What is fulfillment?
The entire order processing of the customer order from an online store are very important processes for companies selling physical products in e-commerce.
With the fulfillment in logistics, is meant the assumption of the associated tasks and includes a number of logistical processes.
Well-optimized and fast logistics processes lead to higher customer satisfaction, reduce costs and ultimately increase sales for companies in e-commerce.
The definition of fulfillment ➚ (also spelled fulfillment) translates into German as fulfillment, execution, contract fulfillment and performance 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
Fulfillment in logistics means the provision of services for order processing of orders initiated by customers. A company can handle the entire process itself or outsource the tasks to an external service provider.
The term e-fulfillment means that the entire order processing is handled exclusively for online retailers with the orders of the end customers from the online store.
While fulfillment can also be regular distributors, wholesalers or retailers.
The core fulfillment business is divided into:
- Procurement of the goods,
- Goods Receipt,
- Preparation of goods,
- 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 by several companies.
The most common procedure on the market is to take over the entire processes 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.
For example, a classic 2 PL fulfillment provider is “Amazon by Fulfillment” (FBA). Here, merchants can offer their products on the marketplace, use storage space, pick & pack and delivery to the customer by Amazon.
However, Amazon has some requirements for online retailers. Sometimes it can be better and cheaper for merchants to use an external fulfillment service provider for Amzon, this is called pre FBA.
7 Core tasks in fulfillment
- Acceptance of the order
- Assembling the goods
- Packing the goods
- Franking and labeling
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.
Optimize inventory management
Efficient inventory management of items is of great importance in fulfillment. This involves retailers keeping track of inventory levels, taking stock, forecasting demand to ensure that sufficient stock is available to meet the needs of customer orders.
The logistics service provider assumes sovereignty over the inventory. 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 out-of-stocks, reduces excess inventory, and improves the overall efficiency of warehouse operations and inventory management.
2) Acceptance of the order
In order to retrieve the orders from the online store, ERP or merchandise management system (Wawi) to the warehouse, the retailer’s system must be connected to that of the fulfillment service provider via an API interface. The necessary data exchange can flow in both directions.
After the automatic retrieval of orders, the process includes sending the order confirmation with tracking numbers and shipping notifications to the retailer.
Item master data maintenance
For order processing, it is important that traders clearly mark 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 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.
With the prior setup of shipping preferences, the retailer can determine for which products or destination country, which shipping service provider should be used by the logistics provider.
By automating order processing, you can ensure that orders are filled quickly and accurately. Some fulfillment service providers offer the service that merchants can track all activities of the service provider in a 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, so-called single-stage or multi-stage picking.
This service is performed in the warehouse either by a fully automated robot or a warehouse specialist.
While robots can handle standardized tasks, picking and packing of delicate or large products is better done by warehouse workers.
4) Packing the goods
At the packing table, the assembled items of an order are professionally packed in a carton. 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.
So 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 vendors offer fulfillment on demand, with printing of personalized cards, inserts, flyers and include them with 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 regulated that the distributor or manufacturer of the goods must carry out the registration and system participation of the shipping packaging.
5) Stamp, label and declare shipment
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, 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.
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.
- Dunning system
- Payment processing
- Cross Docking
- Marketplace pre Fulfillment
- On-Demand Product Fulfillment
Fulfillment fees are charged based on the service provided. The effort can be charged per hour or per unit.
Roughly speaking, fulfillment costs can be divided into 4 areas:
- Incoming goods
- Picking and packing
- 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.
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.
With outsourcing of fulfillment, about 80% of the entrepreneurs hope for better competitive advantages, the fulfillment of time-intensive tasks with 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.
Advantages of using a logistics service provider are:
- 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
Merchants have a certain choice of logistics providers, which differ according to the 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.
According to their own statements, dealers would like to see the following services improved:
- 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.
Result of our survey
As a percentage of participants surveyed.
Number of respondents: 2023 n=95
Frequently asked questions - FAQ
While order fulfillment includes all merchants, eFulfillment focuses exclusively on online merchants with order processing for their end-customers in e-commerce.
Fulfillment includes service for B2B and B2C stores. Instead, companies in eFulfillment mostly cover B2C and D2C businesses.
Also an English term that describes how many parties are involved in the logistics process.
Thus, an online retailer can take over the fulfillment tasks itself.
The term “third-party logistics” is used when a professional logistics service provider takes over the tasks. Generally, a distinction is made between 1PL, 2PL, 3PL, 4PL and 5PL service.
Picking is the process of assembling goods or products from a warehouse to fulfill orders from customers or other departments. This can be manual or automated and often includes packing and shipping orders.
Packaging refers to the process of assembling and packing products to make them ready for sale or shipment. This can include, for example, the assembly of individual parts into a finished product, labeling, or packaging in cartons or films.
To properly frank a package, you must know the weight and size (the girth) of the package. Then you can either buy a franking online and print it out or use a franking machine. Alternatively, you can go to the post office and have the package franked there. Make sure you choose the right shipping method and write the recipient’s address clearly on the package.
Labeling refers to the application of labels or tags to products or packaging to communicate information such as ingredients, origin, shelf life or warnings. It is used to identify and distinguish products and is required by law in many industries.
The sender officially indicates the contents of the package by filling out a shipping label or shipping declaration.
The declaration includes the name of the sender and the recipient, the exact address, the weight and dimensions of the package and a detailed description of the items contained.
It is important for customs authorities when the package crosses international borders and for insurance in case of liability for loss, damage or theft.
The “pre fulfillment” service is often used by online retailers who sell their goods on marketplaces but use an external fulfillment service provider rather than the marketplace provider for warehousing and, in some cases, order processing. Das bekannteste ist pre FBA (Fulfillment by Amazon).