As a small business owner, you don’t need to be told that managing your company’s day-to-day operations—from business finances to logistics—can be a rewarding, yet exhausting responsibility.
After all, there is a finite amount of resources available—and lots to do. Learning to streamline as many processes as possible can help ensure you and your team are using your time wisely, while also keeping your customers satisfied. One such process that shouldn’t be overlooked is order fulfillment.
At a company’s inception, the order fulfillment process is often managed by one or two employees internally. With only a few new orders arriving each week, inventory may even be stored in a spare room, packaged on a kitchen counter, and shipped directly from a household mailbox.
But as a business grows, you’ll find that fulfilling hundreds of new orders per week is a much more complicated process.
For instance, while a brand-new startup can typically get by with storing their inventory in an office or garage, storing the thousands of units required to manage a nationwide customer base will likely require an actual warehouse. It will also require the expansion of one’s order fulfillment team from one or two employees to an entire department.
However, purchasing your own warehouse is prohibitively expensive for most small businesses. Hiring the specialized staff and implementing the technology required to manage warehouse operations adds further costs. But alternatively, many of the other options that exist, such as contracting a rentable warehouse space and outsourcing fulfillment services, require long-term contracts that are equally unaffordable.
Given these constraints, how can small-but-growing businesses upgrade their fulfillment structure to accommodate more customers and manage higher order volumes without overburdening their staff or exhausting their capital?
In this article, we’ll review the primary warehousing and fulfillment obstacles faced by small businesses today, identify what causes these challenges to occur, and then evaluate the leading strategies that can be used to overcome them.
Common Order Fulfillment Challenges That Small Businesses Face
There are three common pain points that routinely surface with small businesses that sell and ship physical products.
1. Sustained growth makes fulfilling orders and storing inventory in-house too strenuous.
As small businesses grow, one of the first operational pain points they experience revolves around the physical task of fulfilling orders. This challenge is often the result of two scenarios.
On one hand, any event that causes a sudden spike in new orders can create situations where existing staff are unable to keep up with customer demand. These scenarios are most common during holiday seasons such as Christmas, but similar situations can also occur as the result of a major industry promotion or partnership. While a surge in brand awareness and sales is great, this sudden uptick in demand can also be overwhelming and cause widespread backorders and delivery delays.
In addition to the above scenarios, order fulfillment strain can also arise as a result of prolonged business expansion. For small businesses that consistently achieve high double-digit or triple-digit revenue growth, the staff may go from fulfilling 30 to hundreds of orders per day in just a matter of months. And due to the pace at which this growth occurs, internal processes cannot evolve fast enough to accommodate the increased demand.
So what is the impact on small businesses?
For one, a strenuous order fulfillment workload takes away employee opportunities to focus on more strategic tasks, or to take a step back and find ways to improve upon their “current state.” It can also quickly lead to employee burnout if staff are forced to work overtime to handle excessive order requests, or if the products being picked and packed are heavy or bulky.
Also, as demand rises to the point where hundreds or thousands of new orders are processed each week, small businesses storing inventory in a house or office will almost surely run out of room and will be forced to acquire dedicated warehouse space, which is becoming an increasingly expensive endeavor. Finally, a time-consuming fulfillment process can result in consistent order delays if customer demand regularly exceeds staff capacity. This in turn leads to reduced customer satisfaction.
2. An inability to capture and analyze customer data leads to a lack of fulfillment efficiency.
As a business first begins selling their products, it is generally easy to track sales and order data via a few basic Excel worksheets. However, for companies that rise to the level of managing hundreds or thousands of orders per week from across the country or even the world, the sheer volume of new orders and complexity of sales data can be difficult to capture and analyze.
For example, it’s hugely advantageous if a small business can track where their customers are located, which products are selling the best, what their market’s seasonality is, and who finds their products most appealing. But without the proper skillsets or analytics capabilities, few small businesses can run this analysis on their own—especially not if they are attempting to analyze order data across numerous products and via a range of unique sales channels.
For small businesses that struggle to process their order data, the impact on warehousing and fulfillment can be substantial. On one hand, it becomes difficult to determine the optimal locations for warehouses and distribution centers in order to streamline the order delivery process. This represents a major issue if customers are demanding one- or two-day delivery and you need to place warehouses in locations that will reach the largest portion of your customer base in the shortest time frame.
In addition, a lack of insight into seasonal, locational, and product-centric sales data will impede your ability to identify how much inventory should be kept in stock across different product types and warehouse locations throughout the year. This can cause you to spend a disproportionate amount of capital on warehousing fees if you are maintaining excessive amounts of stock in your facilities.
However, while dealing with excessive warehousing and storage costs may be a burden, an even bigger threat arises from storing an insufficient amount of inventory. If you lack the proper insight to adequately project future sales volumes and end up stocking less inventory than what you need to satisfy new orders, it can result in regular stockouts and backorders to occur. If these stockouts become a regular theme for your business, customer satisfaction will likely drop, and your recurring revenue will be reduced.
3. Customer expectations for fulfillment evolve beyond the merchant’s capabilities.
Today, customer expectations for faster and cheaper shipping options (especially for ecommerce orders) put significant competitive pressure on small businesses. This pressure has grown more pronounced as companies like Amazon, Walmart, and Target introduce next-day and even same-day delivery for customers at little cost.
In a recent survey, nearly two-thirds of customers expected one- to two-day shipping for their online purchases. And many younger shoppers would pay extra for accelerated delivery options.
However, this customer emphasis on the speed of delivery doesn’t mean that the cost of shipping is suddenly irrelevant. In fact, unexpected shipping costs remain as the primary factor that deters online shoppers from completing a purchase. Approximately three in every four online shopping carts are abandoned before checkout, with unexpected or overly expensive shipping costs serving as the primary abandonment factor in one of every four cases.
Collectively, all of these studies point toward a need for businesses that are stuck on legacy fulfillment models to upgrade their processes in line with customers’ evolving expectations. Today, customers aren’t having to choose between “fast” or “cheap” delivery. They have come to expect both. As a result, companies with delivery models that take five or more days to reach customers or that charge excessively for expedited shipping are at a significant disadvantage.
As one- and two-day delivery becomes the new industry standard, businesses without these capabilities will continue to experience fewer recurring sales and will find their overall growth hampered as customers begin turning to competitors that can offer a higher degree of distribution efficiency.
For businesses experiencing one or all of these challenges and that are actively striving to improve, what options are available to them?
Three Ways Small Businesses Can Maximize Their Order Fulfillment Efficiency
As small businesses look for ways to either optimize their internal fulfillment process or cost-effectively outsource the function, the following list provides insight into several key factors that should be considered.
1. Know when, where, and how to outsource your fulfillment.
For small businesses that are struggling to store and fulfill orders in-house, there is an ever-growing list of options available for outsourcing.
Today, there are a variety of ecommerce platforms, on-demand fulfillment networks, and dropshipping solutions that all provide warehousing and fulfillment services on behalf of small businesses. Many of these providers guarantee one- to two-day shipping to customers on a merchant’s behalf and handle all workflows associated with storing, picking, and packing orders. For small teams, these outsourced capabilities go a long way in enabling the business to scale. To summarize the service models of these providers:
- Ecommerce marketplace/platform fulfillment: Ecommerce facilitators like Amazon, Shopify, eBay, and Walmart allow businesses to store the inventory they sell online at distribution centers owned by the ecommerce provider, who then manages all fulfillment workflows on the merchants’ behalf. These offerings operate exclusively for inventory sold on each provider’s respective site.
- On-demand warehousing: On-demand networks like Ware2Go provide a network of warehouses across the country that small businesses can use to store inventory closer to customers. This on-demand provider manages all pick, pack, and shipping services for the small businesses and guarantees shipping within one to two days for their customers. These offerings are channel-agnostic, meaning merchants can use the provider to store and fulfill orders occurring across any marketplace or platform, and also to fulfill orders to physical storefronts, wholesalers, and retailers.
- Dropshipping: The fulfillment method known as dropshipping is where a merchant never keeps any of their inventory in stock themselves. Instead, when a customer purchases a product, the merchant buys the product from a third-party supplier who then ships it directly to customer. Today, dropshippers can be deployed directly through Shopify’s application network or via a range of other channels. Offerings exist that are tied to both individual marketplaces, and that are channel-agnostic.
Essentially, each of the above providers is looking to create a nationwide distribution network (consisting of anywhere from 10 to over 1,000 warehouses) that guarantees fast shipping speeds for buyers, and they allow merchants to access portions of this warehouse space to store inventory as close as possible to their customers. They then manage all pick, pack, and shipping services on the merchants’ behalf.
The result? Small businesses save time and money by not having to purchase their own warehouses or manage the fulfillment process internally, and the provider makes money because they are able to service hundreds, if not thousands, of smaller merchants through a single network.
2. Create a structured and systematic process for capturing and analyzing customer data.
Today, the ability to leverage customer data to drive business improvement is something that significantly differentiates the leading companies from their competitors.
From a warehousing and fulfillment standpoint, understanding where your customers are located, what their shipping preferences are, which products are most popular, and how many new orders you receive per day, week, and month will allow you to strategically optimize the unique elements of your distribution network.
Accessing this data enables you to position your warehouses in the regions where most of your customers reside so that you can deliver orders faster, and it allows you to determine the exact amounts of inventory, by product type and time of year, to store at each location. This data can even be used to determine the ideal restock points for each product type, and the optimal transportation strategy for obtaining new inventory and shipping orders to customers.
As a result of these insights, businesses are able to drastically reduce their inventory carry costs and warehousing expenses, protect against stockouts, achieve faster delivery to their customers, and better understand how customer demand varies by product type, geographic location, and time of year.
So then, how should this data be gathered?
Depending on your business’s stage of growth, the type of solution will vary. However, what’s important is that your sales data is being captured in a consistent manner, and that you know how to transition to a more sophisticated platform as your order volumes grow and your customer base expands. To provide a brief summary of common order fulfillment analysis platforms:
- Excel spreadsheets: Tracking sales data in Excel is best for small businesses that are capturing a very limited amount of sales data, or for midsize companies with employees that are experts in Excel and that can manage a higher volume of inputs without causing entry errors or algorithmic inconsistencies. In many cases, sales and order data from more sophisticated systems can also be exported to Excel for customized analysis.
- Ecommerce order management platforms: Businesses that sell a significant portion of products online can use plugins or features on their ecommerce platforms (such as Shopify or WooCommerce) to keep track of new orders and identify the fastest-moving products. This data can also be exported from the system into Excel or another analytics platform with relative ease. However, orders placed offline (i.e. in physical stores or via wholesalers and distributors) won’t be captured by these systems, so additional processes may be needed to achieve comprehensive order visibility.
- Inventory/warehouse management systems: Businesses that capture hundreds or thousands of new orders every week, should implement a dedicated warehouse or inventory management system. These systems keep track of every product and SKU from the time it enters a warehouse, to the time it is purchased and delivered to a customer. As inventory turnover occurs, these solutions track the relevant metrics and provide integration between a company’s warehouses and back-office channels so that sales and order data can flow between various departments internally.
3. Understand your target market and adjust your fulfillment structure.
As a final fulfillment tip, it’s important to understand the exact preferences of your target market so that you can specifically tailor your workflows to match their expectations. This is important because across the full spectrum of today’s B2B and B2C shoppers, there are a wide range of preferences that exist.
For instance, while only 1% of baby boomers see same-day delivery as an important deliverable, 36% of consumers 22 or younger named it as a top influence in purchasing decisions. Thus, an organization that sells mainly to baby boomers will have an entirely different set of customer expectations regarding speed and cost of delivery than a company that sells mainly to Gen Z customers.
As another example, consider how a merchant that experiences most of their sales during the winter holidays should be more incentivized to provide faster shipping than a business that provides subscription-based packages on a scheduled timeline. Before holidays like Christmas, Google data shows that searches for “two-day shipping” spike by nearly 300%. Similarly, searches for “same-day delivery” more than double just before other holidays like Valentine’s Day and Mother’s Day. Ergo, a company that relies significantly on holiday shoppers to drive revenue should understand the impact that offering same-day or next-day shipping can have on their bottom line.
Ultimately, what businesses need to realize is that customer preferences for shipping and order fulfillment can vary widely by age, location, and time of year. And in order to match their customers’ expectations, businesses must first analyze their target market, identify their unique preferences, and then adjust their fulfillment process accordingly.
Maximizing Order Fulfillment: The Final Word
As small businesses experience growing pains with their fulfillment process, understanding what options and strategies are available for improvement is imperative. Although there is a broad variety of challenges that can surface, there is an equally vast number of cost-effective solutions accessible within the market. Businesses just need to be proactive in seeking them out.