The global ecommerce industry has experienced explosive growth over the past few years. Online sales – which hit a record of US$4.1 trillion last year – are expected to increase by over 50% annually over the next three years to reach $7.4 trillion dollars in 2025.
This rise in sales volume has brought with it a rise in complexity, costs, and competition for ecommerce businesses.
In order to meet customer expectations for on-time delivery every time and increase profit margins and market share, ecommerce companies have to overcome numerous order fulfillment challenges.
Tackling these order fulfillment challenges is no easy task – and so many ecommerce businesses turn to third-party logistics (3PL) providers to help them with various elements of their warehousing, inventory management, and fulfillment operations.
In this article, we will highlight the five biggest order fulfillment challenges that ecommerce companies face, and discuss how a 3PL provider can help you overcome these challenges.
Order fulfillment challenge #1: Avoiding stockouts
Perhaps the most significant order fulfillment challenge that ecommerce companies have to deal with is preventing stockouts, which occur when inventory of a particular product is not available to be sold or shipped to a customer.
Stockouts are every ecommerce company’s worst nightmare, as they can not only lead to a drop in sales, but can also damage customer trust and loyalty. Unfortunately, these events are all too common, with the out-of-stock rate for ecommerce firms hovering around 8% on average and rising to 10% for sale items.
The causes of stockouts vary, ranging from sudden spikes in consumer demand to supply chain bottlenecks and disruptions to cash flow management and supplier payment issues.
To avoid stockouts, many ecommerce companies employ inventory buffers (or safety stock) – but this strategy often results in higher amounts of excess inventory and higher inventory costs.
A 3PL provider – like Amazon Multi-Channel Fulfillment (MCF) – can help you prevent stockouts (while reducing inventory costs) by driving improvements in two key areas:
The leading 3Pls out there have access to best-of-breed demand planning software tools. By partnering with these providers, you can leverage these AI- and ML-based technologies to accurately forecast demand and optimize inventory levels across your supply chain network during peak season and throughout the rest of the year.
3PL providers (like MCF, which has a global network of fulfillment centers and warehouses) can help you:
- Position the right amount of the right products in the right locations at the right times – so that you can meet demand and minimize storage and shipping costs.
- Consolidate your inventory into a single global pool, which you can utilize to fulfill orders across various sales channels.
- Enable auto-replenishment of out-of-stock products by automatically redistributing your stock when inventory levels run low.
Order fulfillment challenge #2: Minimizing order processing time
Delivering goods to customers rapidly and reliably is the cornerstone of successful ecommerce fulfillment.
To do this, ecommerce companies must be able to minimize the order processing time – the amount of time it takes to receive an order, and then pick and pack it for shipment by a carrier. Many ecommerce businesses put in place a 2 to 3-day processing time window, giving themselves a pad to ensure they can meet their delivery promises to customers. But most customers hate to wait – and want to get their goods as quickly as possible.
Indeed, it’s a constant struggle for ecommerce companies to reduce the time between order received and order processed – and this is largely due to the fact that many third-party carriers have rigid cut-off times after which orders won’t be processed on a daily basis.
A 3PL can help you decrease your order processing times and improve your delivery performance by:
- Operating around the clock, throughout the year so that orders can be processed as soon as they are received (even on weekends or
- Extending order cut-off times so that items can be shipped throughout the day and night.
- Offering shipping services – so that you don’t have to rely on third-party carriers and adhere to their cut-off times.
- Conducting pick, pack, and ship operations as seamlessly as possible – to minimize the amount of time between orders being received and processed.
Order fulfillment challenge #3: Integrating back-end systems
Another major challenge that ecommerce companies have to grapple with is difficulties in integrating the various back-end systems that they rely on to run their operations. Often what happens is that warehouse management systems or WMSs (software applications that help ecommerce firms manage their fulfillment operations, including order receiving, stock locating, picking, packing, and shipping) do not communicate well with other back-end systems such as enterprise resource planning (ERP) systems and manufacturing execution systems (MESs).
This lack of integration and real-time data sharing between back-end systems can lead to a loss of visibility over order volumes and inventory levels – and can ultimately result in poor inventory management and delivery performance.
A 3PL can help you to drive integration and alignment across your various back-end systems by:
- Employing best-of-class WMS systems, which can be easily deployed in your IT infrastructure with powerful APIs and apps.
- Enabling real-time data feeds into and flows through your various systems.
- Ensuring that your WMS, ERP, and other systems are in sync and can communicate effectively with each other – so that you can attain an accurate, holistic view of current demand and supply conditions, monitor and manage inventory levels, and track orders across multiple sales channels.
Order fulfillment challenge #4: Managing multi-unit orders
Multi-unit orders – which are orders that contain two or more items – present a huge challenge for ecommerce companies.
Coordinating the picking of multiple items (which may be located in different places in the warehouse or in entirely different warehouses) and packing these items together in a single shipment to be sent to the customer by a specific delivery date can be a highly complicated task.
A 3PL can help you more efficiently handle multi-unit orders by:
- Automating and streamlining the process of picking, packing, and shipping of multi-unit orders with sophisticated WMS systems and cutting-edge warehouse robotics and IoT technologies.
- Consolidating your inventory into a global pool, which you can draw from to fulfill multi-unit orders.
- Reducing the complexity of managing multi-unit orders as well as the shipping costs. Some 3PLs – like MCF – even offer discounts on multi-unit orders.
Order fulfillment challenge #5: Handling seasonal spikes and supply chain volatility
Ecommerce companies today have to cope with volatile supply chain dynamics caused by seasonal spikes in demand as well as supply shortages and disruptions due to COVID-19, weather events, and other factors.
The key to managing this supply chain volatility is to be prepared with the necessary capacity, inventory, and end-to-end visibility and agility.
A 3PL can help ensure you’re equipped to deal with seasonal spikes and constantly changing supply chain conditions by:
- Predicting surges in demand and shortages in supply before they happen using sophisticated demand planning and forecasting tools.
- Providing enough logistics capacity – from storage space in the warehouse to order processing resources and delivery transportation – to handle fluctuations in demand and supply.
- Automatically replenishing inventory and reallocating capacity to satisfy demand wherever and whenever it arises.
Conquering challenges, capitalizing on opportunities
The global ecommerce industry has registered breathtaking growth over the past few years, and this trend looks set to continue in the years to come.
This growth has opened up tremendous opportunities for ecommerce firms, but it has also created significant challenges in order fulfillment and other areas.
To capitalize on the opportunities and conquer the challenges in today’s business environment, many ecommerce companies have partnered with 3PL providers.
Working with a 3PL can help your business tackle the logistics challenges that come your way – so that you can consistently deliver for your customers, decrease your operating costs, and drive bottom-line growth.