You’ve chosen your market and need to work out what is required once you’re selling. How do your target customers receive their orders? What needs to be in place for this to happen, and can it be outsourced? You’ll need to think about a unique fulfillment strategy that aligns with your business goals and the expectations of your target customer.
To understand the different fulfillment options available to you and which fulfillment strategy works best for your short and long term goals.
2 What is fulfillment?
Fulfillment is the process of executing customer orders by preparing them for delivery. This could involve warehouse pickup, labeling, packaging, or any measures you need to take to get the order to the customer.
When you enter a new market, you’ll need to think about a unique fulfillment strategy that aligns with your business goals and the expectations of your target customer. 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 and compliance
Understanding taxation, the business vehicle you’re using and government regulations is important when looking at your fulfillment model. Requirements will vary based on country, but most countries require a tax ID or some sort of in-country registration in order to fulfill 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, while other countries like China use payment methods like Alipay. For helpful information about tackling international payments, check out the Payments section of Market Finder.
Transport is a critical part of the overall customer experience because it is the touch point with a customer. During international fulfillment, taxes, customs duties, VAT and others factors come into consideration, and how you handle them can ultimately result in a positive or negative customer experience.
All of these components help to determine what fulfillment model makes sense for your business. By looking at single facility fulfillment, back-to-back fulfillment or regional fulfillment (discussed below) you can determine which strategy will work for your business today, and how you may need to evolve as you continue growing.
Some questions to ask when looking at shipping and your supply chain
- Do customers frequently make cross-border purchases?
- What are the carrier options in your target market?
- What is the time frame from order to delivery?
- What is the cost to service the customer?
The biggest cost in fulfillment is transport. Transport costs can be broken into a few different buckets, all of which can increase cost per order.
Manufacturing & inbound transport
Where you manufacture your product will impact not only your inbound transport costs from manufacturer to fulfillment center, but also your fulfillment strategy in general. For example, a company manufacturing in the Northeastern U.S. and fulfilling in the 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 versus domestic manufacturing, it is important to consider the added transport and Customs clearance costs for your product.
Small parcel transport
Small parcel transport costs can vary based on the provider you use. Typically, providers are broken down into global and national carriers, regional carriers, postal consolidators and postal carriers.
Global and national carriers
Global and national carriers like FedEx, UPS and DHL are the main parcel carriers. They have global footprints, good tracking options and multiple shipping methods with day deliveries. However, these added features come at a price. Global and national carriers are typically the most expensive and often have significant surcharges or extra 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 global or national carrier. Multiple regional carriers may be needed to secure the coverage you need, and they often do not offer the same standard of 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 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 deliveries to your 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 Can I do it on my own?
Fulfillment 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 fulfillment to third-party logistics or fulfillment providers.
Outsourcing is efficient because you can use the company’s infrastructure, expertise and systems that are already in place. If the company is global, you can have a single partner with global scalability. In most cases, customers will not know whether the order came from you or a fulfillment provider - you can give the appearance that an order is shipped directly from you rather than outsourced.
6 Fulfillment models
Here are some common fulfillment 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 fulfillment models
There is a direct relationship between a business' maturity and its fulfillment strategy. A low cost, quick solution with a cross-border direct ship is typically what startups use. As growth begins, so do customer expectations, and the customer experience and your earning potential increase. Once you’re established in your new market and you have more capital to play with, setting up localized fulfillment is a more viable option.
7 Number of locations to use
Many companies are unsure of how many fulfillment locations to use. It’s important to consider the competition and customer expectations when determining your strategy. What is the service level you need to provide to be competitive?
Single location fulfillment 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 centralized location that provides coverage to most of the domestic U.S. within three days.
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 stock keeping units for speedy deliveries, and a single centralized location that hosts the main one.
8 Returns and refunds
Understanding your customers and their rate of returns is critical to your fulfillment strategy. For example, clothes companies can expect a high return rate, while food and beverages would be lower. 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)
9 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 in a new market 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).|
|Returns and refunds||Challenging.|
|Competitive advantage||Fast speed to market, but seen as a foreign player. Low sales and poor customer experience.|
10 Back to back fulfillment
What is it?
Back to back fulfillment allows the fulfillment provider to take ownership of the product during import, so you don’t have to worry about duties, customs clearance, tax IDs and other requirements. It’s important to note that some companies who offer fulfillment may be able to able to serve as the ultimate consignee of your goods, eliminating the need to have a new company set up within that country.
Who is a good fit?
Companies needing a regionalized approach or whose customers may be averse to shopping cross-border can give shoppers a localized 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 your new 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 the 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 transport options enable more cost-effective shipping.|
|Returns and refunds||Easy.|
|Competitive advantage||Fast speed to market, but success depends on getting the right partner. Cost of partnership.|
11 Regional fulfillment
What is it?
Regional fulfillment is a regional or country-specific order fulfillment strategy.
Who is a good fit?
Regional fulfillment is a good option for companies looking for dramatic growth, and that can also support multiple websites, currency types and fulfillment centers.
|Legal considerations||Own legal entity, legal differences (tax, HR, etc), accounting, staffing, significant increase in production. Domestic and international tax reported separately.|
|Payment Options||Local payment options|
|Shipping and 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 fulfillment model.|
|Returns and refunds||Easy|
|Competitive advantage||Slower speed to market. Higher sales and higher overheads. Higher risk of failure.|
12 How to get started
Taking the following factors into consideration, think about which of the fulfillment strategies discussed would best suit you:
- Legal considerations
- Payment options
- Shipping and supply chains
- Returns and refunds
- Competitive advantage
You can then begin looking at whether you want to do fulfillment on your own or outsource it. Note that if you outsource it, you could also get a deal on transport costs, as most fulfillment providers will offer this too. When looking for a provider, make sure they’re customer-centric and fit your long term strategy, can support your growth and understand your long term global goals.
Finally, begin the process of securing sales channels or developing your own localized website and shopping cart. Make sure you’ve got a customer support strategy for your website. For more help planning your logistics, securing payments abroad, localizing your website or any other issues you might come across as you grow, check out further support and tools from Market Finder.
Ingram Micro Commerce & Lifecycle Services provides logistics solutions to help businesses connect supply and demand.
The materials provided on the site are for informational purposes only. For financial, tax, or legal advice, consult a specialist.