LOGISTICS

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There comes a time when every e-tailer who sells "physical product " (not downloadable "virtual product" such as software) must decide how to pick, pack and ship product to customers. There are three main options:

Option 1 -- Move from Clicks to Bricks. Store product in your own garage or (on a larger scale) in your own owned or leased warehouse. This option gives you full control over the process but requires know-how, labor, facilities and often, special equipment, all of which may well be outside the area of expertise of the average e-tailer.

Option 2 -- Drop-Shipping. Purchase product from a manufacturer or distributor that will "drop-ship" products directly to your customers. This method has the advantage of delegating the entire process, from ordering and storing inventory through the picking and shipping of your orders. There are, however, several serious limitations.

You have no control of when, and in how many packages, your orders are shipped. You may not know if product is out of stock or even if your drop shipper ceases that product line. Your customers may not receive any tracking or shipping status information. Products may even be shipped with the wholesaler’s own name on the labels and packing lists, causing customer confusion on package receipt. Finally, the gross margin you receive from the drop shipper may be 10 or 20% lower than the margin on goods you purchase and ship yourself, significantly reducing your profit potential.

Option 3 -- Fulfillment House. To contract with a "fulfillment house" or a "3rd party logistics (3PL)" provider. Most of the largest of companies now concentrate on their core strengths and contract with expert 3rd party logistics providers. In this option, your 3PL will provide whatever services you need or wish at an up-front, agreed-upon price. The e-tailer can concentrate on selecting the products and selling the goods. The 3PL will receive the purchased goods, store them, pick them to fill customer orders, and finally pack and ship them by the method that you or your customers choose. The provider works for you -- labels and packing lists carry your name and logo, so there is no doubt who sent the package.

When your eCommerce business grows to the point where you can no longer package and ship the orders yourself, it’s time to begin outsourcing your order fulfillment. Although all order fulfillment centers offer the same basic services, their individual methods and costs will help you choose one over the other. When selecting an order fulfillment service, keep the following in mind:

Location
Order fulfillment warehouses are located all over the country. It’s more important to select a warehouse that is close in proximity to your customers than to select one that is close to your business. For example, if your warehouse is located in California, and most of your customers are located on the East coast, your shipping rates will be higher than if you had a warehouse located in Kansas. Fulfillment centers located in the middle of the country will be able to ship to both the east and west coast for similar prices.

Size
Fulfillment warehouses range from small business with just a few employees to large companies such as UPS. Select a fulfillment service that can meet your daily order fulfillment needs. Do you have consistent orders each day or do your orders spike? If you have orders that spike, be sure to choose a fulfillment center that can handle the extra workload and still ship the orders within the agreed timeline.

Shipping Options
Most fulfillment centers offer a variety of shipping options. Make sure the fulfillment service you select offers all of the shipping options you currently offer your customers and the shipping options that you may want to offer in the future.

Turn-around Time
Each fulfillment warehouse has it’s own policy regarding order processing. For example some fulfillment centers will ship all orders that arrive before 1pm on the same business day. If you miss the 1pm deadline, the order is shipped the next business day. This could impact your customers if a next-day order is placed after 1pm. In this case, next day shipping turns out to be two-day shipping.

Order Entry
Order entry methods can be very important when considering a fulfillment service. The most common methods include:

Forwarding individual order invoices to the warehouse Entering each order on the fulfillment center’s web-based system Emailing an Excel spreadsheet with all order once a day Each method has a different affect on your business. For example, you may save money by manually entering orders into a web-based application, but it can be tedious if your business grows to the point where you have more orders than you have time to enter. You may pay a higher price to automatically email each individual invoice to the warehouse, but it may be worth the extra costs to have orders may be shipped as they arrive. Same day shipping could give you the edge over your competitor. On the other hand, if you have a high volume of orders, you won’t want to individually enter each order into a web-based system and may not want to pay the extra charge of having individual orders emailed to the warehouse. If you don’t mind shipping the next business day, you can send an Excel spreadsheet containing all of your orders once a day. Choose a warehouse that offers an order entry method that meets your business needs and fits your budget.

Communication
Communication is an important part of every business. There will be times when you need to contact the fulfillment center to modify a customer’s address or cancel an order. Select a fulfillment center that is available via phone and email. You should not have to wait more than a few hours for a return email or call from the fulfillment center.

Error Rate
Mistakes will happen. Some customers will receive the wrong items or the items will be shipped to the billing address rather than the shipping address. When interviewing potential fulfillment centers, ask about their error rate and their process for remedying the situation. For example, do they issue UPS call tags to pick up the incorrect item and pay to ship a replacement item? Will they ship the replacement item at a faster rate to compensate the customer?

Costs
Each fulfillment center operates under a different payment schedule. Some use sliding scales and require contracts while others charge per order or per item with no contracts. You will also be charged a base fee to store your inventory at the warehouse and an additional fee per pallet or per item. Be sure you have a clear understanding of the fulfillment center’s costs and any contracts.

When choosing a fulfillment center, create a checklist of the features you would like. Interview a member of the warehouse staff, as well as, their references to make sure the warehouse will meet the needs of your growing eCommerce business. When you outsource order fulfillment, the time that you normally spend packaging orders, managing inventory, and dealing with returns, can now be focused on growing your business. Use this time to expand your product line, enhance your online image, promote your business or expand into new markets.

Copyright 2004. Danna Henderson. All Rights Reserved.

About The Author: Danna Henderson started ZIP Baby in order to provide parents with comprehensive potty training information and a large selection of potty training products. For more information visit the ZIP Baby Potty Training Store.
Ecommerce fulfillment or Internet fulfillment is a straightforward extension of 'bricks and mortar' fulfillment operation. The process of choosing ecommerce fulfillment vendors involves evaluation of both fulfillment services and ecommerce services for order processing.

Fulfillment Services
Receiving: Fulfillment vendors acquire goods from suppliers and the accuracy of services starts at the receiving.
Inventorying: The skills of inventory management directly impact the quality and cost of fulfillment. If inventory is out of stock, you may lose customers. If inventory level is too high, it may increase cost of inventory.
Warehousing: Physical goods are stored in a storage. Valuable items are usually stored in secure storage. While fulfillment companies have their warehouse and distribution centers, small businesses can store goods in their garages or basements.
Shipping: For order fulfillment, goods are delivered to customers in various shipping methods, ground, overnight, and etc at fulfillment center. Customers specify shipping methods when they place their orders and the fulfillment company usually can adjust the shipping methods of the delivery.
Return and Order Inquiry: Customer Service Reps at fulfillment companies can handle return and refund for their clients. Most ecommerce sites allow customers to view their orders and status of fulfillment online.
Record Keeping and Reporting: The ability to track all information pertinent to the order fulfillment (from inventory items, customers, orders to shipping) will help businesses to gain insights into the behaviors of their customers. Large organizations usually install inventory and fulfillment management software to automate the processes. Small business owners can find shareware or manual systems.

Ecommerce Services
Ecommerce fulfillment vendors are usually fulfillment vendors that provide ecommerce services related to fulfillment. Online Catalog Ecommerce fulfillment vendors can either develop online storefront for you or integrate your online storefront into their backend fulfillment system. Online Payment Processing Online storefront from ecommerce fulfillment providers should have the ability to process payment online in credit card, electronic check, and purchase order.
Choosing fulfillment companies for your business is a complex decision making process. Besides the cost and quality of the services there're more fulfillment specific requirements to take into consideration. The type of goods to be delivered, the volumes of orders, warehouse locations and the dependence of fulfillment activities on other business processes all impact the fulfillment services you will choose.

Digital vs. Physical Goods Digital goods (digital document or software) can be delivered online, while physical goods have to be shipped to customers offline. Some customers may prefer CD or print over online download for digital content. Digital fulfillment requires extra experience and special equipment (printers for demand print and CD burners for CD on the fly).

Volumes of Orders The capacity of the fulfillment services should be sufficient enough to handle the volumes of your orders. Touring the warehouses and other fulfillment facilities will help you assess the competency and capacity of potential fulfillment vendors.

Warehouse Locations If your customer base is geographically dispersed, the fulfillment companies you select should have multiple warehouses for inventory to cover all the regions to reduce the shipping cost of order fulfillment.

Dependence on other Business Processes Order Fulfillment is an integrated part of a sales life cycle. It is dependent on other ecommerce activities - online order placement, online payment processing, customer support and etc. Many fulfillment companies offer other services in support of their fulfillment core business. You have the options to outsource all backend processes to third party companies and focus your efforts on product marketing and promotion.
A right fulfillment house is critical to the success of your business. Besides the fulfillment services and warehouse capacity, you need to fully understand and analyze the fee structures to determine whether a particular fulfillment house fits your business requirements. The type of goods to be delivered, the volumes of orders, contract period, warehouse locations, growth capacity and the dependence of fulfillment activities on other business processes all impact the fulfillment house you will choose.

Set-Up Fees Fulfillment houses charge set-up fees to cover the costs of acquiring businesses and preparing their system for a new account. They may waive and reduce set-up fees for accounts which have a long contract period and high volumes of orders.

Receiving Fees Fulfillment houses charge receiving fees. Fulfillment vendors acquire goods from suppliers and the accuracy of services starts at the receiving.

Inventorying Fulfillment companies charge for inventory management. If inventory is out of stock, you may lose customers. If inventory level is too high, it may increase cost of inventory. Product Assembly A fulfillment house can assemble or kit your product from components and charge fees for their services. Warehousing Fees Fulfillment companies charge a monthly fee for warehouse storage. They charge higher fees for secure storage. Some fulfillment houses use warehouse management software to help clients to optimize the storage use. Order Processing Fees They may charge a flat fee for each order, plus a charge for each additional item in the package. Rates vary with the number of orders processed per month.

Shipping and Handling Fees Goods are delivered to customers in various shipping methods, ground, overnight, etc. Customers specify shipping methods when they place their orders and the fulfillment company usually can adjust the shipping methods of the delivery.

Return Processing Fees Fulfillment houses charge fees when a customer returns the merchandise.

Ecommerce Service Fees Fulfillment houses charge extra fees for ecommerce services, such as shopping cart services and credit card transaction fees. You can integrate your own shopping cart with the backend database of the fulfillment house via FTP, e-mail, EDI or XML, or use the fulfillment house's shopping cart software dependent on the pricing of each option. Many fulfillment houses can process credit card transactions for merchants who don't have merchant accounts and charge a percentage of the total transaction amount.
Product Fulfillment is the process of product manufacturing, warehousing, assembly, quality control and delivery of product directly to customers without the finished product going back through the company that has created the product. Customers can place orders via the Web, e-mail, telephone or fax.

Contract Manufacturing Manufacturing and fulfillment requires a substantial investment in time, personnel, and capital. Large companies outsource both manufacturing and fulfillment. Fulfillment vendors work closely with contract manufacturers of their clients' choice. Supply chain management software are used for the coordination between manufacturers and fulfillment companies.

Kitting & Assembly Fulfillment vendors kit or assembly components from manufacturers to fulfill the customers' orders. There are two common forms of kitting: pre-kited item or on-demand kit. Pre-kited item or off-the-shelf-kits are assembled from mass produced components and are held in stock. This gives the clients the lowest unit cost and gives the fulfillment vendors the quickest order process response time. On-Demand kit or kit-on-the-fly is only assembled when the order is presented. This form of kitting is most often used with on demand printing where the components are not drawn from inventory, but rather printed as needed.

Warehousing Physical goods are stored in a storage. Valuable items are usually stored in secure storage. While fulfillment companies have their warehouse and distribution centers, small businesses can store goods in their garages or basements.

Inventory Management The activities of inventory management involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status.

Order Processing & Shipping Goods are delivered to customers in various shipping methods, ground, overnight, and etc. Customers specify shipping methods when they place their orders and the fulfillment company usually can adjust the shipping methods of the delivery. To ensure smooth operations, ordering process is customized to fit unique business needs of each client.

Fulfillment is the process of following through a transaction from ordering through delivery. Fulfillment procedures differ significantly dependent on whether customers request products or services. Fulfillment falls into two broad categories - product fulfillment and service fulfillment. Product Fulfillment is the process of product manufacturing, warehousing, assembly, quality control and delivery of product directly to customers without the finished product going back through the company that has created the product. Service Fulfillment doesn't involve delivery of physical goods. For instance, Membership fulfillment is a typical example of service fulfillment. Service Fulfillment is the process of making particular services available to the subscribed members. Service fulfillment involves setup of customer profiles in computer systems, coordination with various service providers, quality control and delivery of services to the customers, for instance e-mail customers username/password for accessing membership computer systems, or mail the membership cards to the customers.

E-Fulfillment

The shift to e-business has brought with it a new expectation: e-fulfillment. Digital products (software, ebooks) can be delivered online. E-fulfillment, Web fulfillment, Internet fulfillment and online fulfillment are used interchangeably.

Efficiency, intelligence and availability are the major benefits of E-fulfillment. The benefits of E-fulfillment are the results of digitalization of business information and availability of global network (Internet). Digitalization of business information (inventory, sales, fulfillment and etc.) improves the efficiency of information capturing, storing and processing and facilitates extracting business intelligence from data. Information on the Internet can be accessed and transmitted without geographical boundary and time constraint.

Supply Chain Management

Supply chain management is the combination of the process and information technology that integrates the suppliers of raw materials or components, the manufacturers or assemblers of the finished products, and distributors of the products or services into one cohesive process to include demand forecasting, materials requisition, order processing, order fulfillment, transportation services, receiving, invoicing, and payment processing.

SCM usually refers to the redesign of supply chain processes in order to achieve streamlining. It is generally performed only by large corporations with large suppliers. B2B exchange can extend Supply Chain Management to all trading partners regardless of size by providing a central location to integrate information from all supply chain participants.

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