Warehouse Wednesday - eCommerce Part 2

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Two or three weeks ago I began another round of Warehouse Wednesday with Part 1 of a mini-series on eCommerce.  In that segment I addressed the importance of ‘workflow’ when operating an eCommerce business, especially as it relates to fulfillment.  As we look at these various various fulfillment workflows that impact eCommerce businesses please remember that the ultimate intent of this mini-series is to present (in future installments) specific solutions that can help users with each of the identified workflows based upon their business requirements.

We also looked at the most common workflow for small start-up eCommerce businesses, that being ‘Local-fulfillment workflow.’ As part of exploration of that workflow we considered both In-bound and Out-bound logistics, along with Material Resource Planning. Illustrated below.

We then looked at one of the most common ‘kinks’ in the Local-fulfillment workflow model, that being insufficient on-hand stock to fulfill a customer’s order.  That’s where the ability to have your material supplier ‘drop ship’ the product(s) directly to the customer comes into play.  As shown in the illustration below.

I told you that this workflow adjustment is not only a common adjustment used by most eCommerce businesses but that it has become one of the most common workflow alternatives used in eCommerce operations.  That is what we want to explore today.

Direct Fulfillment ‘DF’ (AKA: Manufacturer/Supplier Direct Fulfillment)

Under this workflow an eCommerce business contracts with their manufacturer to send products directly to the businesses eCommerce customers.  In many instances the eCommerce business will have pre-purchased a supply of each product from the manufacturer based upon normal sales and anticipated demand, and the manufacturer agrees to hold the stock until it receives shipping instructions. 

In many ways this process is almost identical to that of the ‘drop-ship’ alternative of local fulfillment discussed above (and in the Part 1 article of this mini-series.) Compare the above workflow with the one shown below.

Benefits of Direct Fulfillment:

  • Direct Fulfillment can help an eCommerce business manage their supply chain expenses by increasing fulfillment capabilities, optimizing inventory levels and reducing shipping time at minimal cost. Under a Direct Fulfillment contract the manufacturer or supplier acts as an extension of the eCommerce businesses fulfillment network and ships the product(s) directly to the end customer.
  • Direct Fulfillment extends the fulfillment capability of an eCommerce business by adding the manufacturer’s or supplier’s capacity and specialized knowledge for handling and shipping products without the need for an inventory warehouse facility or without having to hire personnel to do fulfillment work.
  • Direct Fulfillment also removes inventory level and location issues, and related logistics costs of transporting goods from the manufacturer/ supplier to a local fulfillment facility and then transport the product(s) to the customer.
  • The reality is that Direct Fulfillment significantly speeds up delivery times to the customer for new or high-demand items because any product(s) is almost always on hand an available for shipment by the manufacturer/supplier as soon as they receive the shipping instructions.
  • Direct Fulfillment effectively eliminates an eCommerce business being put in the situation of having to advise their customers that any product(s) are on back-order and the fulfillment date will be delayed because manufacturers/suppliers almost always have inventory from which they can fulfill orders even if the eCommerce business has had their pre-purchased stock depleted at the time of the order.

Problems with Direct Fulfillment:

  • Manufacturers/suppliers maybe unwilling to provide 'stocking space' for inventory purchased by an eCommerce business as that potentially requires them to increase overall warehouse facilities.
  • The added demands of shipping and logistics to multiple small customers including pick/pack/ship may increase demands upon the manufacturer/supplier in terms of fulfillment personnel.  Typically they are accustomed to shipping/delivery of bulk quantities of products rather than fulfilling multiple small quantities.
  • Issues related to product-loss, theft, and other shortages may pose serious financial risk upon both the eCommerce business and the manufacturer/supplier involved.  Who is responsible for insuring the cost of the inventory on-premise at the supplier/manufacturer? How will shortages, theft and product loss be deal with when the inventory is held by the supplier/manufacturer?
  • What obligations exist for the supplier/manufacturer to meet an increased demand for one or more products over and above the stock-on-hand, and in what 'priority' will such orders be filled from new production/manufacturing orders?

Over the next two installments we will look at two additional workflow alternatives that blend local fulfillment workflow with the manufacturer/supplier direct fulfillment workflow to one extent on another. Be sure to join us for 3rd-party Logistic Provider workflow in part 3, and eCommerce marketplace workflow in part 4 of this mini-series.