Fulfilment strategies are unique to each business and should align with your business goals and the expectations for your end-customer. Based on our tenured experience and feedback from hundreds of customers, we have assembled this guide to help you determine a fulfilment strategy that works for you.
1 Before you begin
Some questions to consider about your customers’ goals and priorities:
- How important is speed after your customers’ orders drop?
- Is shipping cost a concern? Do your customers want free shipping?
- Do your products have a high percentage of returns?
- How quickly do your customers want to be credited back after the return?
- What experience do you want them to have as they open the box?
Legal & Compliance
Understanding taxation, business entity protocol and government regulations is important when looking at your fulfilment model. Requirements will vary based on country, but most countries require a tax ID or some sort of in-country registration in order to fulfil from that country. .
Methods of payment can vary greatly from country to country. Ensuring a partner or shopping cart supports relevant payment methods is critical as you look at global expansion. For some countries, the use of credit cards is not prevalent, other countries like China use payment methods like Alipay. For a comprehensive list of Payment Methods, visit Paypers
Transportation is a critical part of the overall direct-to-consumer experience because it is the touch point with a customer. During cross-border fulfilment, taxes, duties, VAT and others factors come into consideration and how they are handled can ultimately result in a positive or negative customer experience.
All of these components help to determine what fulfilment model makes sense for your business. By looking at single facility fulfilment, back-to-back fulfilment or regional fulfilment, you can determine which strategy will work for your business today, and how you may need to evolve as your business changes.
Some questions to ask when looking at shipping and your supply chain
- Do customers frequently make cross-border purchases?
- What is the carrier makeup in a given country?
- What is the time frame from order to delivery?
- What is the cost to service the customer?
3 Legal & compliance
Compliance is one of the most complex and often daunting topics for companies developing a fulfilment strategy. While the complexity of compliance varies from country to country, in this section you will learn some general terms and useful tools to help guide your learning.
When you hear an acronym associated with shipping, it is typically tied back to Incoterms. Incoterms are important, as they govern relationships between buyers and sellers and determine who carries what responsibility.
Incoterms fluctuate depending upon the nature of given relationship. For example, a merchant ordering from an OEM/manufacturer in Asia is most likely to use FOB/FCA terms, whereas an e-commerce customer ordering a product from another country will most likely use DDP terms. The International Chamber of Commerce (ICC) developed a standardised set of trade terms for international and domestic trade. Incoterms has a helpful guide to show you where the responsibility lies (with the buyer or seller) throughout the product journey.
You can access the International Chamber of Commerce site here
Import Export Country Regulations
The UPS Country Regulations Tool is a great resource to help you understand compliance requirements in different countries. You can search by country of origin and destination, and learn about commodity specific stipulations, prohibited items and documentation requirements. For example, if shipping cosmetics from Mexico to Portugal, you must have an import permit issued by INFARMED and a Certificate of Analysis.
The biggest cost in fulfilment is transportation. Transportation costs can be broken into a few different buckets, all which can increase cost per order.
Manufacturing & Inbound Transportation
Where you manufacture your product will impact not only your inbound transportation costs from manufacturer to fulfilment centre, but also your fulfilment strategy in general. For example, a company manufacturing in the Northeastern U.S. and fulfilling in same region will have a different strategy than a company manufacturing in China, importing into the Western U.S. via the Port of Long Beach and line-hauling across the country. When looking at international vs. domestic manufacturing, it is important to consider the added transportation and Customs clearance costs for your product.
Small Parcel Transportation
Small parcel transportation costs can vary based on the provider you use. Typically, providers are broken down into global/national carriers, regional carriers, postal consolidators and postal carriers.
Global and national carriers like FedEx, UPS and DHL are the primary parcel carriers. They have expansive footprints, robust tracking options and multiple shipping methods with day-definite deliveries. However, these added features come at a price. Global and national carriers are typically the most expensive and often have significant surcharges or accesorial costs on top of base rates.
Regional carriers or couriers have been increasing in popularity lately and provide different options for consumers. Regional carriers have a strong foothold in a region, are typically cost-effective and may be able to serve a larger area in a given region faster than a less-nimble global or national carrier. Multiple regional carriers may be needed to secure the coverage you need, and they often do not offer the same robust tracking and options you find with postal or national carriers.
Postal consolidators are another popular option for less time sensitive deliveries. Some examples in the U.S. are FedEx Smartpost, UPS Surepost and DHL Global Mail. They use the infrastructure of a robust parcel provider, however, the final mile delivery is executed by the local post office. Postal consolidators are a cost-effective solution, cover a massive network of mailboxes and their tracking capabilities have improved over the years. Postal consolidators will not be able to provide day-definite deliveries to end-customers and overall transit time may be lengthy.
Postal carriers are the local post office. In many countries, the capabilities of the post office have improved drastically with better tracking and more service options. Postal carriers may not be as focused on customer service and may not be as nimble as a global or national carrier.
5 We should just do it ourselves!
Fulfilment is possible to do on your own. Finding real estate, hiring someone to manage it, employing workers, setting up processes, buying systems — these are all things you can do yourself. However, there is a reason many of the world’s most innovative companies outsource their fulfilment to third-party logistics or fulfilment providers.
With outsourcing, you can leverage infrastructure, expertise and systems that are already in place. If the company is global, you can have a single partner with a single point of integration and global scalability. In most cases, customers will not know the order came from you or a fulfilment provider. For example, roughly 60% of merchants using our Shipwire order and fulfilment management platform opt for a fully branded customised packing list, giving the appearance that an order is shipped directly by the merchant rather than through one of Ingram Micro’s fulfilment centres.
Here are some common fulfilment strategies and scenarios and the benefits and challenges associated with each of them.
|Cost||Speed||Customer Experience||Complexity for Exporter||Earning Potential|
|Back to back||Low||High||High||Medium||High|
Business Maturity and Fulfilment Models
There is a direct relationship with a business' maturity and its fulfilment strategy. A low cost, short speed -to-market solution with a cross-border direct ship program is typically what startups use, since it doesn’t require a lot of capital and allows them to move quickly. As growth begins, so do customer expectations and a the customer experience and your earning potential become more valuable. Once markets are established and capital is available, setting up localised fulfilment is a less daunting endeavour.
6 Number of locations to use
Many companies are unsure of how many fulfilment locations to use. It’s important to consider the competitive landscape and customer expectations when determining your strategy. What is the service level you need to provide to be competitive? Single location fulfilment strategies work well for reaching small geographies. For example, from a single location in the UK, 99% of the population can be covered with next-day ground. For larger geographies (U.S., Canada, China, Brazil) usually at least two locations are needed to provide two-day ground coverage.
Single Location: Within the U.S., some companies will opt for a single centralised location that provides coverage to most of the domestic U.S. within three days. For example, our facility outside of Dallas can serve 95% of the U.S. population in three days via ground.
Multiple Locations: In places like Europe, some companies will have a location in mainland Europe and another location in the U.K. Another popular strategy is to have several locations to store high velocity SKUs, and a single centralised location that hosts the entire SKU library.
Our merchants using the Shipwire Platform typically use two or three fulfilment centres. These could be Ingram Micro locations or their own fulfilment centres. The table shows the average number of fulfilment centres used by merchants, according to industry vertical.
|Industry||Average Number of Fulfilment Centres|
|Apparel & Fashion||1.6|
|Health, Wellness and Fitness||2.5|
|Food & Beverages||2.2|
|Vitamins and Supplements||2.2|
Based on 2017 Data of Ingram Micro’s Shipwire Platform users
Understanding your customers and their rate of returns is critical to your fulfilment strategy. For example, apparel companies can expect a high return rate, while verticals like food & beverages may have a lower percentage of returns. Knowing your customers’ habits and expectations and how they may impact your business is important to consider when determining a returns strategy.
Source: Statista Survey
7 Single facility direct ship to your customer
What is it?
A single facility direct ship to your customer strategy provides fulfillment from a single location where your business is incorporated.
Who is a good fit?
This is a good solution for companies trying to get up and running as soon as possible. The product should have a small percentage of returns and/or have a customer base accepting of buying foreign products online. The image below from the PayPal Cross Border Study indicates comfort level of consumers by country when it comes to shopping cross-border. While a single facility direct ship strategy is one of the fastest ways to enter a market and gives you greater control, the table shows some of the challenges and benefits to this solution.
|Legal Considerations||No tax difference between domestic and international sales. Possible legal challenges due to lack of local know-how.|
|Payment Options||Varies based on country, but usually local payment options are not available, so customers must use an international credit card|
|Shipping & Supply Chain||Customer pays for shipping/duty and VAT. Shipping cost high. Generally long shipping (+7 days)|
|Competitive Advantage||Fast speed to market, but seen as a foreign player. Low sales and poor customer experience.|
Source: PayPal Cross Border Study
Customer Use Case: Greats Brand
Fulfilment Locations: Millington, TN (serving 92% of the U.S. in three days via ground shipping)
- Product: Shoes
- Channels: Online ecommerce store
- Carriers Used: FedEx
- Countries Shipping to: United States, Canada, United Kingdom, China, Australia, Italy, Germany
- Learn more in our case study
8 Back to back fulfilment
What is it?
Back to back fulfilment allows the fulfilment provider to take ownership of the product during import, alleviating the responsibility of duties, customs clearance, tax IDs and other requirements from the seller. It’s important to note that some companies who offer fulfilment may be able to able to serve as the ultimate consignee of your goods, eliminating the need for establishing a legal business entity within that country.
Who is a good fit?
Companies needing a regionalised approach or whose customers may be averse to shopping cross-border can give shoppers a localised feel without the headache of dealing with compliance and filing for tax IDs. This is also a good way to test a market for a few months or move quickly into a market while you are waiting on local government documentation.
|Legal Considerations||No tax difference between domestic and international sales. Legal challenges can be mitigated with right partner.|
|Payment Options||Local payment options|
|Shipping & Supply Chain||Local inventory and warehousing cost. Shipper doesn’t pay duty/VAT. 2-3 day shipping. Local transportation options enables more cost effective shipping.|
|Competitive Advantage||Fast speed to market, but success depends on partner selection. Cost of partnership.|
With back to back fulfilment, understanding when payment occurs can be difficult. The diagram below illustrates how it works for ACME Corp., a business that sells 40 orders of SKU A for $50 a unit, totalling $2000.
9 Regional fulfilment
What is it?
Regional fulfilment refers a regional or country-specific order fulfilment strategy.
Who is a good fit?
Regional fulfilment is a good option for companies looking for dramatic growth, and that can also support multiple websites, currency types and fulfilment centres.
|Legal Considerations||Own legal entity, legal differences (tax, HR, etc), accounting, staffing, sales ramp up. Domestic and international tax reported separately.|
|Payment Options||Local payment options|
|Shipping & Supply Chain||Local inventory and warehouse cost. Shipper doesn’t pay duty/VAT. 2-3 day shipping. Local transportation cost is similar to a back to back fulfilment model.|
|Competitive Advantage||Slower speed to market. Higher sales and higher operating costs/overhead. Higher risk of failure.|
Customer Use Case: Flow
- Fulfilment Locations: Australia, Canada (2), Hong Kong, Netherlands, United States (3)
- Product: Bee Hives and Accessories
- Channels: Marketplaces, online ecommerce store
- Countries Shipping to: United States, Canada, United Kingdom, New Zealand, France, Australia, Italy, Germany, Switzerland, Denmark, Taiwan, Sweden, Spain, Norway, Austria, Belgium, Ireland, Malaysia, Japan, South Korea, Portugal, Czech Republic, Poland, Thailand, South Africa, India, Romania, Bulgaria
10 Getting started checklist
- Assess short and long term goals for your customers and your business
- Determine your domestic, regional or global strategy, taking the following into consideration:
- Legal Considerations
- Payment Options
- Shipping & Supply Chain Considerations
- Returns and Refund Strategy
- Competitive Advantage
If you have decided to begin fulfilment in another region, review the compliance requirements and the market guide for that respective country.
Begin looking at whether you want to do fulfilment on your own or contract with a fulfilment provider in the area (most fulfilment providers can also provide transportation rates, and may provide better rates due to aggregate spend).
Determine a customer-centric and stable logistics partner who fits your long term strategy, can support your growth and understands your long term domestic and global goals.
Begin the process of securing sales channels or developing your own regionalized website and shopping cart.
- Establish a customer support strategy for your website.
For more information: www.ingrammicrocommerce.com/contact