For eCommerce startups, fulfillment strategy is a moving target. If you start small, your first fulfillment warehouse might 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 their location. You need fulfillment warehouses close enough to your customers to deliver products quickly. But you don’t want to spread your products among too many warehouse locations, or your inventory cost can go up.
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 10, 2021.
Where to put your fulfillment warehouse
Working with a single fulfillment center may be all you can handle when starting. Putting systems in place can all be a big lift when you’re 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 shipping warehouse is the best choice for you, you don’t have to choose local 3PL services. A warehouse location that’s close to your customers will serve your business better than one that’s close to you.
However, as your business grows, you will probably want to place your inventory in multiple warehouses. Once your business matures, you will find significant upsides to splitting your stock between two or more national eCommerce fulfillment warehouses.
Where are your eCommerce 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 out of a commercial building in Miami, Florida. At first, Toni sold her chocolate treats to local stores. Then she grew and moved into eCommerce, beginning to ship orders to customers. She expected most shoppers would be in Florida, but positive reviews quickly spread the word about her Macadamia Nut Surprise and Choco-Mango Madness. Before long, people across the United States started buying up her sweet treats.
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 felt positive. 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 new way to get candy to her hungry fans.
Her employees have been shipping orders directly from her production facility. However, they can’t manage 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 with warehouses serving both coasts and the heartland. That’s the best way to get her candies to her customers quickly. A speedy multi-warehouse strategy is crucial for Toni’s business because her products have a limited shelf life.
What about your business? Map where you commonly deliver eCommerce orders. Ask if customers cluster in certain areas or are spread out evenly across the country? These questions will help you determine the best fulfillment warehouse locations for your business.
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 platforms. If you fulfill orders for eBay or Amazon or compete with those platforms, 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, so the whole thing feels convenient. That desire is especially true 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 shipping. Thankfully, most consumers are still willing to wait a few days, so you don’t need a million products across a million warehouses to meet their demands. You just need a reliable partner with a few locations to help keep those customers happy.
Red Stag’s multi-warehouse strategy
At Red Stag Fulfillment, we established our first fulfillment warehouse outside 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 ship orders to the whole country more quickly.
So, we chose Salt Lake City, Utah, for our second warehouse. Red Stag Fulfillment can now ship orders to 96% of the continental United States within two days from those two locations. With just two strategically placed fulfillment warehouses, we can deliver faster, cheaper shipping for our clients. At Red Stag, we collaborate 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 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. The Salt Lake City warehouse of her 3PL company can get it to Susan in Seattle fast, and everyone is soon happy.
Multiple warehouses can cut 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 on the shipping zone distances, at least in part. The greater the distance between your fulfillment warehouse and your customer, the more zones your package will cross. That means a higher shipping cost. Reducing shipping zones is a core benefit of using a 3PL with multiple warehouses. Each order ships from the location closest to the customer, meaning you cut your shipping costs, 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 many 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 using a bi-coastal 3PL, you effectively are 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 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 ten 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 inventory and capital capabilities. That could cut into the growth of your eCommerce company by spreading revenue too thin.
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
Inventory management is the biggest challenge you’ll face when shipping from more than one fulfillment center. You’ll need to plan and think ahead to ensure the products your customers want are in the right place 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. 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 national fulfillment strategy will be most successful once you chart your customer buying patterns. Understanding habits will make it easy to distribute the right inventory to the right warehouse. Plus, you’ll start identifying patterns and know when to adjust for seasonal shifts or year-end sales booms. Your 3PL should help you perform this historical sales data 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.
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. Customer price sensitivity could change your calculation of the most economical fulfillment strategy.
- How vital is two-day delivery? If delivery time is crucial to your customers, fulfillment warehouse location is too.
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.