Once you launch an ecommerce store, one of the key decisions you make is how do you go about fulfilling your orders. And most business pick in-house fulfillment – because it is the obvious, most intuitive way to fulfill your orders. There are several advantages to this approach.
Firstly, it is the easiest to get started. For most ecommerce entrepreneurs, their living room is their first fulfillment center. There is no initial investment needed – to rent space or to hire people. This is the quintessential lean way to get started with a business. As business picks up, you can have friends and family help out, move your ‘fulfillment center’ to your garage. And once you do get to higher, sustained sales you can move to a real warehouse and hire some full-time employees.
Secondly, this approach gives you total control of your fulfillment and consequently your business. You get to ensure the order quality, use your branding on packing slips and even boxes if you choose. This is especially important if you are looking to differentiate your business using your fulfillment process. Few examples of such differentiation include hand written notes, coupon codes for re-marketing or special packaging.
Moreover, having in-house fulfillment lets you react faster to changing demand – Llama T-shirt selling like hot cakes? Purchase more to re-stock quickly. DVDs of the latest transformers moving too slow? Run a marketing special. Notice customers buying the similar groups of products? Prepackage them together to save on packaging and even shipping.
Another (not so obvious) reason to go with the in-house fulfillment approach is returns. As any successful entrepreneur will tell you – customer feedback is very important to business, especially when you are starting off. For online retailers there is no better feedback than returns. Understanding your returns gives you valuable insights on what customers don’t like about your orders and enable you to react quickly. Damaged returns mandate better packaging, incorrect items need better quality control on picking and packing, unsatisfactory products may need you to remove them from your store, etc.
While there are several good things about the in-house fulfillment approach, there are some drawbacks that you need to be aware of as well. Having your own warehouse (apart from your living room or garage) needs some investment, both upfront (security deposits) and ongoing (rent, insurance, etc). Doing your own fulfillment is busy work and it does take away your time away from other, more productive tasks you could be doing such as talking to customers, running ads for your products, bringing more traffic to your website, etc
And just like your time, the same thing applies to your money. Having inventory in-house is like having loads of cash sitting in your warehouse. When you do buy and stock inventory beforehand, you are essentially using up money that you could use on promoting your product and website.
While there are several benefits of this simplest of approaches to fulfillment, being aware of tradeoffs you are implicitly making can help you make more informed decisions when you go about growing your business.