Anything you buy will need to be stored and shipped. Before buying stock, think about the fulfilment of your products, for example:
- Fragility. Delicate items will get broken both in storage and on their way to the customer.
- Size. Large, low-value items are expensive to store and ship.
- Perishable items. Not only do perishable items have a limited self-life, but the stock’s expiry date must be tracked so that the oldest stock is dispatched first.
Once placed, an order must be fulfilled within the time stated if you want to keep your customers satisfied. Three options are commonly employed:
- Seller fulfilment. Where the merchant warehouse and fulfils their orders.
- Drop shipping. ‘Drop shipped’ orders are delivered directly from the manufacturer to the end consumer without the retailer having to touch the product or buy the stock in advance.
- Fulfilment houses. A fulfilment house will manage fulfilment on behalf of many retailers.
Fulfilling orders from your warehouse (known as Fulfilment by Merchant on Amazon Marketplace) enables you to keep complete control of the process. However, there are high costs involve and long-term commitments.
- Staffing. Shipping orders and managing a warehouse is a time-consuming process.
- Warehouse. On top of the monthly cost of renting a warehouse, there will be rates and ongoing maintenance costs.
- Lack of flexibility. During busy periods it is difficult to scale up
Running a warehouse involves commitments and costs. It may be cheaper and easier to outsource your fulfilment needs to a third-party service. These warehouses will work best under the following circumstances:
- Small number of SKUs. As products need to be delivered into a fulfilment house, managing the incoming deliveries and maintenance get progressively more challenging with catalogue size.
- Small number of deliveries. As fulfilment houses may charge for deliveries, it is best to have a small number of large deliveries.
- Fast-moving stock. As fulfilment houses charge for storage, paying to store non-performing items is money wasted.
Fulfilment houses will typically want a long-term commitment (6 months+) and will charge a menu of fees for their services, including:
- Storage. This may be charged on a fixed amount of storage or based on actual storage used.
- Processing of deliveries. Deliveries will need to be checked and booked in.
- Pick and pack fee. A handling charge is a charge per order fulfilled.
- Postage fee. Postage charge will usually be near cost.
Due to economies of scale, using a fulfilment house may be more cost-effective than running a warehouse. The most well-known fulfilment service is Amazon’s Fulfilled by Amazon service, commonly known as FBA.
Returns are a big issue in eCommerce, so consider the returnability when making your product selection. Consumer legislation means that in the UK and EU, consumers have the right to return goods within 14 days of purchase. The average return rate online is 22% (source: IMRG), with rates as high as 45% return rates in the fashion industry.
Products vary in the costs associated with returns. In sectors such as fashion, up to a third of customers will buy multiple sizes and then send back products they do not need. In areas such as electronics, once opened, a product is not easy to sell as new.
Consumers love free returns, which is an essential factor for a fifth of purchases (source: Barclaycard). The cost of returns comes straight out of the bottom line, and not all products are easy to return, e.g., oversized items like furniture.