For eCommerce startups, fulfillment strategy is a moving target. If you start out small, your first fulfillment warehouse may be your spare bedroom or garage. As you grow, you might rent warehouse space and hire staff to pick, pack, and ship your orders. Eventually, you’ll probably outsource your storage and shipping to a fulfillment warehouse.
When you choose your fulfillment provider, an important consideration is location. You need fulfillment warehouses close enough to your customers to get your products delivered quickly. But you don’t want to spread your products among too many warehouses, or your inventory cost can go up.
Here is a guide to help you develop your fulfillment warehouse plan.
Fulfillment Warehouse Strategies
When you are first getting started, working with a single fulfillment center may be all you can handle. Putting systems in place can all be a big lift when you are new to eCommerce. In addition, it can be hard to split your stock between multiple warehouses until you establish sales patterns.
If you decide that a single fulfillment warehouse is the best choice for you, you don’t have to choose a local 3PL provider. A fulfillment center that’s close to your customers will serve your business better than one that’s close to you.
As your business grows, however, you will probably want to place your inventory in multiple warehouses. Once your business matures, you will find that there are big upsides to splitting your stock between two or more national fulfillment warehouses.
Where Are 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 Tropical Treats Candy Company out of a commercial building in Miami, Florida. At first, Toni sells her chocolate treats to local stores. Then she moves into eCommerce and begins to ship orders. She expects that most of her customers will be in Florida but good reviews quickly spread the word about her Macadamia Nut Surprise and Choco-Mango Madness. Before long, people across the United States are clamoring for her sweet treats.
Traffic on Toni’s site is up, but so is her shopping cart abandonment rate. She gets comments about her candy being “worth the wait.” Toni realizes that high shipping costs and long delivery times may be costing her sales. That could be fatal to her growing eCommerce candy business. She needs a different way to get candy to her hungry fans.
Her employees have been shipping orders directly from her production facility. However, they can’t handle the volume anymore. Toni realizes that a fulfillment warehouse in Miami won’t solve her fulfillment problem. She needs to look for a centrally-located fulfillment warehouse. She needs a 3PL service provider that has warehouses serving both coasts and the middle of the country. That’s the best way to get her candies to her customers quickly. A multi-fulfillment warehouse strategy is particularly important for Toni’s business, since her products have a limited shelf life.
Map where your eCommerce orders are delivered. Are your customers clustered in certain areas or spread out evenly across the country? Answers to these questions will help you determine the best fulfillment warehouse locations for your business.
Fulfillment Warehouse Location and Delivery Time
Shipping that takes a week or more may be acceptable if you have a lock on a niche market. However, long ship times can cost you sales, especially if you sell on one of the big platforms. If you’re on Amazon or eBay or compete with those platforms, fast delivery is a must.
ECommerce consumers treat online shopping not much differently than going to the store. They want to order one day and receive their order within a couple of days. This is particularly true for online businesses that sell everyday necessities. When consumers buy the kinds of goods shoppers once bought at grocery or general store online, they want it fast. ECommerce is moving 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 shipping. In the future, an Amazon drone may drop off your purchase within a couple of hours.
One Fulfillment Provider’s Multi-Warehouse Strategy
At Red Stag Fulfillment, we established our first fulfillment warehouse outside of Knoxville, Tennessee. From there, we can ship our clients’ orders to almost every location east of the Rockies within two business days. As our fulfillment business grew, we realized we needed to be able to ship orders to the whole country more quickly.
We chose Salt Lake City, Utah as the location of our second warehouse. From those two locations, Red Stag Fulfillment can now ship orders 97% of the continental United States within two days. With just two strategically-placed fulfillment warehouses, we can deliver faster, cheaper shipping for our clients. At Red Stag, we work with every client to develop the best fulfillment strategy for their eCommerce business.
To see how this type of strategy works in action, let’s look at an example. Charlie in Charleston needs to get a make-up gift to his long-distance sweetie in Seattle. He’s going to 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. The West Coast warehouse of her 3PL company can get it to Susan in Seattle the next day. Now everyone is happy.
Multiple Fulfillment Warehouses and Shipping Costs
Free shipping is the favorite option of online shoppers. Reasonable shipping charges probably won’t kill your sales. However, shipping costs that add significantly to the cost of ordering online can end your chance at a sale.
UPS and FedEx base their shipping rates, at least in part, on zone. The greater the distance between your fulfillment warehouse and your customer, the more zones your package will have to cross. That means a higher shipping cost. This is a big benefit of using a 3PL company with bi-coastal warehouses. Each order can ship from the location closest to the customer. You save on shipping and the customer gets the order faster.
Dividing Your Inventory
There is a cost to using more than one warehouse. You will need to ship your inventory in bulk to two locations to stock both warehouses. But the cost per unit to ship pallets on a cross-country truck is more than offset by what you save on shipping. The shipping cost you save on each order makes bi-coastal fulfillment a net gain.
An industry term for moving inventory closer to the final delivery address is zone skipping. You can place a bunch of orders in bulk on a truck and drive across several zones. Then you deliver your stock to a carrier for regional or local delivery. When you use a bi-coastal 3PL provider, you are effectively zone skipping with your merchandise.
Dividing your inventory among multiple warehouses can also help you achieve the gold standard of eCommerce: free shipping. Free shipping is the best way to put a smile on your customer’s face and a click in their fingers. Warehouses closer to your end consumer, make free shipping pencil out. You can save enough on shipping costs to offer free shipping on some or all of your items. Bi-coastal fulfillment can boost your bottom line by increasing your sales.
How Many Fulfillment Warehouses are Too Many?
Depending on the fulfillment company you choose, you may be able to place your stock in many warehouses across the country. One fulfillment warehouse may be too few. But spreading your stock across 10 warehouses could stretch your inventory and your resources too thin. If your strategy is to reach as many customers as possible with one-day delivery, the investment may be worth it. On the other hand, too many locations could expand your business beyond its carrying capacity. That could cut into the growth of your eCommerce company.
The best fulfillment service provider for you is one that fits your fulfillment strategy. Find one with fulfillment warehouse locations that fit with your fulfillment plan.
Managing Fulfillment Warehouse Inventory
The biggest challenge when you ship from more than one fulfillment center is inventory management. You’ll need to plan and think ahead to make sure the products your customers want are in the right place at the right time.
What if Toni’s Cacao Bites sell like crazy in California and her West Coast fulfillment center runs out? Meanwhile, the chewy treats are sitting on the shelf in her East Coast warehouse growing stale.
The answer to this dilemma is a thorough understanding of your business. Document the seasonality of your sales. Look for patterns in sales by region. A bi-coastal fulfillment strategy will be most successful once you can chart your customers’ buying patterns. This will help you distribute the right inventory to the right warehouse at the right times. A good 3PL fulfillment provider can help you review your past sales. That will give you the information you need to 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 get extra pallets of that candy from her East Coast fulfillment warehouse to her West Coast warehouse, fast. But that’s a good problem to have.
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 one of the most vital. 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.
- What do my customers want and expect?Does your business pride itself on top-notch service? Or is speed more important?
- How important is free shipping?Add the cost of free shipping to your cost of goods sold. This could change your calculation of the most economical fulfillment strategy.
- How important is two-day delivery? If delivery time is important to your customers, fulfillment warehouse location is crucial.
A winning fulfillment plan will deliver the service and speed your customers expect. At the same time, your fulfillment strategy needs to meet the needs of your business. Controlling fulfillment costs will help your business thrive and grow.