumers. Amazon FBA facilitates this process by coordinating the logistics of receiving, storing, packing and shipping products from Amazon’s warehouses and distribution centers across the world, which makes it easier than ever for online retailers to reach more customers. FBA also allows online retailers to integrate with other channels such as an e-commerce website.


 

Rakuten Super Logistics

Rakuten logo

  • Overall: 4
  • Features: 4
  • Price: 4
  • Ease of Use:  4
  • Customer Service: 4

Rakuten is another popular e-commerce fulfillment company, with 12 fulfillment centers and 1-day shipping in America. One of its best features is its shipping cost optimizer. Online retailers can use it to determine the most affordable shipping methods based on the delivery speed chosen. Like other platforms, Rakuten offers multi-channel integration and equips the online retailer with inventory, shipping and analysis tools. In fact, Rakuten’s unique fulfillment software tools are some of the best in the industry.


 

Red Stag Fulfillment

Red Stag Fulfillment

  • Overall: 4
  • Features: 4
  • Price: 4
  • Ease of Use:  4
  • Customer Service: 4.5

Red Stag has been touted as one of the best options for satisfying the fulfillment needs of large, bulky products because of its affordable storage fees for products of that size.  Orders shipped by the manufacturer are collected and processed at the Red Stage warehouse within 2 days. They even offer light assembly if needed before shipping products to customers. An online retailer can be reimbursed $50 if Red stag makes a mistake with any of the retailer’s products. Customers will receive their orders within 3 days.


 

ShipBob

ShipBob logo

  • Overall: 4
  • Features: 4
  • Price: 3.5
  • Ease of Use:  4.5
  • Customer Service: 4

ShipBob offers same-day shipping from its 5 fulfillment centers to customers in Chicago, Los Angeles, New York, San Francisco, and Dallas. Two-day shipping is available to other locations in America. This order fulfillment service is ideal for SMEs that need batch fulfillment. The platform is simple and user-friendly and can be seamlessly integrated with e-commerce websites such as Shopify.


 

Shipmonk

Shipmonk

  • Overall: 4
  • Features: 4
  • Price: 4
  • Ease of Use:  4
  • Customer Service: 4.5

Shipmonk is one of the newest e-commerce order fulfillment services on the market since it began in 2014, but it is touted as one of the best order fulfillment services for startups and crowdfunding campaigns. Supporting users is a high priority for the team of Happiness Engineers who work assiduously to make both online retailers and their customers happy. Integrations, customization and warehouse automation are a strong part of the company’s framework.


 

Shipstation

Shipstation logo

  • Overall: 4
  • Features: 4
  • Price: 4.5
  • Ease of Use:  4
  • Customer Service: 4

Shipstation began in 2011 in Austin, Texas and is now owned by Stamps.com. Its simple user interface allows online retailers to automate order fulfillment processes. Business owners can ship both in America and internationally. Ecommerce experts from around the world can be contacted using the platform which is a valuable feature for inexperienced online retailers. Since it is a Stamps.com company, there is seamless integration with the Stamps.com platform that allows users to take advantage of attractive USPS rates.


 

Shipwire

Shipwire logo

  • Overall: 3
  • Features: 3.5
  • Price: 3
  • Ease of Use:  4
  • Customer Service: 3

Shipwire offers a robust network of global order fulfillment options. With warehouses in the US, China, Europe, Australia and Asia, an online retailer that uses Shipwire can expand its customer base. Additionally, Shipwire supports both B2B and B2C order fulfillment. Its order routing technology provides users with the best shipping rates possible. Customization is possible, users can compute shipping costs and several sales channels can be integrated thus centralizing order and shipment management. There have been some complaints about a lack of customer service, but this is still a good platform for online retailers that want to expand globally.