Scaling eCommerce Order Fulfillment Through Time

Posted by JR Siegel on Tue, May 07. 2013 @ 09:05 AM

As Ecommerce businesses grow and evolve, their fulfillment requirements change. The right fulfillment solution for a start-up wouldn't make sense for Amazon (they'd need a really big garage).  That's why we've developed the three phase framework of Launch, Ramp, Sustain to help you determine the right eCommerce order fulfillment solution for your business.

 Stages of eCommerce order fulfillment

1. LAUNCH the Best Idea...Ever (0 - 2,500 orders a month)

Do you plan to rid the world of an evil like the saggy bottom in men's pants?  Have you rethought a basic, like men's underwear, or created a better dress shirts? Maybe you just have a better way of making dresses, or can read consumer trends before anyone else.  No matter the reason, you're launching an eCommerce business. 

You subject honor your friends and loved ones with one prototype after another, tweaking the hem, altering the fabric—doing everything you can to get the design just right. After a little trial and lots of error, you arrive at the finished products.  Life is good. You begin working with web designers to get the site up and running. Before placing the first large order from your manufacturer, you'll need to square away order fulfillment.      

Your first thought is to partner with a leading third-party fulfillment company right off the bat. Your products are top notch, your website rocks and you just know that millions of people can't wait to buy your products.  And while there might be pent up demand, the best practice is to forgo a 3PL altogether and have the products shipped to your home or office.  

Did he really just advise me to ship 1,000 pairs of revolutionary pants to my tiny office in Brooklyn?  I did.  Here's why:

  • Product Quality - even if the prototype was great, the first batch of 1,000 units might have issues.  If the products are shipped to you, you can inspect each one personally, thereby ensuring that none of your early clients receive damaged products
  • Packaging - you can experiment with box sizes, tissue paper, stickers, marketing inserts and thank you notes to figure out what works best. If your customers will settle for a piece of tissue paper around the outside of the garments instead of individually wrapping each one, that's something you'll want to know before you outsource fulfillment (wrapping garments in tissue costs money).
  • Cash Flow - outsourced fulfillment costs money; doing it in your home/office costs time.  If your business is growing rapidly, its better to spend cash on a second batch of products than third-party order fulfillment.
  • Business Trends - Living with your products and data will give you a clear sense of the trends in your space and the steps you'll need to take to scale the business effectively.
  • Validation - it feels better to walk the first few orders down to the post office than it does to see the "sales" number jump from 0 to 1 on your computer screen.  Nothing replaces the feeling of hand delivering your first few orders to the post office.  

Eventually, the validation of doing fulfillment in-house turns into the real fear that it will swallow your business whole.  Instead of designing next season's collection, tweaking your Google Adwords or updating your website, you're fulfilling orders all day and night.  When it feels like the fulfillment never stops, it means you're ready to ramp with a professional fulfillment partner.

The 'Mom and Pop' Shop Option

Not all businesses are the same, and for some seasoned and well-financed Ecommerce entrepreneurs, it can make sense to forgo in-house fulfillment and start with a 'Mom and Pop' shop.  There are thousands of 'Mom and Pop' third-party fulfillment operations sprinkled across the US.  Their order fulfillment services are inexpensive, operations are manual, and order data tends to flow in an ad hoc fashion via Excel files or Google Documents. These operations are very good at meeting moderate demand, and as their clients' businesses grow, these fulfillment providers add labor—and not systems—to meet demand.  

The problem is that demand eventually outstrips the capacity of 'Mom and Pop' shops. Customers begin calling to complain that you shipped them the wrong item, or that its been three weeks and their order still hasn't arrived.  They vent on social media, and you're forced to send disgruntled customers coupons to bring them back to your site.  You spend an increasing amount of time on the phone with your fulfillment partner.  You run the numbers and realize that fulfillment delays and errors are eroding your margins and hurting your business (we touched on this in the Hard Costs example previously).Your business has outgrown the 'Mom and Pop' shop.  It's time to move onto a professional fulfillment partner.

 

2. RAMP with Professional Third-Party Fulfillment (2,500 - 100,000 orders a month)

You've proven the concept and validated the market.  Now it's time to scale your business. Before launching an all-out marketing push, you decide to upgrade your website and order fulfillment so they don't become limits to growth.  On the order fulfillment side, this means integrated systems, real-time inventory reports and 99.9% order accuracy.  You're ready for a professional fulfillment partner like Quiet Logistics that can scale your business.  

Congratulations!  This is a tremendous achievement.  

Selecting a professional fulfillment partner is a big decision—they’ll need to ramp fulfillment operations as your business grows while improving speed, accuracy or order presentation—and you need to get it right.  Getting it right involves asking the right questions, so we've created a free eBook to help guide you through the partner selection process:

Click here to download The 7 Keys to Analyzing Ecommerce Fulfillment Providers Ebook

 

3. SUSTAIN Your Growth (100,000+ orders a month)

After selecting the right fulfillment partner, your eCommerce business explodes as expected. A few thousand orders a month grows into hundreds of thousands of orders. Thankfully, you've selected a fulfillment partner that can scale with your business.  

At this point you've come to a strategic junction: should you stay with the fulfillment partner that got you where you are, or bring the operation back in-house?  There's no right answer—some companies don't want to take on the increased overhead costs associated with leasing, staffing and running a fulfillment center, while others yearn for the control afforded by a facility devoted entirely to your brand.  

If your Executive Team decides on the latter, you can go through a standard Request for Proposal process to select software and material handling vendors that should work together. But as Quiet CEO Bruce Welty recently noted, traditional warehouse automation solutions are slow to implement, expensive and not calibrated to the "each-pick" requirements of direct-to-consumer eCommerce fulfillment.  The other option, which we call Managed Services, allows companies to leverage Quiet’s technology, processes and management in their own fulfillment centers.

Our first Managed Services client was Gilt.  If you're interested in learning more about how we helped Gilt transform an empty building into a high volume production in under 90 days, please download the free case study below.  

Click Here to download our Gilt Managed Services Case Study

 

Conclusion

Order fulfillment is one of the most important aspects of eCommerce, but it's difficult to manage. Fulfillment requirements change and evolve as your business grows, and I hope that this article will help you consider your fulfillment options carefully during each phase of growth.  

Topics: Third party Fulfillment