Home > Sell On Amazon > Warehousing and Order Fulfillment (Part 1)

Warehousing and Order Fulfillment (Part 1)

When you’re starting an eCommerce business, order fulfillment may not seem like something you have to spend a lot of time planning.  You just package the items up and ship them out, right?  And at first, when you don’t have many sales, this lack of planning may not matter much.  But when you have a lot of sales, order fulfillment can eat up your time and storage space, so you need a plan that allows you to scale up with your sales.

If you’re selling 10 or 20 different items, you can probably use your garage or spare bedroom for storage.  But what if you’re selling 1000?  Measure how big each item you plan to sell is.    Some items will sell better than others so you won’t stock the same number of every item, but assume for now you stock on average 5 of each item.  How much storage volume do you need to store 1000 different items?  Will it all fit in your house?

At some point it won’t all fit in your house, and you’ll need to find outside storage.  One possibility is to rent warehouse space.  When your sales volume is very large this is probably a good choice, you can get warehouse space fairly reasonably priced.  You can also set up a small ‘office’ area and work from there.  But you have to have a pretty large business before this is a good economical choice, until then it’s very expensive, and will drain cash that could be used to expand your business.

Another possibility is a storage facility, like Public Storage or Self Storage.  These work and are reasonably priced, but there are a couple of problems using them.

First, you have to go there with a stack of orders one or more times per day and select the items you need.  This adds delay to your order fulfillment, and one thing that is universally important to customers is time to receive their order.  You can count on this making some number of your customers unhappy, and it will cost you some future sales.

Second, the time you spend driving to the storage facility and back is not productive time.  When you have a large number of sales, you will always be short on time.  Eventually time spent driving to the storage facility will become a bottleneck to your business’ growth.

Third, over time people in the area of the storage facility will understand that you have a large amount of valuable merchandise there, and you may become a target for theft or robbery.  Insurance is necessary, and will help with the financial aspect of this, but it won’t help with your personal safety.

Early on I had planned to use a storage facility, but the above drawbacks prevented me from using them.

Rather than store the products yourself, another option is to use a fulfillment service.  These are companies which will warehouse your inventory, and pick, pack, and ship orders for you on your request.  I’m not endorsing any of these companies, you need to do your homework with any service provider and make sure they’re right for you.  These are just examples to get you started.

Some of the fulfillment services I’ve found include: Shipwire (www.shipwire.com), Webgistix (www.webgistix.com), ENL Global (www.enlglobal.com), and Amazon’s Fulfillment By Amazon (FBA) service (www.amazon.com).

You need to have reasonably good sales volume, and a good gross margin, for any of these services to make sense for you, otherwise all of you profit will be eaten up in shipping costs.  This is something to consider when you’re choosing products to sell.  If you’re just getting started and you’re fulfilling your own orders, you may be able to make a profit selling inexpensive items.  But when you try to scale your business up and want to use an outside fulfillment service, there’s a good chance you won’t be able to make a profit selling inexpensive items any more. 

Random Observations

I received an email from a customer on eBay who was unhappy about the description of the product on my product page.  One of the fields on eBay product pages is where the product was manufactured, and I had put down USA.  On the outside of the product box it said made in the USA, so this seems reasonable to me.  This customer was unhappy because when he opened the box, one of the components inside said it was made in China.  He would never have bought the product, he said, had he known any portion of it was not made in the USA.

He went on to say that if I didn’t give him a full refund, and let him keep the product, he would give me a scathing negative feedback on eBay.  There are certainly customers who only want to buy products made in the USA, but from his demands I suspect his only real purpose was to get a free product.

I replied that if he returned the product I would give him a full refund, including his shipping costs back to me, but I wouldn’t give him a refund and let him keep the product.  This is a fair resolution, if he was legitimately upset about buying a product not made in the USA it’s like the transaction never took place, at least from his perspective.  He kept the product and, true to his word, he gave me a scathing negative feedback (that didn’t actually mention anything about where the product was manufactured, it was just a long diatribe).  I reported him to eBay, though I doubt they did anything about it.

This person was the exception, not the rule, but there are a small number of people who will do things like this.  I do my best to have my customers feel they’ve been treated fairly, but I draw a line when it’s obvious they’re being dishonest.  Giving in to this person’s demands would have prevented a negative feedback, and negative feedback does affect sales, but it would also encourage him to do it again, both to me and other retailers.

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