Fulfillment for Direct-to-Consumer (D2C) Brands: An Orientation Paper and Guide
There are three ways to build your D2C logistics network: on your own, via Amazon Fulfillment, or with a 3PL provider. Read our guide to pick the right one.
To learn more about us and the product we are building in the e-commerce fulfillment space, make sure to visit our homepage!
As an eCommerce D2C (direct-to-consumer) business that’s really taking off, accurate and smooth fulfillment is absolutely key to your business. After all, delivering your online products directly to your customers is the whole premise of the D2C business model. Bye-bye physical shop space and endless queues, hello innovative new entrepreneurs offering great products, one-click purchases and rapid delivery to every consumer’s doorstep in a virtual world dominated by Amazon, Zalando and ASOS. The unprecedented access to market and global customer base and recognition that D2C eCommerce offers can be very exciting. Plus, you can sell products at lower costs than traditional consumer brands, undercutting them, and maintain complete control over the making, marketing, and distribution of your products. What’s not to like?
Well, if your business is growing, chances are that you are now struggling with D2C fulfillment issues. When you were starting out, you may have managed fulfillment on your own: now that you’re suddenly getting a lot more orders, the complexities of fulfillment logistics are becoming too great to manage alongside the many other demands of your booming business. This is no surprise: with demand high for seamless, two-day deliveries, especially in the major urban centers, fulfillment for small-medium D2C companies is not easy these days. Even with previous fulfillment experience or an in house expert, it can be difficult to know what to do when you’re at a crossroads between continuing to do fulfillment yourself or outsourcing. So, we’ve put together a brief orientation guide on fulfillment for D2C eCommerce brands, to help you to sort out your fulfillment issues and lay the way for your business’ smooth path to further success.
What Actually is Fulfillment?
Logistics is a very extensive field and as a D2C business founder with a brilliant idea but no business background, it can be tricky to understand what it actually means or involves. Logistics, as an overarching term, refers to the organization, processes and services needed to ensure the efficient flow of merchandise and orders from storage to shipment and delivery. This also includes the flow of data, which is of the utmost importance when it comes to smooth order fulfillment.
There are four key types of logistics:
- Warehousing Logistics (Fulfillment): All the varied and complex tasks involved in warehousing — the organization, movements, and management of inventory, including the shipping and receiving of physical inventory. Aside from the inventory itself, warehouse logistics might also cover additional tasks like warehouse pest control, handling damaged goods, safety and security policies, HR management and insurance, and customer returns — essentially, everything needed to keep warehouse operations running smoothly. This requires great organisation and warehouse management technologies.
- Shipping Logistics: The processes involved in getting a product from point A to point B. Put simply, it is the logistics involved in physically transporting a commercial product. It involves resource planning, organization, management of different transport vehicles across the carrier’s offices, execution, and control of the transportation of shipped items.
- CEPs (Courier, Express, Parcel): CEP logistics services are fast shipping logistics services for delivering non-palletized items, which are usually under 50kg (110 lb.), within a limited distance. It basically covers all fast, reliable deliveries of smaller items, usually on the ground across shorter distances — although some CEP shipments travel by air. The acronym refers to Courier (the person or company who delivers the packages, usually over a fairly short distance), Express (time-bound delivery, where shipments are delivered within a day or two) and Parcel (what is says on the box — the parcel itself).
- Inbound vs. Outbound Logistics: Inbound logistics is the transport, storage and delivery of all items coming into (being received by) a business. Outbound logistics is the opposite: all the items going out of (being shipped out of) a business.
What Are The Key Terms for Fulfillment Services?
To get started, we’re going to give you a brief overview of the key terms in the fulfillment industry. Say goodbye to fulfillment confusion and hello to fulfillment expertise!
- 3PL (Third-Party Logistics Provider): a provider of outsourced functions of the supply chain/logistics process. They usually cover either aspects of or the entire fulfillment process for eCommerce businesses.
- Application Programming Interface (API): an API is a set of programming instructions and standards that acts as an intermediary between two different software applications, allowing them to “talk to each other” or work together. For example, this way, the shop system (e.g. Shopify, Woocommerce) can “talk” to the warehouse management system (WMS).
- Bundling: the process of combining multiple SKUs into one package to create one new SKU — in other words, separate but related items are grouped, packaged, and supplied together as one unit.
- Carrier: The shipping company used for delivery, such as UPS, Royal Mail or FedEx.
- Distribution Center (DC) or Fulfillment Center: a warehouse or other space used by a third-party fulfillment provider to receive, store and manage inventory and pick, pack and ship orders. It is usually located strategically near transportation routes/hubs.
- Fulfillment Provider/Logistics Provider/Warehousing Provider: A fulfillment service provider is a third-party service provider that stores, prepares and ships your orders for you.
- Inventory: any materials or goods that pass through or are held in your business and are necessary in order to carry out your trade; in the case of eCommerce and D2C brands, inventory generally refers to the products or “stock” that you sell.
- Inventory Management: this refers to the process of ordering, storing, and using a company’s inventory, including the management of all inventory (raw materials, components, and finished products) and the warehousing and processing of such objects.
- Inventory Management System: an inventory management system is a system that oversees the monitoring and maintenance of a company’s inventory/stock. It usually uses a combination of hardware and software technologies.
- Logistics: this is the organization, processes and services needed to ensure the efficient flow of merchandise and orders from storage to shipment and delivery. This also includes the flow of data, which is of the utmost importance when it comes to smooth order fulfillment.
- Order: an order is a directive issued by a business owner to ship one or several items or SKUs to a particular customer. Orders can be received manually, either individually or through bulk upload, or in real-time through shopping cart integration.
- Order Fulfillment: this means fulfilling an order, in other words, getting the required stock to the desired customer. It covers the process of picking, packing, and distributing the stock, from point A (when the customer places an order) to point B (when they receive it at their doorstep). If the customer wants to return a product, order fulfillment covers the returns process too.
- Order Fulfillment System: this is a software application designed to streamline and automate various order fulfillment operations, such as picking, packing, and shipping. This software needs access to data about the order, product, customer and other related data from the seller in order to carry out its central fulfillment functions. It is constantly in an ongoing data interchange, or “conversation”, with the shopping cart/software systems of the seller’s e-store, which means it needs to integrate with them via, for instance, an API.
- Pick and Pack: this is the packaging of several different SKUs from the same seller into one single box for one customer. For example, if a customer orders three t-shirts and a pair of jeans from the same seller, the order fulfillment center will pick and pack the order so that all the items get sent to the customer in the same package. This is often referred to as combined shipping and can lower shipping costs for both customer and seller.
- Stock Keeping Unit (SKU): a number assigned to a product by a retail store/company to identify the price, product options and manufacturer of the merchandise.
- WMS (Warehouse Management System): is a software application designed to support warehouse or distribution center management and staff in their fulfillment tasks, helping to ensure orders get from point A to point B efficiently.
What Are The Different Ways That You Can Do Fulfillment as a D2C Business?
There are three central ways that you can build your D2C logistics network:
- On your own,
- Through Fulfillment By Amazon (FBA),
- With a 3rd Party Logistics (3PL) provider.
We will explore the different options in more detail below so that you can make your fulfillment decisions equipped with all the key information.
The Do-It-Yourself Approach
Self-fulfillment, also called in-house fulfillment, is an order fulfillment method where the D2C business owner handles all fulfillment in-house, without the help of a third-party provider. The order fulfillment process involves five basic steps:
- Inventory Storage
- Order Processing
- Returns Processing
With self-fulfillment, the business owner handles not just the storage, picking, packing and shipping of the item, therefore, but also customer returns, customer services, and any other fulfillment related issues. Each step in the fulfillment process has its own nuances, from choosing the correct packaging to routing and managing inventory.
- Complete control over the order fulfillment process.
- Greater quality control
- The opportunity to offer a more personal customer service approach, which could help to boost and maintain customer satisfaction.
- Significant time and cost burdens emerge as a business grows and their fulfillment operations become bigger and more complex
- New logistical needs: new equipment (warehouse, forklifts etc.), new staff, new technologies e.g., inventory management system, warehouse management system
- Difficult to negotiate with carriers to secure cheap rates for quick shipping alone
Self-fulfillment is usually used by starter D2C businesses. Most brands choose to outsource to an external provider once their business grows, though, as we shall explore further below.
Outsourcing to An External Provider
If you spend several hours a week packing and shipping orders, you ship more than 100 orders per month, you feel like you need more time for other parts of your business, or you’re beginning to feel that you might need to invest in distribution infrastructure, like warehouses, labor, vans etc., then now may be the time to turn to an external provider. Your options are:
FBA — Fulfillment By Amazon and MCF — Amazon Multi-Channel Fulfillment
Fulfillment by Amazon means just what it says on the tin: you sell your items on Amazon’s marketplace and Amazon fulfills your items for you. Instead of selling your items online, via your website or another online marketplace, and then sending orders to customers yourself, you send them in bulk to the nearest Amazon fulfillment center. Upon arrival, Amazon shelves your items in one of its huge warehouses and they then become available for sale online on the Amazon marketplace. Once a customer buys your item, Amazon is in charge of picking, packing and shipping your item(s) to the customer.
Amazon Multi-Channel Fulfillment is FBA but without listing your products on the Amazon marketplace. Whereas FBA is available everywhere that Amazon has fulfillment centers, MCF is only currently available in USA, UK, Canada, Germany, Spain, Italy, France and Japan. With MCF, you still send your chosen inventory to an Amazon fulfillment centre but you create your inventory listings on your own website or another marketplace(s) that is not Amazon. Once a customer buys the product from your selling channel, you tell FBA to send the shipment out (create a shipment order), according to the customer’s chosen shipping options. FBA then picks, packs and ships the order, and processes any returns made.
- Amazon will handle all of your logistics, customer service & returns, freeing up a lot of your working hours to focus on other parts of your business
- You benefit from Amazon’s two-day and overnight shipping services for all of your orders.
- You potentially gain a competitive advantage as you have access to some of the best logistics services in the world — although this also applies to many 3PLs.
- FBA tends to be very, very expensive compared to other high-quality fulfillment providers.
- As Amazon will collect data on your products, if they notice one of your products is becoming a best-seller, they might consider developing a similar, cheaper version of your product themselves — as Allbirds, a US shoe company recently experienced.
- Moreover, with FBA, you not only give up a lot of data about your products but the entire customer relationship and customer experience. This not only means that your brand’s entire reputation and image is in Amazon’s hands, since quality control is left to them and they get to define your relationship with your customers. It also means, again, that Amazon is collecting a lot of important data about your audience instead of you — data that might be useful to help your business to improve certain services and grow.
FBA offers small brands access to some of the best fulfillment services in the world. But it comes with a big price tag — both literally and in terms of exposing your products to possible Amazon cloning. FBA is also not ideal for scaling your business as it is mostly designed for marketplace Amazon-style sellers; big eCommerce brands tend to work with experienced 3PLs who can handle their order volume and specific needs, as well as giving them ample room to scale further in future.
Outsourcing to a 3PL
Outsourcing to a 3PL provider means handing over the entirety of the fulfillment process to them — from receiving inventory from the manufacturer to picking, packing, and shipping, to restocking returned products, to quality control, to customer services, and other tasks. This is often the preferred option for many upcoming and established eCommerce companies alike, since 3PLs tend to offer high-class services, flexibility and diversity in offering, and a lot of fulfillment experience for a much more optimal price than self-fulfillment or FBA.
- Handing over the entire fulfillment process frees you up to focus on brand strategy and growth, among other important aspects of your business.
- 3PLs long-term logistical expertise and networks mean that they are able to negotiate discount bulk shipping rates from carriers because of the huge volume of shipments they make each day.
- 3PLs can offer high-quality, professional services and a lot of fulfillment experience. Established 3PLs will have invested in picking and packing optimization and efficient storage; they are also likely to use the best carrying services, as they will have tried and tested the market already.
- As they usually have a number of carrying providers and fulfillment centers, they tend to have multiple locations, improving lead and delivery times.
- 3PLs are frequently able to help with regulated items, such as if you ship dangerous goods, like electronic products with batteries, perfume etc. Their special items services are often much cheaper in the end than both self-fulfillment, because 3PL’s scale and expertise offer cost advantages, and FBA, because FBA and Marketplace margins tend to be much higher.
- 3PLs generally have extensive experience in scaling logistics processes, meaning that they are a great long-term fulfillment option as your business grows.
- You lose control of fulfillment — you have to trust your chosen provider and their carriers to satisfy your customers — meaning that quality control can also be reduced.
- You need to know what to look for in a fulfillment provider and create a fulfillment plan with all your needs in order to choose the best option (we have some help for you below!).
While 3PLs may initially look more expensive than self-fulfillment and you lose control of the fulfillment process, they offer so many advantages in terms of time savings, experience, diversity and quality of services, and carrier discounts that they can actually work out the optimal option in the end. One huge advantage of opting for 3PLs as a D2C brand is that they have extensive experience in scaling logistics processes. This is one of the biggest hurdles for inexperienced (and even experienced) eCommerce businesses, so having a reliable 3PL partner can help your business to continue to grow without any unexpected fulfillment hiccups.
What Should You Consider When Deciding Which Fulfillment Option to Go For?
With the Amazon effect in full swing, quick deliveries are the order of the day. Your customers will expect 2-day or even next-day delivery, and easy returns — and all for free. Indeed, in recent studies, 53% of digital shoppers said that delivery speed was an important factor for evaluating their online orders and 63% cited expensive shipping as a reason for abandoning an online purchase. But quick and free delivery costs big money — much more than the historical “€3.50 for within 3–5 business days”.
Outsourcing Can Be More Cost-Effective
If you are doing fulfillment yourself, you will have a much harder time negotiating with carriers than a 3PL. You will not be able to easily rival the state-of-the-art fulfillment network and operations offered by FBA and some 3PLs either. Outsourcing can, therefore, be the most cost and quality-effective option in the end.
Considerations for Outsourcing
If you decide to outsource fulfillment, you will have to consider the price of FBA vs. 3PL services. Here, the cheapest option is not always the best. With 3PLs, you need to look at value for money — exploring their shipping network and the rates they offer, their reputation and current clients, the services they offer, what they actually bill for, your company’s future growth, and many other considerations, some of which we will explore below.
Lead times are a measure of a fulfillment provider’s ability to quickly serve customer demands — in other words, how fast on average they can process and deliver orders to customers. With customer demands for speedy delivery bigger than ever before — 25% of online shoppers have canceled an order due to slow delivery speeds — good fulfillment lead times are key to customer satisfaction and the continued growth of your business.
Can You Do It Quickly Enough On Your Own?
When it comes to self-fulfillment, this is obviously a question of how quickly you can process and send out orders. Lead times will depend on your own capacity and/or that of your staff, and whether you have secured quick delivery times at an affordable rate with your chosen carrier(s).
Outsourcing: Look for Flexibility and Location
If you have outsourced to a fulfillment provider, you should consider how flexible they are and their location. You need your chosen fulfillment provider to be able to respond promptly and ship quickly if you have a sudden peak in demand. If you have enough budget, you should try to work with a fulfillment provider that has a lot of distribution centers where most of your customers are. This can often be difficult if you are doing self-fulfillment and are based far away from your central customer base. Good location, in the end, means better lead times.
If you are doing your own fulfillment, you will only need to consider what kinds of services your chosen carrier(s) offer(s) — for example, temperature control or refrigeration services. If you are outsourcing fulfillment to a 3PL, you need to consider what kind of fulfillment and carrying services the different providers offer, depending on your exact needs: do you need kitting, for example, or custom packaging? Are you sending fragile goods? Do you want them to provide white-label packaging and delivery? Do you need certain carrying conditions? Each 3PL and manufacturer will have its own unique fulfillment services, so you need to know what is on offer — and how much it all costs — before you decide which one to go for.
Inventory Management and Reporting Are Key
To save time, you should look for a fulfillment provider that carries out inventory management and regular and accurate reporting about your inventory levels. This will allow you to effortlessly manage your stock levels and ensure smooth order flow.
Make Sure You Have The Right Tech
One important and often overlooked factor is technology capacity: your own digital competencies and/or those of your provider. If you are managing your own fulfillment, you will need seriously good inventory, warehouse and fulfillment management software. If you are outsourcing, you will need your provider’s digital systems to be able to integrate with yours, which can be done, for instance, through an API.
Quality of Fulfillment
Metapack’s 2016 consumer research report found that 38% of shoppers will never shop with a retailer again if they have had a poor delivery experience. This means that as a seller, you need to make sure that deliveries are timely and convenient for the customer, that the package arrives in good condition, and that queries and returns are dealt with smoothly and efficiently. If you are doing self-fulfillment, this is all on you. If you are outsourcing, it can be a good idea to do a number of background checks:
- Get familiar with the previous work and clients of your possible fulfillment providers — try and get references if possible
- Ask extensively about their quality control procedures
- When it comes to tech, try to avoid outdated integrations such as EDI/File exchange or SOAP APIs.
- Check they have a reporting system that relays regular or even real-time information about order fulfillment status, inbound delivery status, and performance. This is where the best technologies can really help — only the most up-to-date fulfillment technologies allow for real-time data exchange, for example. Real-time reporting allows you to consistently check the quality performance of your provider and to be more agile and evidence-driven when making urgent business decisions.
Choosing how to do fulfillment can be a long, complicated process so you don’t want to have to change your fulfillment plan or provider often. You should be looking for long-term options that can deal with changes to your business’ order volume and offer you the most flexibility in terms of your particular future needs. While you may not need custom solutions now, for example, you may in the future.
Thus, look for an outsourcing fulfillment provider or carrier company that has capacity for custom solutions, is adaptable and flexible, and already offers a wide range of services, if possible, to cover your possible future needs. This way, you don’t need such a detailed contingency plan if you start offering new products or your existing ones begin to sell like hotcakes!
The Outlook: Fulfillment is Key to D2C Business Success but Tech Disruption is Coming Fast
Order fulfillment can seem overwhelming to D2C brands that have just begun to grow but, with the right expertise and sound decisions, it can be a walk in the park. To get there, you first need to understand how the fulfillment process works by getting your head around the five key steps mentioned above and the key fulfillment terms. Then you need to think about your specific fulfillment needs now and in the future — your present and future order volumes and the unique custom services you may require. If you are just starting out, you may be able to do self-fulfillment for a little while; if you’re growing or are already booming, outsourcing is probably the best option. This will save you time and money, allowing you to focus on your business strategy and ways to grow.
Whether you’re a seed starter or a fully grown monstera, you will need to make a fulfillment plan, by yourself or with a provider, that can smooth the way for your business to grow and flourish with time. We hope our orientation paper will help you to do this!
In the future, with the development of APIs and other new technologies, D2C brands will increasingly be able to access a greater range of providers with different services and in more flexible, agile ways. You may simply use a platform or application to access a range of fully-verified fulfillment providers as and when you need them, for example. Watch this space!
To learn more about us and the product we are building in the e-commerce fulfillment space, make sure to visit our homepage!