Everything You Need to Know About Direct Fulfillment
When you’re first starting an ecommerce business, packing and shipping your products is the easy part, after you’ve done all the hard work of developing, producing and marketing a product. It’s actually fun to pack your goods into snug little boxes and send them off, imagining the happy smiles of your customers when they unbox them. Unfortunately, this honeymoon stage doesn’t last. The faster you grow, the more challenges you face with managing inventory, fulfillment backlogs and ever-increasing shipping costs that eat into your profits.
Many ecommerce business owners start with direct fulfillment thinking that it’s something they can easily manage on their own. They soon realize that it’s a lot more involved and time-consuming than they think. More importantly, when done well, it can be a driver for profitability. In this article we’re going to cover everything you need to know about direct fulfillment: what it is, what it isn’t, how it’s done, and who does it best. Let’s get started.
What is Direct Fulfillment?
Direct-to-consumer, DTC, and D2C, are all terms used to describe a sales model in which goods flow from the manufacturer directly to the end user without the use of middlemen (i.e. distributors or retailers). A DTC business or brand is responsible for the entire supply chain, from manufacturing or purchasing finished goods, to marketing and managing an ecommerce store, and fulfilling and shipping orders. Direct fulfillment is the last link of the DTC supply chain. It involves storing inventory, and picking, packing, and shipping orders to individual customers.
Most ecommerce businesses start out managing their own direct fulfillment operations from a garage or warehouse. As they grow, it becomes more difficult to keep track of inventory, keep up with orders, and manage the customer service issues that erupt when things go wrong. They often don’t have the infrastructure and team expertise needed to manage their growth — and they often don’t have time to build it. Most of their time is spent on fulfillment operations, which can also distract from sales and marketing efforts at the front of the pipeline. Growing ecommerce businesses usually reach a breaking point at around 1,000 orders per month. At this point, the business owners have two choices: they can invest in more space, more people, and better systems, or they can outsource fulfillment operations to a third-party logistics provider (3PL) that specializes in DTC order fulfillment.
Wholesale Distribution Center vs. Direct Fulfillment Center
Wholesale distribution and direct fulfillment are often confused. Shipping goods in bulk to retailers is not considered direct fulfillment; that is considered a B2B (business to business) or wholesale distribution. Wholesalers store their goods in large distribution centers that are not usually set up for packing and shipping small parcel orders that direct fulfillment centers handle. A distribution center stores goods in bulk, and ships orders by the pallet-load to a limited number of retailers or retail distribution centers.
In contrast, a direct fulfillment center stores individual units of each SKU for hundreds of ecommerce companies and fills thousands of orders per day, each going to a different address. The logistics required to manage millions of SKUs and accurately process thousands of orders per day can be mind boggling. To coordinate all this, 3PLs invest in technology that streamlines the process, reduces errors and injuries, and provides control and transparency for the ecommerce businesses they service.
How does the Direct Fulfillment Process Work?
The direct fulfillment process starts the moment your inventory is received at a warehouse, and ends when your customer receives their order. There are many steps in between that directly impact overall customer satisfaction.
1. Receiving – Inbound merchandise is unpacked, inspected for damage and missing items. At ShipMonk, it is also dimensionally weight measured and photographed for high quality-control standards. Each SKU is assigned a “slot” or location in the warehouse.
2. Slotting – The SKU’s size, weight and forecasted sales volume are all taken into account when slotting the merchandise to streamline the pick and pack process.
3. Order management – As orders come in, sophisticated order management systems prioritize them for processing based on their sales channel (such as Amazon’s Seller Fulfilled Prime program), requested shipping speed, and final destination. Most fulfillment centers have standardized SLAs (service level agreements) that discuss how fast orders are processed. It’s common that if an order is received by the late morning to early afternoon, the fulfillment partner can process it for shipping the same day.
4. Picking – Using barcodes, a bin is assigned to each order. Warehouse workers pull items from the shelves, and place them in the appropriate bin until all the items in the order have been picked. Robotics and automation can save steps, reduce injuries, improve accuracy, and speed up this process.
5. Packing – Once filled with all the items the customer ordered, the bin is sent on a conveyor belt to the packing station, where it is carefully packed, using packing materials like craft paper and bubble wrap to prevent shifting and breakage. A shipping label is printed and affixed to the outside to identify each individual package for tracking and shipping purposes.
6. Shipping – Packed orders go through scanners to be sorted and sent to the appropriate loading dock, where they are loaded onto trucks to take them on the first leg of their journey. The package may make several stops at regional carrier hubs for processing and be transferred to several different vehicles before it reaches its final destination.
7. Tracking – The shipping label is scanned each time the package leaves or arrives at a new destination. Both the customer and the ecommerce seller can track the order and will receive automatic notifications of any delivery delays or delivery exceptions that require attention.
8. Delivery – The package arrives at the customer’s door, on time, undamaged and accurately fulfilled.
9. Returns – Occasionally, an ordered item may need to be returned, exchanged, or reshipped. Returns and reshipments happen when the wrong item is sent, or an order is damaged or lost in transit. Direct fulfillment centers often handle returns for their clients, as well as fulfillment.
10. Inventory management – As inventory is shipped out of the warehouse, the ecommerce business needs to keep an eye on inventory levels to prevent stockouts and backorders. Most fulfillment centers update inventory information at regular intervals, but the best warehouse management systems track inventory levels in real time, so you know exactly how many units you have on hand at any given time. You can set reorder points to receive automatic notifications when inventory reaches a certain level.
Advantages of Using a 3PL for Direct Fulfillment
While it is possible to manage DTC fulfillment operations in house, there are many advantages to partnering with a 3PL for these services. It boils down to the fact that 3PLs specialize in fulfillment and logistics — and you don’t. They are built for it, while most ecommerce businesses don’t have the time or money to create the same efficiencies at the scale they require.
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Infrastructure – 3PLs invest in the people, space, technology and systems to handle direct fulfillment on a massive scale. Some, like ShipMonk, own and manage multiple fulfillment centers, so you can store your merchandise closer to your customers and save on shipping. These warehouses are built for speed, with automation and technology that streamline the entire process. Sure, you could lease your own warehouses and build your own tech stack to integrate all the technology, but unless you’re the next Amazon you might never see a return on your investment.
Technology – About that tech stack… Few ecommerce businesses have the in-house knowhow to integrate and manage all the systems needed for direct fulfillment. Order and inventory management systems, shopping platforms, marketplace requirements, payment systems, order routing and tracking, domestic and international shipping requirements, B2B capabilities, returns processing — the list goes on and on, and everything has to work flawlessly to meet the customer’s expectations around delivery speed. A 3PL like ShipMonk makes it easy with an industry-leading 3PL platform that integrates seamlessly with your storefront and back-end systems, and puts all the information you need at your fingertips.
Scalability – Because they’ve invested in far more space and technology than you could ever afford on your own, a 3PL can quickly scale your fulfillment operations up or down as sales fluctuate. If you’ve chosen the right 3PL, you only pay for what you use. Also, while some 3PLs focus on small, local businesses, others provide the capabilities hyper-growth brands need to scale rapidly and globally. An industry-leading 3PL like ShipMonk specializes in DTC and B2C fulfillment, as well as helping ecommerce businesses move up to retail (B2B) fulfillment. Our software integrates with both B2C and B2B platforms, so whether you’re a small startup or an omnichannel ecommerce brand with retailers knocking at your door, ShipMonk can help you manage growth.
Speed – All that technology also leads to more efficient picking and packing, which means faster turnaround time on each order. 3PLs that invest in robotics, automation, and highly trained warehouse teams are able to promise same-day or next-day order fulfillment times on most orders. In addition to order fulfillment speeds, also consider shipping service speeds. A top 3PL like ShipMonk offers a variety of shipping service levels (i.e. overnight shipping, 2-Day shipping, standard shipping).
Accuracy – Technology also improves accuracy. At ShipMonk, address verification systems automatically detect incorrect addresses and flag them for follow-up before the order is filled. Multiple quality control checks throughout the fulfillment process prevent errors while keeping things moving. Inventory is scanned as it arrives, any time it is moved or counted, and multiple times as orders are filled. Shipping labels are scanned to make sure each package gets loaded on the right truck. Other scanning machines automatically calculate the size and weight of each item and recommend the best size box or bag for shipping the order most economically.
Expertise – 3PLs handle fulfillment for hundreds, or even thousands of clients. When you have a special requirement or request, odds are they’ve seen it before and know exactly what you need.
Service – The best 3PLs are an extension of your own business. Their mission is to help your business grow, or at the very least keep up with its growth. They respond immediately to requests and inquiries, resolve problems in a timely manner, and proactively make suggestions if they see ways to improve operations.
Flexibility – Because they handle many different clients with various needs and concerns, successful 3PLs have learned to be flexible. For example, they understand how important custom packaging and a delightful unboxing experience are to your brand. They can accommodate special packaging and special storage requirements, and may offer kitting and assembly services on demand.
Partnerships – An ecommerce fulfillment company has to get along with everybody. Inventory is coming and going, orders are coming from multiple sales channels and being shipped to nearly every corner of the world. Because every ecommerce business has different needs, a 3PL like ShipMonk partners and integrates with all the top shopping platforms, apps, marketplaces, software systems, enterprise systems, and shipping carriers in the ecommerce world. If they can’t directly solve your problem, they’ll know someone who can.
Savings – Because they ship thousands of orders a day, 3PLs get volume discounts on shipping, which they can pass on to you. Some, like ShipMonk, own multiple warehouses to reduce shipping distances, and technology to automatically route your shipments the most economical way. Outstanding pick-and-pack accuracy means you’ll have fewer returns, and real-time inventory management prevents stockouts. Best of all, you’re no longer wasting precious time dealing with logistics and fulfillment. They’re doing it all for you.
A Word About Amazon
If your merchandise is sold on Amazon, whether through FBA (Fulfilled by Amazon), FBM (Fulfilled by Merchant), or SFP (Seller Fulfilled Prime), a 3PL can prep your merchandise and prioritize orders so that you meet all the qualifications for each program. Recently, due to the COVID pandemic, Amazon introduced a program called Amazon Direct Fulfillment, which is causing some confusion.
While FBA, FBM, and SFP are all programs for Amazon “sellers,” Amazon Direct Fulfillment is essentially a drop-shipping program for Amazon “vendors.” Amazon vendors are wholesalers. Amazon purchases their merchandise, stores it in Amazon warehouses, and sells it on Amazon.com under the moniker, “Sold by Amazon.” The Amazon Direct Fulfillment program only comes into play when Amazon runs out of something and asks the vendor to fulfill the order themselves. So, unless you’re an Amazon wholesaler with direct fulfillment capabilities, you don’t qualify for this program. (But if you want to, we can help with that!)
Direct Fulfillment Made Easy
Now that you’ve seen how complex direct fulfillment is, and how it can supercharge your ecommerce business, you may find that your current direct fulfillment isn’t cutting it. Whether you’re stepping up from DIY fulfillment or migrating from an underperforming fulfillment center, we encourage you to do your homework and compare 3PL capabilities, costs, service, and scalability.
If ShipMonk is lucky enough to make your list, we’d be happy to show you around, give you a quote, or demo our much-lauded software platform. Contact us today to get started!