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One of the most important factors in the decision-making process of customers when purchasing goods online is the following information:
“Free Shipping & Returns”
In fact, 60% of online shoppers say that they base their purchase decision on the convenience of delivery options and 54% say that they have already abandoned a shopping cart because delivery time was too long or shipping costs too high.
Those insights highlight the importance of the logistics and shipping strategy of a webshop. However, this raises the question of how you as an online shop can develop the capabilities in order to successfully overcome the challenges of e-commerce shipping.
Especially, companies that just started their online business are often having a hard time in order to find the right approach to tackle this problem. How can I afford free and fast shipping? Should I outsource the process or do it in-house?
This guide will help you to answer those questions and grow your business in the long run.
The role of shipping in the e-commerce market
Online trading is fueling the parcel market. The shipping numbers of courier, express, and parcel services are increasing. If growth continues, nearly four billion parcels could be sent across the German market alone by 2020.
As it has been already pointed out shipping does not only fulfill the purpose of getting goods from the seller to the buyer but also takes on an important role in the decision-making process of a consumer.
Furthermore, the shipping experience has a considerable impact on your business since it affects customer loyalty. A survey reveals that 96% of shoppers would return to the same online shop after having had a positive delivery experience.
But what options do online retailers have in terms of storage, packaging, and shipping in order to meet and exceed customers’ expectations?
E-Commerce Fulfillment 101
There are several shipping methods in e-commerce and which one you want to use depends on several factors. Also, they all have various advantages and disadvantages.
Let’s find the right one for you!
1. Self-Shipping
When you start an online shop, you probably have a lower shipping volume and a limited number of products. As a consequence, most online shops at this stage still have the resources in order to handle their logistics internally this time.
This method will help you to save costs and gives you the opportunity to try different packaging methods and ensure the quality of the parcel fits your expectations. This is especially important when you are starting to create your brand around your products and packaging plays a major role.
Although this strategy will cost you time and nerves, it will also teach you a lot about the effort and costs which are involved. In a later stage, those insights can be beneficial when outsourcing fulfillment activities.
Another downside is that storage takes up space depending on the size and weight of your goods, so you may need to store them in rooms or halls. Depending on the product it could be necessary to acquire more equipment for the organization of the storage place, such as stacking boxes or shelves as well as a convenient transport to the shipping service providers.
The fastest option is to have the shipping label automatically created by external shipping providers such as DHL or Hermes. However, it involves the time-consuming task of finding the right carrier for your needs and comparing their offers.
2. Dropshipping for Online Shops
Another popular alternative among e-commerce stores that are just starting their business activities is Dropshipping.
In this case, the manufacturer of your products takes care of the shipping process for you. Customers who order items in your online shop receive them directly from the manufacturer so that you do not have to invest resources concerning shipping or packaging.
As a result, the supplier takes over the purchasing, production, storage, and dispatch which saves time and space for e-commerce businesses. This is very advantageous as a business owner since it gives you the opportunity to build your own brand with limited financial resources and at low risk.
Due to its convenience dropshipping is a very popular solution among online sellers all over the world. However, it also has some disadvantages.
First of all, it is highly recommended to closely pay attention to the customs fees of international dropshipping providers.
Secondly, since many Dropshipping providers are located in East Asia, the delivery time can be very long. This can have a negative effect on the conversion rate of your online shop. Also, there are often difficulties with regard to returns.
3. E-Commerce Fulfillment by external service providers
Online shops that face a rapidly increasing order volume are usually forced to switch to a more scalable solution in the long run. One possibility is to build your own warehouse with associated processes and a logistics team. However, it is more recommendable to transfer the logistics to a fulfillment service provider.
The former would not only cost a lot of money, but also a lot of time and resources which you primarily need for your core competencies. Many businesses that choose this strategy realize that they are too busy with order fulfillment and are having a hard time growing their business.
Another sign that indicates a strong need for e-fulfillment outsourcing is when your number of orders fluctuates throughout the year.
Fulfillment service providers take over the entire process and facilitate the handling of goods. They take care of accepting your goods, inbounding them, picking and packing everything, and handing it over to respective shipping service providers.
One major advantage is that fulfillment service providers already work with shipping service providers like DHL or GLS and thus are also able to pass on attractive shipping conditions. Often, you also have the option to choose a particular shipping service that is preferred by the recipient because the fulfillment partner is in the position to offer more flexibility with regard to parcel shipping with various carriers.
The downside of outsourcing your e-commerce logistics is that you give up control of the process and don’t have the possibility to customize packaging according to your specific needs. Also, it is tedious work to compare fulfillment providers with regard to quotes, quality, and expertise in order to find the best one.
How to find the right fulfillment service provider for your online shop
Since the fulfillment of your orders is a crucial part of your online shop’s success you need a professional logistics solution that perfectly fits your needs.
There are several points that you might want to consider in order to find the right partner:
- Integration between sales channel and fulfillment service provider
If you sell through an online shop like Shopify or an online marketplace like Amazon, you should look for partners who provide API interfaces to those channels. This helps to automate your order fulfillment process and therefore saves you a lot of time.
When orders are placed in your online store they can be automatically transferred to the warehouse of the fulfillment provider where the fulfillment process gets initiated. As a result, the picking staff receives the order details and information about where the products are located in the warehouse without any delay.
Moreover, e-commerce logistics companies that provide an API integration enable the data is pushed back to your online store so that your customer stays in the loop.
Furthermore, a seamless integration will enable you to get real-time inventory updates in order to avoid stock-outs that can harm your business.
- Geographic location
A second important factor is the geographical location of the fulfillment center which should be close to the demand for your products. This helps to minimize shipping costs and delivery times.
Fast delivery helps to increase customer satisfaction and prevent problems that occur occasionally in cross-border trade. The geographical location is also particularly relevant in the apparel industry as it reduces the cost of return shipments.
In addition, it makes sense to have a closer look at tax regulations. You can find more information on this topic here.
- Minimum requirements
Does the fulfillment service provider require any minimum shipping volume? Do I need to keep up with my orders in order to be able to stay with the fulfillment partner?
Some fulfillment service providers prefer to allocate storage capacities to customers with a higher turnover rate since they can generate more sales.
However, others do not require minimum shipping quantities which might be reflected in the price. In many cases, you can try to negotiate the prices after you have been able to grow your business and increase the shipping volume.
- Flexibility
How flexible is the potential fulfillment service provider?
Before your customers hold the product in their hands, the first impression is created only by the packaging which represents the first physical touchpoint. Depending on the product, there are various packaging options that are not only for protecting your products but also offer your customers a unique "unboxing experience".
This is a great way to market your brand through an outstanding look. It gives your customers the first positive connection to your business and helps you to stand out from the competition, e.g. packaging in a special color or a small letter in the box can make your customers smile.
Moreover, such a unique and nicely designed packaging is more likely to get shared on social media which translates into increased brand awareness.
- Costs of outsourcing your e-commerce order fulfillment
The cost structure of logistics outsourcing depends strongly on the provider but it can roughly be divided into the following aspects:
- Delivery: You have to ship your items to the partner’s warehouse where they have to get inbounded. Labeling the pallets/boxes that include the respective products is extremely important at this stage because it can speed up the process. Depending on the number of products, a fee will be charged for the delivery and storage of the items.
- Storage: The costs for the storage of goods also depends on the number of pallets/shelf spaces that are being used. In most cases, the storage costs are calculated on a monthly basis.
- Picking: For this process, you usually have to pay a base price per shipment and per additional picking, a small amount will be added.
- Packaging: Once all goods have been picked, the packaging team will package everything carefully to ensure a successful delivery without damage. The price for the packaging process depends mainly on the size and requirements of the shipment as well as the type of the shipped items (e.g. if it’s glass, it needs to have more filling as books). Moreover, if you want to use custom branding for your parcels you will need to pay an additional fee.
- Shipping: The packaging process usually ends with the printing of the shipping label. The bigger your shipping volume the more bulk discount you will get.
As you can see, you can definitely save a lot of time, money, and nerves if you have the right fulfillment service provider to handle the logistics for your online store. This allows you to focus on the core competencies of your business.
Your e-commerce logistics as a competitive advantage
As it has been already mentioned in the beginning, with the strong increase in e-commerce, the importance of parcel delivery services is also increasing. Consumers are often confronted with quality issues when delivering. Studies show that 43% of customers would not order in the same online shop again after they had a negative experience with delivery.
Customers’ requirements for e-commerce shipping have gone to extremes. Nowadays, delivery times of 3 days are already too long for many consumers. In order to ensure flawlessly functioning, efficient, and flexible logistics, online retailers need to find a solution for their e-commerce logistics that helps them to turn their logistics into a competitive advantage.
There are several ways to do that and you might want to start by doing it yourself or using dropshipping. However, as you grow your business you will have to switch to a more scalable solution.