Fulfilment

What is fulfillment?

The entire order processing of an order is an important process for companies that sell physical products.

Fulfillment in logistics refers to the assumption of the associated tasks and comprises a range of logistical processes.

Well-optimized logistics processes lead to fast order processing. This increases customer satisfaction, reduces costs, enables scalable growth and ultimately increases sales for companies.

Definition of: Fulfillment

The definition of the English term fulfillment ➚ (also “fulfillment”, “compliance”, “fulfillment”) means fulfillment, execution, order fulfillment, contract fulfillment and service from a single source.

However, the term is also used in English for a fulfilled and satisfied life. We refer here to the provision of logistics services.

Understanding fulfillment in logistics

In logistics, fulfillment means providing the necessary services for the entire order processing process to fulfill an order initiated by a customer or retailer.

The tasks include warehousing, picking, packing and labelling, transport, last mile delivery, financial management, goods financing and after-sales service, such as tracking and returns management.

A company can handle the processing itself or outsource the tasks to an external partner.

What does e-fulfillment mean?

The term e-fulfillment refers to the fact that the entire order processing of buyers from the online store is handled exclusively for retailers in eCommerce.

While fulfillment also involves order processing for regular dealers, wholesalers or retailers.

Basically, fulfillment is part of it:

• the procurement of the goods,
• Goods Receipt,
• Preparation of goods,
• Storage,
• Incoming orders,
• Packing of the goods,
• Picking of the goods,
• Packing and delivery to the customer:inside (the last mile),
• Returns Management.

These logistics processes can be handled by a single company (all services from a single source) or outsourced by several companies.

The most common procedure on the market is to take over the entire transactions of 3 companies:

• 1 company for the procurement of goods and sales,
• 1 Fulfillment service provider for warehousing, picking, packing and shipping,
• and 1 company for delivery.

This constellation is referred to as 3 PL fulfillment.

A classic 2 PL fulfillment provider is Amazon by Fulfillment (FBA), for example. Here, retailers can offer their products on the marketplace, use storage space, pick & pack and delivery to the customer by Amazon Fulfillment.

However, Amazon makes a number of demands on online retailers. Sometimes it can be better and cheaper for retailers to use an external fulfillment provider for Amzon, this is called pre FBA.

7 Core tasks in fulfillment

1. Warehousing
2. Acceptance of the order
3. Assembling the goods
4. Packing the goods
5. Franking and labeling
6. Shipping
7. Returns

1. Warehousing

What is the difference between a warehouse and a distribution warehouse?

In warehouse logistics, goods are temporarily stored in a warehouse. They are then delivered to the desired recipient on order call-off. This can be a wholesaler or other fulfillment warehouse, such as a center for a marketplace.

Distribution warehouses are logistics centers in which the merchants’ goods are stored, picked, packed and shipped from there directly to the end customers upon receipt of the order. This offers the advantage of central processing.

The goods are delivered by container, on pallets or in outer cartons. These can be single-variety or mixed. In the case of mixed goods deliveries, the items are scanned and stored individually.

Optimize inventory management

Efficient inventory management of items in the merchandise management system is of great importance in warehouse logistics. This includes retailers keeping track of stock levels, taking inventory and forecasting demand to ensure that sufficient stock is available in stores to meet the needs of all customer orders.

The logistics service provider takes control of the retailer’s stock in the merchandise management system. When the picker removes a product from the warehouse, the stock is automatically reduced by one.

Using inventory management software automates many processes and adjusts inventory in the store or online dashboard.

This prevents stock shortages, reduces excess stock and improves the overall efficiency of warehouse work and goods management.

2. Acceptance of the order

In order to be able to retrieve buyers’ orders from the online store, ERP or merchandise management system (Wawi) to the warehouse, a connection must be established with the retailer’s system and the fulfillment provider via an API interface. The necessary data exchange can flow bidirectionally in both directions in real time.

After the automatic retrieval of orders in real time, the process section includes sending the order confirmation with tracking numbers and shipping notifications to the retailer.

Item master data maintenance

In order to be able to process orders quickly, it is important that retailers clearly label items and maintain the data. The basic data includes the name of the items, SKU, EAN, weight, color and the purchase price.

Merchant can specify additional data to the service provider when retrieving orders, based on factors of the products and shipping preferences.

In addition to transmitting the basic data (the so-called “original load”), product values such as attributes, serial number, Amazon FNSKU, TARIC code, hazard number, UN number, UPC, ISBN, barcode and an image can be transmitted, for example with JTL Wawi.

By setting up shipping preferences in advance, retailers can determine which shipping service provider should be used for which products or destination country.

Automated order processing gives you an overview of the individual sections. This allows you to ensure that orders are executed quickly and accurately. Some fulfillment service providers offer the service that retailers can track all of the service provider’s activities in a portal or web-based dashboard.

3. Assembling the goods

After the order is received, it is processed at the fulfillment center. Depending on the order, one or more of the items requested by the customer are put together (pick & pack), known as single-stage or multi-stage picking.

The Packangels in the warehouse are now either fully automated robots or warehouse specialists.

While robots can handle standardized tasks, picking and packing of delicate or large products is better done by warehouse workers.

In logistics, there are already “dark warehouses”. These work completely automatically 24/7 and of course require no lighting, as there are virtually no people working in the warehouse.

In practice, hybrid models are often found. Here, automation helps the warehouse employee (Packangels) to carry out complex work steps more efficiently and quickly.

The fulfillment service providers use different prices for picking the goods. Some charge a flat fee for the entire process, while others charge for individual items, such as incoming orders, quantity of items and SKUs.

4. Packing the goods

At the packing table, warehouse employees professionally pack the assembled items of an order in a box. For this purpose, wet adhesive tapes, reinforced corrugated cardboard and filling material are used.

There are different packaging options depending on the product. For example, there are special packaging for bottles. The cardboard can be of different material and thickness.

The cardboard can be made of environmentally friendly material. Some service providers also offer the service of gift wrapping the items.

When packing, either the company’s own cardboard packaging or that of the fulfillment service provider can be used.

Some providers offer fulfillment on demand, with the printing of personalized cards, inserts and flyers and enclose them in the package.

The retailer must make sure that he registers in the packaging register, even if he uses an external service provider.

Since July 3, 2021, the legislator has stipulated that the distributor or manufacturer of the goods must carry out the registration and system participation of the shipping packaging.

In Pick & Pack, the team is an important factor in logistics. Well-rehearsed workflows for warehouse specialists are a decisive success factor.

5. Stamping, labeling and declaring consignments

After the items have been safely and properly packed, the shipment must be sufficiently stamped, marked and partially declared.

Shipping labels are sometimes created directly by the retailer and transferred to the warehouse. They are usually created by the fulfillment service provider and applied to the shipment.

For franking, the girth, weight, address, destination country and type of delivery must be taken into account. There are also special regulations, such as shipping to islands or certain customs regulations that must be declared on the shipment, as well as shipping to Switzerland, the UK or Northern Ireland.

Certain products must be properly marked on the outside of the carton. This can be indications for batteries, dangerous goods, packages over 31.5 kg or easily breakable products in the shipment.

6. Shipping

In e-commerce, shipping with on-time delivery is a crucial component for customer satisfaction. Here, the handling process and communication in fulfillment must run smoothly.

In some cases, customers expect fast shipping within 1-2 days. Delays or errors can lead to negative evaluations and lost sales precisely then.

Fulfillment service providers often use transport companies such as DHL for shipping, which deliver the goods with a lot of experience daily nationally in Germany, EU-wide and worldwide to the customers.

In the B2B area, the shipping service provider UPS is often used. This offers high reliability and quality in direct delivery of even large and delicate products.

To optimize shipping and delivery, the fulfillment service provider’s software should communicate the current status and tracking number to the online store or into the online dashboard. This gives customers the opportunity to follow the shipment closely.

Sellers can also offer their customers different shipping options during the checkout process, such as express shipping, merchandise mail, bulky goods, or international shipping.

The customer can also define storage locations. According to experience, this increases the regular delivery rate and avoids errors during delivery.

Some deliveries, such as bulky goods, can only be delivered by a freight forwarder. This option must also be stored in the retailer’s system and in the fulfillment center.

Online retailers and service providers should communicate with customers throughout the shipping process.

This allows information on tracking, any delays or problems to be provided quickly by the parcel service provider. Then the support can react in time and offer an individual solution.

To do this, the seller relies on receiving this data automatically from the shipping service provider or the warehouse.

If the delivery processes are set up optimally and the delivery of the products is reliable, it meets customer expectations and satisfaction increases.

7. Returns ­­management

The average return rate in e-commerce is 28%. So every third delivery comes back. The return must be accepted, unpacked, sifted, reconditioned or destroyed.

For sellers this means enormous effort and costs. In addition to the product costs, there are the shipping costs for returns, which in Germany are often borne by the seller:inside.

Some of the returns can be sold as B-goods at a discount. Otherwise, the items must be disposed of properly, which in turn costs money.

These entire processes of returns handling with customer support can also be handled by a fulfillment partner.

Other fulfillment services

In some cases, the fulfillment provider takes over additional services.

These include:

• Invoicing
• Dunning system
• Payment processing
• Cross Docking
• Marketplace pre Fulfillment
• On-Demand Product Fulfillment

Fulfillment costs

Fulfillment fees are charged based on the service provided. The effort can be charged per hour or per unit. A monthly basic fee is also often charged.

Roughly speaking, fulfillment costs can be divided into 4 areas:

1. Incoming goods
2. Storage
3. Picking and packing
4. Outgoing goods

Additional services, such as packaging of the items, customs declaration, enclosure of flyers, gift wrapping, handling of returns or refurbishment will be charged additionally as agreed with the service provider.

What are the biggest cost drivers?

Source: © EHI-Studie ➚ „Warehousing, transport and returns processing in e-commerce 2021“

Sellers in e-commerce have to bear some costs, just like in stationary trade. Therefore, traders:inside must charge such prices for their products that provide a sufficient margin.

With high competition and low specialization, there is usually high price pressure in the market. This is an opportunity to reduce costs by bundling and optimizing tasks.

Dealers can use clever mixed calculation to offer customers favorable deals and highlight them, especially on promotion days. The additional logistical effort can be absorbed by an external fulfillment service provider by flexibly deploying its employees as needed.

Fulfillment goal

By outsourcing to a fulfillment operator, such as Fiege, Orange Connex, Subke, Rhiem, DHL or DPD, around 80% of entrepreneurs hope for better competitive advantages, the use of external resources with fulfillment of time-intensive tasks and a significant reduction in workload.

Logistics providers should ensure a scalable, cost- and process-optimized service for online retailers. You will be responsible for the efficient storage, management and control of the flow of goods and information.

Practical advantages of using a fulfillment provider:

• Taking over the inventory management of the articles including stocktaking,
• Taking over the entire order processing,
• Retailers can concentrate more on their core business,
• Shortening order processing,
• Increase customer service,
• Take-back and possible professional disposal of the products,
• Increase in bearing frequency,
• Leverage specialized logistics and expertise (pre FBA),
• Reduction of inventories.

70% of online stores use a fulfillment service. For annual sales of less than €5 million, this figure is only around 40% of companies. That’s because smaller businesses start with in-house fulfillment, while companies with strong growth need an outside service provider.

Competitive advantages through fulfillment

In online business, there is a certain selection of logistics providers available, which differ in terms of target group, tasks and fees.

If a service provider looks after a company, it has the opportunity to use complex logistics services for itself and to achieve its own competitive advantages with the cooperation.

Retailers and online retailers say they want to improve the following services by outsourcing tasks to a third-party provider.

• Optimization of the order status for customers,
• Improved returns processing with inventory reporting and photo creation,
• more sustainability in packaging and shipping,
• Reprocessing of the products,
• Planning and controlling the flow of goods, information and money along the entire supply chain,
• Flexibility in the use of storage space,
• Reduce the risk of incorrect picking and delivery,
• Absorbing the higher workload on action days,
• Locations of storage with good infrastructure to the end customer,
• Customer care,
• Transmission of the electronic signature upon delivery of the shipment,
• Collection service of the goods,
• Payment processing by invoice.

When is fulfillment worthwhile?

Fulfillment is suitable for companies and organizations that want to benefit from efficient, reliable and professional handling of storage, shipping and returns of their products. Here is a summary of who fulfillment is particularly suitable for:

1. E-commerce companies: Fulfillment is an ideal solution for e-commerce companies and brands that need to process a large number of online orders. It allows them to outsource storage and shipping so they can focus on marketing and growing their business.
2. Small businesses: Small businesses that have limited storage capacity or do not want to specialize in logistics tasks can benefit from fulfillment services. It enables them to keep their operating costs low and still offer professional shipping.
3. Startups: Startups with limited resources can use fulfillment to reduce their operating costs while having a scalable solution for shipping. This facilitates growth and expansion.
4. Companies with seasonal business: Companies that have strongly fluctuating seasonal sales figures can use fulfillment to react flexibly to changes in demand. You don’t have to worry about adjusting your storage capacities.
5. Companies that want to concentrate more on their core business: Fulfillment allows companies to focus more on their core business while outsourcing logistics tasks to specialists. This leads to greater efficiency and productivity.
6. Companies that need fast and reliable shipping: Fulfillment partners can often offer faster and more reliable shipping services, which increases customer satisfaction and makes companies more competitive.
7. Companies looking to expand internationally: Fulfillment can be helpful for companies looking to expand internationally, as it makes it easier to process orders in different countries and regions.

Overall, fulfillment is a versatile solution that companies of all sizes and industries can use to optimize their logistics processes while freeing up time and resources for their core business.