This is a comprehensive guide on fulfillment centers. This FAQ article will walk you through the ins and outs of fulfillment centers and will also explain its relationship with the digital world of e-commerce.
In this guide, you will get to know about what exactly is a fulfillment center, why and how fulfillment centers work along with types, examples, and costs associated with fulfillment centers.
So let’s just dive in and find out everything you need to know about a fulfillment center.
What Does Fulfillment Mean?
According to the Cambridge dictionary, the word fulfillment means “the fact of doing something that is necessary or something that someone has wanted or promised to do”.
Let’s try to translate this meaning of fulfillment from the perspective of an order that you receive on your online store.
Whenever someone places an order on your online store, there is a responsibility for your store to deliver that product to the address your customer provided on your website.
This process of accomplishing your promise to deliver that order to your customer’s doorstep is referred to as “fulfillment” in e-commerce.
What Is a Fulfillment Center and Why Is It Important?
A fulfillment center is a place from where an online order is prepared and shipped to your customers’ delivery address.
A fulfillment center is generally responsible for maintaining inventory, preparing, packing, and shipping online orders directly to the customer’s address.
In the current age of online shopping, fulfillment centers have become inevitable. As most of the online stores run virtually or with an office with almost no inventory, fulfillment centers have emerged to be the best option for online retailers.
What Does a Fulfillment Company Do?
Whenever you receive online orders, those orders are most likely to be served through a fulfillment company you are in contract with.
Some e-commerce stores offer their own fulfillment companies while others have contracts with third-party logistics and fulfillment services for storing goods and fulfilling orders on their behalf.
So, you can say that a fulfillment company has a warehouse to store an inventory of online stores and also has a staff to prepare and ship online orders on behalf of the online stores.
Fun Fact: Have you ever noticed that even if 2 or more different products are ordered from the same online store, customers can still receive those products individually and on different dates too?
This is because every item of the online order is handled separately at the same or different fulfillment centers.
How Does a Fulfillment Center Work?
A fulfillment center works systematically. When an online store receives an order, the order details are sent to the respective fulfillment center. There are various ways to inform the fulfillment center about the order to be fulfilled.
The most common practices used in the online industry to inform the fulfillment center about the order include:
- Spreadsheet (Excel, CSV file, or Google Sheet, etc)
After receiving the intimation about the order, the fulfillment center starts its fulfillment process. The typical details that a fulfillment center receives from the online store include the following.
- Item details including its unique SKU number.
- Customer’s details including his or her name, address, email, and phone number, etc.
Do Fulfillment Centers Handle Inventory Management?
Yes. The fulfillment centers are in fact the warehouses of online stores. It is where the inventory of online stores has been stored and managed.
Most of the fulfillment companies work for many online stores. So, inventory management at fulfillment centers is quite critical.
They have to organize the products with proper coding and numbering in a way that they can easily store, protect, and locate the products when required.
Fun Fact: Most of the online stores hire the services of various fulfillment centers located at different places so that they can ship from the nearest zone to save on shipping costs.
Can a Fulfillment Center Do One- or Two-Day Delivery?
Yes. A fulfillment center is capable of doing one-day and two-day deliveries. One-day delivery is also known as the next-day delivery in the e-commerce language.
Some of the gigantic e-commerce companies like Amazon and eBay also offer same-day delivery. Of course, the costs associated with one-day or two-day deliveries may be higher than usual shipping rates.
What Is an E-commerce Fulfillment Center?
You must have understood that e-commerce businesses and fulfillment centers have a direct relationship.
In simple words, an e-commerce fulfillment center is a place where an online order is picked packed and shipped.
Just to reiterate, an e-commerce fulfillment center is a place where the inventory of online stores is kept and sent to the customers.
What Is the Fulfillment Process?
When a fulfillment company receives information about the order to be fulfilled, the process of fulfillment starts. The typical steps involved in the fulfillment process of the order include:
- Locating the item.
- Picking up the item.
- Checking/inspecting the item for any damages.
- Packing the item.
- Labeling the item according to the store’s guidelines.
- Preparing the item to be shipped to the customer’s address.
- Order dispatched from the fulfillment center.
Is Fulfillment Part of Supply Chain?
Yes. Fulfillment is actually a major part of the supply chain in the world of e-commerce. Fulfillment centers act as the strongest connecting links between you and your customers.
So, you can say that fulfillment centers exist to make the supply chain of the e-commerce industry more efficient and quick.
What Is Order Fulfillment in Supply Chain Management?
Order fulfillment is probably the most important step in supply chain management, especially in e-commerce.
The whole process of the supply chain is meant for the customers. If there is no order fulfillment, the complete process of the supply chain will be meaningless.
Moreover, the most essential steps of supply chain management are performed during order fulfillment. These include:
- Product storage and handling.
- Product preparation and arrangement.
- Delivering or shipping the products.
- Handling returns.
What Is Fulfillment Time?
As the fulfillment process starts by locating the product to delivering it to the required address, it is difficult to calculate the fulfillment time exactly. So, a fulfillment time mainly depends upon two factors:
- The distance between the fulfillment center and the customer’s address.
- The medium of shipment used.
Fun Fact: As online stores work with multiple fulfillment centers and their customers are spread all over the world, online customers are generally communicated about a tentative date of delivery preferably in weeks.
What Are Fulfillment Expenses?
Fulfillment is a complete process of picking the ordered item from the storage and delivering that item to the customer’s address.
So, there are many expenses associated with the fulfillment processes. Some of the major expenses include:
- Storage of the items.
- Maintaining the inventory.
- Packaging and labeling costs.
- Paying the fulfillment staff, etc.
How Do Fulfillment Centers Make Money?
Fulfillment centers are generally in contract with more than one store. As fulfillment centers are practically handling the inventory and deliveries on behalf of other online stores, they charge them for their services.
Fun Fact: Most of the fulfillment companies also offer return processes. So, if a customer returns a product due to any reason, fulfillment centers have a full mechanism to process that return.
What Is a Good Price for Fulfillment Solutions?
Fulfillment companies generally offer two types of fulfillment services to online stores for managing their inventory and orders.
- Price per unit (Product).
- Price per month. Depending upon the number of units sold in a month.
If you are a beginner, it is advised that you start by price per unit. The price per unit ranges from a few cents per unit to more than $1 per unit sold.
When you become a professional, you can switch your contract for a monthly price.
Fulfillment companies also offer different rates for different services. These include:
- Receiving your items (hourly rate)
- Storage charges (monthly rate)
- Pick and pack (per few items)
- Shipping charges (as per the product and destination)
Is Fulfillment Center Pricing Worth It?
It depends on how your business is growing. For a growing online store with a high volume of sales, the fulfillment center is the need of the hour.
If your online store is not making regular sales. the full pricing of fulfillment centers may hurt your business feasibility until your store starts making profits.
What Is Outsourced Fulfillment?
In simple words, outsourced fulfillment is the process of letting some other independent company to fulfill the orders of your online store.
Outsourcing fulfillment service is also referred to as 3rd Party Logistics (3PL) Fulfillment in the e-commerce world. With changing trends of online shopping, shipping carriers are getting more inclined towards online fulfillment processes.
Does Fulfillment Include Shipping?
Yes. Shipping or dispatching the products to the customers is one of the major obligations of a fulfillment company.
The whole idea behind the fulfillment services is to facilitate online stores with order deliveries.
You are focused on bringing orders while fulfillment services are focused on shipping the products to the customers.
How Is Shipping Cost Calculated?
The shipping cost depends on multiple factors. One of the factors that affect shipping cost is the type and nature of the product itself.
The following factors of the product determine that shipping costs will be low or high.
- Product weight.
- Product volume.
Products that are low in weight and size will cost low in shipping.
Another major factor that affects shipping cost is the medium of shipment used. These include shipment by:
Shipment by air is the most expensive while the shipment by road is less expensive than that.
The most economical and frequently used medium of shipment is by sea. Hence the word “shipment”.
Fun Fact: Have you wondered how some online stores manage to offer free shipping? It is not free.
Rather the shipping costs are included or hidden in the price of the product.
How Can We Compare a Fulfillment Center VS Warehouse?
You can consider a fulfillment center just like a warehouse that is specifically meant for fulfilling online orders.
At the same time, a fulfillment center is completely different from a traditional warehouse in many ways.
A warehouse is typically aimed at sending the material in a bulk quantity to the physical stores.
That material is further broken down into smaller packages at the physical stores to be sold to consumers. A warehouse also has limited staff to handle inventory.
At a fulfillment center, the packages are not sent in bulk quantities to a single destination.
Rather they are broken down into individual pieces and shipped directly to the customers. A fulfillment center has a higher number of employees with specific job responsibilities.
What Is the Difference Between a Fulfillment Center and a Distribution Center?
A distribution center is a place that is responsible to distribute the products to different locations. You can consider distribution centers as warehouses with distribution facilities.
The main difference between a fulfillment center and a warehouse is that a fulfillment center is meant for e-commerce and generally handles order fulfillment for different online stores.
A distribution center is generally handled by a single company to manage its inventory for delivering to its retail shops.
Why Might a Company Have a Warehouse, a Distribution Center, and a Fulfillment Center?
A company may have a warehouse to store its huge inventory, a distribution center to feed its retail centers, and a fulfillment center to manage and deliver its online orders.
So, a company may be working with any one or two of them to manage its supply chain. It may also have three of them depending upon its scale and area of work.
Does Amazon Have a Fulfillment Center?
Yes. Amazon has many fulfillment centers. In fact, Amazon fulfillment centers are spread in different parts of the world.
Amazon is also very cautious about its fulfillment services. That is why Amazon promotes its service called FBA (Fulfillment By Amazon).
How Does Amazon Fulfillment Center Work?
Amazon fulfillment centers work in a similar or more systemized way as other fulfillment centers do. The products from all the suppliers of Amazon are stored and managed by Amazon.
So, when the orders are received, Amazon handles the deliveries itself. It is responsible to store an inventory of sellers and keeps on charging the suppliers whether that inventory is sold or not.
Fun Fact: In addition to the fulfillment centers, Amazon also offers self pick up services. You can contact Amazon for picking up your items yourself.
What Is Shopify Fulfillment?
Shopify fulfillment is the online order fulfillment service offered by one of the leading e-commerce platforms in the world known as Shopify.
How Does Shopify Fulfillment Work？
Shopify fulfillment works on a simple yet effective process. The typical process followed at Shopify fulfillment center is mentioned below:
- You send your products to Shopify.
- Shopify stores and handles your products in its own fulfillment center.
- You inform Shopify about your orders received.
- Shopify takes the details from you and ships your products to the customer.
How Much Does Shopify Fulfillment Cost?
Shopify generally offers rates as per the needs of online stores. Shopify asks you about your fulfillment needs and then sends you a quotation with rates.
The costs of Shopify fulfillment include:
- Storage costs are calculated with regard to the space your products occupy.
- Picking and packaging costs calculated per order.
- Shipping rates with Shopify’s suggestions to optimize shipping costs.
Fun Fact: Even if you do not want to choose Shopify fulfillment, you can still integrate other fulfillment centers with your Shopify stores.
What Are Some of the Best Fulfillment Centers?
The best fulfillment centers are ones that provide exceptional order fulfillment services. Not only the orders, but a fulfillment center must also be excellent in providing additional services like tracking and returns handling.
Based on the critical factors required in order fulfillment, the following fulfillment centers have been leading the chart in 2020:
- Rakuten Super Logistics
- Fulfillment By Amazon
- FedEx Fulfillment
Fun Fact: Even if you run your independent online store, you can still choose Fulfillment By Amazon to manage your orders. Even sellers on eBay can also use FBA services.
What Are the Benefits of Using Fulfillment Centers?
E-commerce and fulfillment centers go hand in hand. That is why the demand for fulfillment centers has been growing day by day. Some of the benefits of using fulfillment centers for online stores are:
- Better inventory and order management.
- Time and space-saving.
- More focus on your online store.
- Less staff is required.
- More efficient customer service.
Should I Use a Fulfillment Company?
Order fulfillment and inventory management have been the key challenges in e-commerce since its inception. So, if you sell anything online, you should check out what fulfillment companies have to offer to reduce your headache.
By using the services of a fulfillment company, you will only have to focus on getting online orders rather than inventory and delivery management, etc.
How Do I Choose a Fulfillment Center?
Choosing a fulfillment center requires simple calculations. You have to run a quick fact check at your online business. You must define:
- The scale of your orders and future anticipations.
- Your store’s area of coverage.
- Nature of products.
- Your store’s delivery and return policies, etc.
After defining the above-mentioned parameters, you can check out the rates offered by the fulfillment centers. Choose the one that is cost-effective and corresponds to most of your business needs.
What Things to Consider When Choosing a Fulfillment Center?
Choosing a fulfillment center is a critical decision for the growth and reputation of your online store. Most customers are not aware of the fact that their orders are being fulfilled by 3rd party fulfillment centers.
Customers are only aware of the online store they order the product from. If there is bad service from a fulfillment center, your store’s reputation will get hurt and you may eventually lose customers.
So, it is vital to choose a fulfillment center wisely. You should be looking for the following factors when it comes to choosing a fulfillment center.
The following list of important factors is mentioned in the order of priority.
- Exceptional customer service.
- Access and location of their fulfillment centers.
- Pricing – value for money.
- Faster shipping methods.
We hope that this article would have broadened your view regarding a fulfillment center and its related queries. Do let us know your comments and suggestions regarding this article.
Don’t hesitate to ask any other questions regarding the topic and we will be more than happy to answer your questions.
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