eCommerce Fulfillment Models: In-House, 3PL & Dropshipping
- eCommerce fulfillment models are responsible for determining how online orders are packed and shipped to customers.
- Primarily, there are three categories of eCommerce fulfillment models: in-house, third-party and dropshipping.
- Before choosing a model, sellers should evaluate their order volume, budget, customer expectations and product size carefully.
- The best eCommerce fulfillment model for any business depends on its growth and end goal.
Imagine that you have finally hit that “sweet spot” in your business. Your marketing is working, and orders are pouring in. Then suddenly, one package gets delayed, and you are buried in negative reviews, frantically trying to check in for updates. This is a very common growth trap that promising businesses fall into.
Figuring out how to get a package to your customer is not a hard task, but it requires patience and strategy. A study by Baymard Institute reveals that 39% of online shoppers abandon their carts because extra costs like shipping are too high, while others flee due to slow delivery speeds. As a seller, it then becomes your duty to decide on the best eCommerce fulfillment model for your business. If you cannot ship well, your profitability will suffer.
How Does the eCommerce Fulfillment Process Work?
The key to running a successful online business is understanding how the eCommerce fulfillment process works. Here is how different stages come together to ensure the orders reach your customers on time:
- Inventory Management: The warehouse is the central hub for sorting, packing and shipping products. It is important to keep a track of the stock level so that all the orders are delivered on time.
- Order Processing: The store manager procures the product from the warehouse when a customer places an order. It involves matching the order SKU with that of the warehouse product.
- Packaging and Delivery: The product is carefully packed in the shipping box to prevent damage or spoilage during transit. An eCommerce seller has to ensure that the order is delivered on time. At the same time, a tracking number is provided to the customer so they can keep a check on the order status.
However, the fulfillment process is not the same for every eCommerce seller and rather depends on the individual business needs.
What Factors Should Be Considered While Choosing an eCommerce Fulfillment Model?
You must assess your business requirements before finalising the eCommerce fulfillment model. It is a strategic decision that can impact customer satisfaction and future growth. Below are some of the primary factors to keep in mind when choosing a model:
- Product Type: The kind of products you sell plays a major role in choosing the fulfillment model. Is it something your customers can directly order from you, or do they require a middleman to act as a link and eventually complete the orders for you? The answer to this question decides the warehouse requirement, production facility and packing material you would require.
- Order Volume: If you are a new eCommerce merchant dealing with limited products, you may not require a separate warehouse to store your goods, and you can work from home. However, if you are dealing with a large volume of orders regularly, your procurement and fulfillment process needs to be more stringent.
- Geographical Location: Your warehouse location decides how long it will take to deliver products to your customers. If you are working in a limited region, you may not have to set up a huge facility. But for those working pan-India, you require multiple fulfillment locations to guarantee timely delivery to your customers.
- Inventory Level: Understanding your products from an inventory level standpoint is important when deciding the model. Do you need to restock your products regularly or anticipate a high RTO (Return-to-Origin)?
What Are the Different Types of eCommerce Fulfillment Models?
After you have carefully evaluated your business operations, there are three eCommerce fulfillment models that you can choose from. It is important to understand each of the three in detail so you can make the right decision for your company:
1. In-House Order Fulfillment
Also known as the self-fulfillment model, it is when a seller carries out the entire shipping process by himself, without the involvement of a dropshipper or a third party. This model is exercised by those who have small businesses and low order volumes.
There are a plethora of social sellers on Facebook and Instagram who pack orders from their homes and courier the shipments.
Advantages
- Low cost
- Flexibility and quick adaptation to changing demands
- Gives complete control to the seller
Disadvantages
- Time-consuming
- Complex for growing businesses
- High initial investment
- Requires a specialised Order Fulfillment Software
2. Third-Party Fulfillment (3PL)
Sellers migrate to a third-party fulfillment model when the process becomes too complex to handle on their own. From the packaging of bulk orders to shipping them one by one, it is impossible to manage the process single-handedly. It results in a compromise in the expected delivery time and dissatisfaction among end customers.
Outsourcing a major chunk of the fulfillment process to a 3PL service provider enables you to manage and dedicate time to core business operations. A 3PL provider is responsible for inventory management and handles any concerns regarding the same.
Considering these service providers work with multiple fulfillment centres, they possess great logistical prowess that assures the continual growth of your business.
Advantages
- Streamlined process
- Multiple courier partners
- Discounted shipping rates
- Dedicated fulfillment centre for bulk inventory
Disadvantages
- External dependency
- Poor service from a 3PL provider can hamper your business reputation
3. Dropshipping
In this model, sellers neither manufacture nor store the products they sell online. Instead, the manufacturer ships the products directly. When an individual places an order online, the order is either automatically or manually forwarded by the seller to the manufacturer. The manufacturer then ships the order to the respective customer.
Under dropshipping, the manufacturer handles the entire fulfillment process, indicating that the seller has no control over the operations. Hence, customer satisfaction is directly dependent on the dropshipper.
Advantages
- Global accessibility
- Diverse product catalogue
- Less overhead costs
- Fast business growth
- Minimal startup capital, does not require you to purchase inventory upfront
Disadvantages
- Zero product customisation
- Limited scope of branding
- Singular parameter (price) for gaining a competitive edge
- Communication gaps among multiple dropshippers
- Lack of control over quality and packaging
Which Fulfillment Model to Choose and How Shiprocket Supports Your Decision?
Each of the three eCommerce fulfillment models has its advantages and limitations. The best way to determine which one is ideal for your business depends on your end goals and customer proposition. If you are planning to start an eCommerce business and want to handle all the operations on your own, the in-house fulfillment or dropshipping model is best for you. However, if you are a seller witnessing steady business growth, the 3PL model works the best. Startups planning to grow in the coming years also commonly opt for it.
Regardless of the eCommerce fulfillment model you choose, Shiprocket offers seamless logistics services for customer satisfaction and continuous growth. As an eCommerce enabler, it handles nationwide shipping for over 19,000 pincodes. The platform’s comprehensive shipping services streamline your delivery operations, so you can focus on expanding your service.
Conclusion
Choosing the right eCommerce fulfillment model is imperative for any online business to grow and maintain customer satisfaction. While in-house fulfillment offers more control, dropshipping lowers the upfront investment and inventory holding costs. On the other hand, third-party logistics handles order delivery and customer service on your behalf. Ultimately, matching your strategy with your business goals is important for sustainability and long-term growth.
No matter which fulfillment model you choose, Shiprocket, as a logistics partner, makes sure every order reaches your customers on time. Its one-stack solution with multiple last-mile warehouses lowers your shipping cost by up to 20% and RTO by 60%. Shiprocket’s domestic shipping services provide you with an automated platform with specialised features, like a courier recommendation engine and a shipping rate calculator.
