3PL fulfillment for E-Commerce Shops - Everything you need to know for your online shop!

Intro  

2020 was a year of many novelties for E-Commerce merchants globally. In Germany, for example, online shop merchants witnessed a ~9% growth in sales in the second quarter alone. Increased sales volumes, however, also lead to new challenges along the entire E-Commerce value chain. This is why now more than ever an efficient in-house fulfillment or a partnership with a 3PL (3rd party logistics) provider is crucial in order to grow sustainably and deliver maximum customer satisfaction. 

Whether you have just started your online shop or are already an established player, E-Commerce fulfillment is an important topic that should be tackled with top priority by all ambitious online merchants. This blog-post serves as a go-to-guide for E-Commerce fulfillment, so that you can continue growing your online shop sustainably. Below you find a short glimpse of what you can expect from this post:

  • What is E-Commerce fulfillment?
  • E-Commerce fulfillment DIY - Everything you need to know
  • What is 3PL and what are its advantages?
  • Key areas to consider, when selecting your 3PL partner


What is E-Commerce Fulfillment?

E-Commerce fulfillment describes all processes that are directly or indirectly related to a customer’s order. These processes can be further categorized into two main areas, namely inbound and outbound E-Commerce fulfillment. Below you will find some examples of processes that belong to these areas:

Inbound:

  • Receiving of goods
  • Storage of goods
  • Master data management
  • Return management
  • Supplier management

Outbound:

  • Commissioning 
  • Order picking
  • Order packaging
  • Order shipping
  • Carrier management

E-Commerce fulfillment DIY - Everything you need to know?

Now you have an idea of what E-Commerce fulfillment is all about. It is up to you to decide, if you want to tackle it yourself or if you would rather outsource the fulfillment processes related to your online store. 
Before you make this decision, however, you should weigh all the pros and cons. Especially in the beginning, you probably do not need any additional help in packing and shipping your customers’ orders. With increasing order volume, however, the required effort grows to the point where a partnership with a fulfillment service provider becomes almost inevitable. Thus, depending on how you forecast growth of your business, it may make sense to start with a fulfillment partnership right away.

Should you nonetheless decide to take care of fulfillment yourself, we have created an overview of all fixed and variable costs involved. 

Fixed costs:

  • Warehousing
  • Insurance
  • Infrastructure
  • Salaries

Variable costs

  • Packaging materials
  • Shipping labels


Fixed costs

Warehousing

When choosing your warehouse you should consider the following three things:

  • Rent
  • Location
  • Infrastructure 

The rent for your warehouse will likely be the biggest fixed costs block in your E-Commerce fulfillment operation. Hence, you should get several quotes from different landlords and especially look out for incidental costs such as electricity, water, heating and brokerage fee.

The location of your warehouse can be chosen independently of your own place of residence, but should be in close proximity to relevant shipping carriers, to ensure quick delivery of your parcels to your end customers. 

When considering infrastructure, you should look out for sufficient supply of lighting and sanitary facilities for your warehouse personnel. Radiators can help to keep the temperature in the warehouse comfortable. They also help to reduce humidity, which may otherwise damage your stored goods.

Insurance

You should focus mainly on two types of insurance

  • Insurance for the value of goods stored, e.g. in case of theft
  • General liability insurance for your business in case of accidents

Infrastructure

Infrastructure in your warehouse includes both the actual storage capacity (shelves, boxes,etc.) as well as hard-and software. Your investment into these categories will have a big impact on the overall efficiency of your warehouse operations. A large investment into warehousing infrastructure as well as a state-of-the-art hardware setup with a best practice warehouse management software will likely enhance your fulfillment speed - it will, however, cost you. The investment decision is up to you, but it will have a lasting impact on your E-Commerce fulfillment supply chain.

Salaries

With increasing order volume you will likely face the need for additional warehouse personnel. You will have to decide if you want to work with full time employees or rely on temporary employment support. 

Variable costs

Packaging material

Many E-Commerce shops deliver a unique unboxing experience to their end customers, e.g. through hand-written and personalized notes or branded shipping boxes. It is up to you to decide if you want to spend more on your packaging material or if you just want to use “standard” brown boxes. No matter your decision, however, prices per packaging will decrease with increasing purchase quantities. Thus, plan carefully when ordering your packaging material. 

Shipping labels

The selection and following negotiations with shipping carriers are also highly dependent on the expected purchase quantity. Consequently, prices per shipping label fall dramatically the larger the ordered quantity. But beware! Some shipping carriers work with penalties should your forecasted order volume prove lower than expected. Thus you should calculate a realistic forecast of your order volume to get the best possible quote for your online shop.


Example services covered by 3PL provider

What is 3PL and what are its advantages?

Should you expect large order volume in your online shop, DIY E-Commerce fulfillment can prove to become stressful to the point, where it may damage your business. But no worries, 3PL is here to help. 3PL stands for 3rd Party Logistics and describes all services surrounding E-Commerce fulfillment for your online shop. But what is 3PL exactly and what are its advantages? We collected the most important points below.


What is 3PL?

3PL (3rd Party Logistics) fullfillment providers enable you to outsource part of or all fullfilment processes.

Typically you as the merchant take care of all customer-facing processes, i.e. all processes that in some way or another involve your customer directly. You take care of your online-shop, management of customer relationships and manage your suppliers to ensure sufficient stock in your 3PL partner’s warehouse at all times.

Your 3PL partner typically takes care of all processes after a customer places an order in your online shop. He/She picks, packs and ships your orders. Next to order-related processes, your fulfillment partner can also take all other, non-order-related processes, such as.:

  • Store keeping
  • Inventory management
  • Packaging material management
  • Shipping carrier management


What are 3PL's advantages

3PL fulfillment comes with a number of advantages, that reveal themselves especially with increasing order volume. Below you will find a selection of said benefits that we believe to be important:

  • Sustainable scaling of your business
  • Usage of partnerships
  • Fast deliveries
  • Cost efficiencies
  • Time savings

Sustainable scaling of your business

Probably the most relevant advantage that comes with a 3PL service provider partnership lies in the possibility to grow fast and sustainably, while maintaining a high degree of flexibility. Your 3PL partner ensures constant delivery speeds both in times of high demand such as Christmas or Black Friday as well as during off-peak seasons. Thus, you can rest assured that your customers receive their parcels on time and with consistent quality.


Usage of partnerships

3PL service providers can often provide you with cost efficient offers, e.g. concerning customized packaging material, through relationships with other service providers, that they have cultivated for years.


Fast deliveries

Fulfillment and delivery speeds increase constantly . Same-Day-Deliveries are not merely an exception anymore, but are becoming the norm. Your customers expect next to a flawless product also great fulfillment speed. A 3PL fulfillment partner helps you to deliver your parcels ASAP and ideally to ship them on the same day.


Cost efficiency

Through partnerships with 3PL service providers, you can take advantage of their economies of scale concerning various elements of your supply chain. As such, your 3PL partner can provide you with better shipping prices or other partners that offer customized packaging at a reasonable price.


Time savings

Last but not least, time savings resulting from a partnership with a 3PL service provider are a big advantage. Since you do not have to take care of fulfillment on your own, you can focus on developing your online shop, improve existing and introduce new products and cultivate customer relationships. 

Key areas to consider, when selecting your 3PL partner

By now you might be considering to work with a 3PL partner and want to get started with the search right away. But beware! - Before making your decision on a 3PL service provider, you should consider the following areas:

  • Costs
  • Service offering
  • Service levels
  • Innovation spirit

Costs

Most 3PL service providers work with an activity-based pricing structure and thus invoice only services rendered. You will likely face the following cost buckets:

  • Receiving of goods
  • Storage costs
  • Picking costs
  • Packing costs
  • Shipping labels
  • Packaging material
  • Return handling

Before making a decision for or against a 3PL service provider, you should make sure that you have 100% transparency on the applied cost structure to avoid any surprises down the road. A good 3PL service provider will provide you with a quote that is transparent and easy to understand. To get a rough idea of a fair price, click here!

Service offering

3PL service providers’ offerings differ from one firm to the other. It is usually helpful to have a service provider that covers the entire E-Commerce fulfillment value chain. This type of 3PL service provider manages E-Commerce fulfillment end-to-end, i.e. they control all processes inside the warehouse themselves. They store the goods, provide proprietary software for warehouse management and manage fulfillment of your parcels with dedicated warehouse personnel. Thus, make sure you have transparency concerning the following aspects, before making a decision on your 3PL partner:

  • Does your 3PL partner run their own warehouse
  • Do they provide proprietary warehouse management software
  • Does the 3PL partner have their own warehouse personnel or do they rather work with temporary employee support?

Service levels

To ensure rapid parcel delivery to your end customers, communication with your 3PL fulfillment provider should be fast and tech-enabled. Digital communication tools such as Slack or Intercom allow you to get in touch with your 3PL fulfillment provider quickly and respond to incoming customer requests at high speed. Only rapid communication can ensure fast deliveries and subsequently enable great customer satisfaction.  

Innovation spirit

You are constantly working on your products - making them better and adjusting them to your customers’ ever-changing needs. And just as you are constantly evolving, so should your 3PL fulfillment provider. Fast adoption of customer feedback on e.g. unboxing experience or overall shipment quality into both digital and operational processes is essential to build lasting customer relationships and to grow together with your 3PL partner.


Summary

Now you know what E-Commerce fulfillment and 3PL is all about. You know your way around common pitfalls and have an idea of what to look out for when selecting your 3PL service provider. 

Should 3PL sound interesting to you, Hive Logistics could be the right partner for you and your online business. We would love to discuss your individual needs and give you a free quote!

See you soon!