Previously I had discussed the benefits of drop-shipping inventory as opposed to a merchant buying it all up front and having to take care of the shipping. In this article, I’m going to go over another option, which can be thought of as in between drop-shipping and the merchant doing everything themselves.
This option involves using something called a fulfillment center.
What are fulfillment centers?
Fulfillment centers are companies with warehouses. If a merchant does not want, or can’t afford the space, to store products he buys to sell, he can use a fulfillment center to store his products. Fulfillment centers typically have multiple warehouses positioned around the country or world.
A couple of examples of fulfillment companies are Fulfillment By Amazon, which utilizes the network of warehouses Amazon already has in place, and ShipWire. There are a lot of similarities between fulfillment centers and drop-ship vendors, but the main difference is that with a drop-shipper, the merchant doesn’t own the products, whereas he does own everything he stores in a fulfillment center.
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Storage and Logistics
One of the main benefits of fulfillment centers is the ability to purchase stock and not have to store it yourself. This is generally good for merchants who either want to stock items from suppliers that won’t drop-ship, or if they are able to get better prices from being able to purchase in large quantities themselves as opposed to passing on orders to the drop-shipper for fulfillment.
Running a warehouse efficiently is actually a science and is difficult to master. There are all sorts of warehousing theories, such as wave-picking that can be utilized to more efficiently gather products from shelves to ship on an order. Fulfillment centers make it their business to know the latest methods in efficiency when storing and moving products so merchants don’t have to worry about learning this right away.
The other big benefit of fulfillment centers relates to shipping. This is similar to the benefit of drop-shippers because the merchant doesn’t have to worry about the actual shipping, and can have the option of letting the fulfillment center work out better rates with the major shippers because they have so much quantity going out. They would normally use this negotiating power to keep costs down for the merchants, who are their clients.
Another benefit of fulfillment centers is that they can save on shipping costs by allowing merchants to send products to appropriately located warehouses to cut down on shipping time. Most fulfillment centers allow merchants to provide branded packing slips to send to the customer with the orders as well. The ways in which an order can be transmitted to a fulfillment center varies as much as it does with drop-shippers. It could be email, a direct integration between the two companies’ software, or it could be a fax or phone call. It just depends on the fulfillment center.
These are some of the major benefits of fulfillment centers for e-commerce merchants. More independent than drop-shipping, but without the full responsibility and cost of storing and shipping products yourself, fulfillment centers are a good middle ground. And they are a good solution if you want to have a storage facility in various places around the world.
What other fulfillment companies have you worked with? What have your experiences been?
This post was previously featured on April 17, 2013.