For eCommerce startups, fulfillment strategy is a moving target. If you start small, your first fulfillment warehouse might be a spare bedroom or garage. As you grow, you may rent warehouse space and hire staff to pick, pack, and ship your orders. Eventually, you’ll probably outsource your storage and shipping to a 3PL services provider.
When you’re ready to partner with a third-party fulfillment warehouse, location is the most critical consideration. You need a fulfillment warehouse or warehouses close enough to your customers to deliver orders quickly. But you don’t want to spread your products among too many warehouse locations because that will complicate your inventory management and increase your carrying costs.
Here is a guide to help you develop a fulfillment warehouse plan.
This blog was originally published on July 27, 2019. It’s been updated to reflect current best practices and capabilities as of December 20, 2022.
Best location for your fulfillment warehouse
Working with a single fulfillment center is an excellent way to start your 3PL journey because it can be hard to split your stock between multiple warehouses until you establish sales patterns.
Pro tip: If you decide that a single shipping warehouse is the best choice, you don’t have to choose 3PL services local to you. A warehouse location that’s close to your customers will serve your business better than one that’s near your headquarters.
However, as your business grows, you will probably want to place your inventory in multiple warehouses. Once your business matures, you’ll find significant upsides to splitting your stock between two or more national fulfillment warehouses, including faster order fulfillment and lower shipping costs.
Get close to your customers
Your multi-location fulfillment warehouse strategy will largely depend on where your customers are. Let’s start with a hypothetical example. Toni runs her Tropical Treats Candy Company from a commercial building in Miami, FL. At first, Toni sold her chocolate treats to local stores. Then she grew and moved into eCommerce, beginning to ship orders directly to consumers. She expected most of her shoppers would be in Florida, but positive reviews quickly spread the word about her sweet treats. Before long, people across the United States started buying up her Macadamia Nut Surprise and Choco-Mango Madness.
Toni’s site traffic is up, but so is her shopping cart abandonment rate. She gets many comments about her candy being “worth the wait,” but not all are positive. Toni realizes that high shipping costs and long delivery times may cost her sales. That could be fatal to her growing eCommerce candy business. She needs a new way to get her products to her hungry fans.
Her employees have been shipping orders directly from her production facility. However, they can’t manage the volume anymore, and Toni realizes that a fulfillment warehouse in Miami won’t solve her fulfillment problem. She needs a centrally located fulfillment warehouse that can provide fast eCommerce fulfillment for customers across the U.S.
This growing business needs a 3PL with warehouses serving both coasts and the heartland to get her candies to her customers quickly. A speedy multi-warehouse strategy is particularly crucial for Toni’s business because her products have a limited shelf life.
What about your business? Map where you commonly deliver online orders. Are your customers clustered in certain geographic regions, or are they spread out evenly across the country? These questions will help you determine the best fulfillment warehouse locations for your brand.
Fulfillment warehouse locations and delivery time
Shipping that takes a week or more may be acceptable if you have a lock on a niche market. However, long fulfillment times can cost you sales, especially if you sell on one of the big marketplaces where competition for the Buy Box is fierce. If you list products on eBay or Amazon or compete with those marketplaces, fast delivery is a must.
ECommerce consumers treat online shopping like going to the store — because we’re all eCommerce shoppers now. We want to order something today and receive it within a couple of days, and that desire is especially strong for everyday necessities.
So, eCommerce has moved closer to offering consumers the satisfaction of getting a purchase right away. As usual, Amazon leads the trend with one-day and even same-day delivery options for some products. Amazon executes this incredibly fast order turnaround by running a vast and complex logistics operation that includes sophisticated demand forecasting and a large network of warehouses. Amazon sellers can tap into that network by using Fulfillment by Amazon. However, FBA has significant downsides.
Thankfully, most consumers are still willing to wait a few days, so you don’t need Amazon-level logistics to meet their demands. You just need a reliable partner with a few locations to help keep those customers happy.
Red Stag Fulfillment’s multi-warehouse strategy
At Red Stag Fulfillment, we established our first fulfillment warehouse outside Knoxville, TN, and we’ve recently added significant capacity with new warehouses in nearby Sweetwater, TN. From there, we can ship our clients’ orders to almost every location east of the Rockies within two business days.
But, as our fulfillment business has grown, we have expanded our fulfillment warehouse locations to better serve our clients. We chose Salt Lake City, UT, for our second warehouse because of its excellent access to the West Coast and interior west.
From these strategic fulfillment warehouse locations, Red Stag Fulfillment ships orders to 96% of the continental United States within two days. We deliver faster, cheaper shipping for our clients while keeping inventory management simple because we’ve discovered that you don’t need warehouses near every major metropolitan center to deliver the level of service that online shoppers expect. You simply need same-day fulfillment to get orders delivered quickly, so we offer service levels that get your orders out the door the same day your customer makes a purchase.
To see how this strategy works, let’s look at an example. Charlie in Charleston needs to get an apology gift for his long-distance sweetie in Seattle. He will choose the company that can ship a big box of “I’m sorry” chocolates the fastest. Now that Toni has bi-coastal fulfillment, Charlie is more likely to choose her Tropical Treats. Her quick delivery gives her an edge over her competitors because her Salt Lake City 3PL warehouse can deliver to Susan in Seattle in under two days. She made a sale and Charlie saved his relationship.
Leveraging multiple warehouses to build a thriving online business
Free shipping is the favorite option of online shoppers, though reasonable shipping charges probably won’t kill your sales. However, shipping costs that add significantly to the price tag of an online order can lead to abandoned shopping carts and lower sales growth. Keeping your shipping costs as low as possible is essential to the success of your eCommerce business.
Here are some other ways to use multiple fulfillment warehouse locations as a foundation for a growing eCommerce enterprise.
Reduce shipping zones
UPS and FedEx base their shipping rates on shipping zones, at least in part. The greater the distance between your fulfillment warehouse and your customer, the more shipping zones your package crosses, which means a higher shipping cost. Reducing shipping zones is a core benefit of using a 3PL with multiple warehouses because each order ships from the location closest to the customer. And, while you cut shipping costs, the customer also gets their order faster.
Dividing your inventory
There is a cost to using more than one warehouse because you need to ship your inventory in bulk to two locations instead of one. However, the cost per unit to ship pallets on a cross-country truck is more than offset by what you save on shipping individual orders. If you offer free or reduced-cost shipping, you’ll reap those savings. If your customers pay for shipping, you’ll make your store more appealing and increase conversions by offering lower shipping charges.
An industry term for moving inventory closer to the final delivery address is zone-skipping. It’s the process of palletizing many orders together and shipping in bulk across several shipping zones. Freight costs less than the delivery charge for individual orders, and when you deliver your stock to a carrier for regional or local delivery, your orders pass through fewer zones, leading to a lower delivery charge. When you use a bi-coastal 3PL, you are effectively zone-skipping with your merchandise.
Dividing your inventory among multiple warehouses can help you achieve the gold standard of eCommerce: free shipping. Free shipping is the best way to put a smile on your customer’s faces and a click in their fingers.
Warehouses closer to your end consumer can make free shipping pencil out because you save so much on shipping costs. Bi-coastal fulfillment can boost your net revenue by giving you the option to provide free shipping, thus increasing your sales.
How many fulfillment warehouses are too many?
Depending on the fulfillment company you choose, you may be able to choose among many warehouses across the country and place your stock in one or many locations.
One fulfillment warehouse may be too few, but spreading your stock across 10 warehouses could stretch your inventory and resources too thin. If your strategy is to reach as many customers as possible with one-day delivery, the investment needed to place stock in a large number of fulfillment warehouses may be worth it. But beware: Using too many warehouses could expand your business beyond its inventory and capital capabilities.
Managing fulfillment warehouse inventory
Robust inventory management is always critical, and it’s even more essential when you process orders from more than one fulfillment center. You need to plan and think ahead to ensure that the products your customers want are in the right warehouse at the right time.
What if Toni’s Cacao Bites sell like crazy on the West Coast and her fulfillment center in Utah runs out? Meanwhile, other tasty treats are sitting on the shelf in her East Coast warehouse, growing stale. In fact, she could increase her shipping costs and delivery time if she runs out of stock in one warehouse and has to ship orders across the country from the other.
To avoid stockouts and backorders, start with a thorough understanding of your business:
- Use inventory management software to gather and analyze sales data.
- Document the seasonality of your sales.
- Look for patterns in sales by region.
- Update your inventory analysis often to spot emerging trends and stay ahead of them.
- Use inventory forecasting to predict future demand and place your products accordingly.
Understanding your customer’s buying habits will help you distribute the right inventory to the right warehouse. Plus, you’ll start identifying patterns and adjusting for seasonal shifts or year-end sales booms. Your 3PL should help you perform an inventory analysis and map out the best way to stock multiple fulfillment centers.
Of course, there will always be unexpected developments. Maybe Donnie in San Diego writes a funny Facebook post about his obsession with Toni’s Date Nut Delights. The post goes viral. Toni needs to quickly get extra pallets of that candy from her East Coast fulfillment warehouse to her West Coast warehouse. But that’s a good problem to have and one she can quickly solve.
What fulfillment strategy is right for your eCommerce business?
Fulfillment may not be the most exciting part of your eCommerce business plan, but it’s at the heart of your brand’s success. When your fulfillment runs smoothly, your business does too.
When you choose a fulfillment warehouse provider, consider these questions:
- What is the most economical choice? Factor in long-term as well as short-term costs. Calculate your order fulfillment costs against the expense of trucking your products to multiple warehouses. Consider error rates and other issues that could affect consumer satisfaction and loyalty — those are costs, too.
- What do your customers want and expect? Does your business pride itself on top-notch service? Is fast delivery vital to them?
- How important is free shipping? Customer price sensitivity could change your calculation of the most economical fulfillment strategy once you add the cost of free shipping into your pricing model.
- How vital is two-day delivery? If delivery time is crucial to your customers, fulfillment warehouse location is too.
Red Stag Fulfillment helps eCommerce companies develop winning fulfillment warehouse strategies with one of the highest accuracy rates in the industry and our order fulfillment guarantees. We work with each client to establish a fulfillment process that keeps your customers happy and controls costs.
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