Printer friendly version (PDF)Distribution and Fulfillment Strategies
Determining Your Distribution Model by Volume
Before launching your e-commerce site, you should plan out how you’ll
ship your products to customers and fulfill the sale. There are a variety of
factors to consider when selecting the right shipping system, so that your
customer orders arrive on time and in one piece. The first step in this process
is to consider the anticipated volume of orders. Volume, to a great extent,
will determine the best way to process your customer’s orders.
Low Volume Distribution
If you anticipate a low volume of sales initially (1 to 3 orders a day), your
distribution process should be fairly easy:
- Hand-address labels
- Make a daily post office run to mail each purchase* (* Note: International
shipments require more due diligence)
Medium Volume Distribution
If you think you’ll be shipping more than 5 orders a day, you should
seriously consider:
- Purchasing a label printer.
- Purchasing a postage meter to automatically weigh and generate postage
stamps
- Starting an account with a shipping company to pick up your orders daily
- Consider a customs broker
High Volume Distribution
If you will be handling more than 25 orders a day, it’s a good idea
to look at more advanced shipping options. You may wish to integrate a high-volume
model like drop shipping, or you may wish to outsource your shipping to a third
party altogether. If your volume is especially high (hundreds of orders a day),
you may need to have warehouse space from which to stock and ship.
Choosing a Carrier
There are a variety of carriers that can provide ground or air delivery services
for your products. Shop around to see which carrier offers dependable services
at a competitive price. Regardless of your carrier of choice, be sure to offer
your customers a variety of shipping options, including ground (less expensive)
or faster delivery (3-day or overnight delivery).
Choosing the Best Shipping Model
The next critical decision you have to make for your e-commerce site is which
shipping model will work best for your small business. There are three widely
used e-commerce shipping models – the drop shipping, inventory, and fulfillment
house models. Each has its advantages and disadvantages, and you may find that
one model may be more appropriate than the others based on your marketing strategy
and product offering.
Drop Shipping Model
With drop shipping, all product handling and shipping is done by the manufacturer.
Orders made by customers are relayed to the manufacturer, thereby relieving
the e-commerce operator from the hassle of processing and shipping orders.
The drop shipping model, while very popular, does have key advantages and disadvantages:
- Low or non-existent inventory costs
- Extremely fast and efficient
- Manufacturer coordinates fairly complicated international documentation
and exporting requirements
- Lower profit margins (usually in the single digits)
- Delayed customer purchases if the manufacturer has low stock
Inventory Model
With the inventory model, you store your inventory in your own warehouse and
ship goods as your receive orders. An EDI (electronic data interchange) system
may help streamline your logistics. Advantages and disadvantages of this model
include:
- Fast turnaround for each order
- Improved customer service if something goes wrong during shipping
- Better profit margins for each good sold
- Higher capital risks for goods that don’t sell and sit on the shelves
Fulfillment House
The fulfillment house model involves outsourcing virtually all of the work
to a third-party fulfillment house that will not only oversee shipping and
handling, but will also take customer orders, provide customer support, and
in some instances, oversee your e-commerce site. Advantages and disadvantages
of this model include:
- Very efficient for products with high margins
- Very inefficient and high risk for low-margin products
- Success of site will depend on success and quality of the fulfillment house
Inventory Control Management Systems
If you’re running a high-volume e-commerce site, you may want to invest
in an inventory control management system (ICS). There is a large selection
of software-based systems in the market to help you process your orders and
monitor product inventory levels efficiently. More advanced systems will provide
inventory data analysis, flagging increasing inventory demand, trends, and
lagging inventory.
Most inventory control management systems will allow you to:
- Display an up-to-the-second count of all inventory
- Create work orders
- Create packing lists
- Review daily, weekly, or monthly transactions
- Automatically flag lagging inventory or goods that are low in stock
- Use eFax.com, a service that allows you to receive and send faxes via e-mail
Inventory control management systems can also generate inventory reports that:
- List sales and profit margins of individuals products
- Create pie or bar charts to display sales and profit margins
Client vs Network-Based Inventory Control Systems (ICS)
Network-based inventory control systems are far more powerful than a client-based
ICS. While a client-based system can only be accessed by one user at a time,
a networked-based ICS can be accessed by many people at the same time. A network-based
ICS enables you to integrate controls between your head office and your inventory
warehouse. For example, some inventory management systems can enter or scan
stock barcodes, a very handy feature that would be used extensively in warehouses.
Network-based inventory systems can also allow you to better streamline your
business by delegating inventory monitoring responsibilities to other individuals
in your business. Again, much like the shipping model you select, your choice
of an inventory control management system will be influenced by the kind of
e-business you have, the kinds of goods you ship, and the volume of sales you
either have or anticipate having.
Packing and Getting Your Product out the Door
There are some important things you’ll need to consider when shipping
your product. It is important to have a good understanding of appropriate packaging,
labeling, and documentation.
Proper Packaging
Given that your product order could travel hundreds or even thousands of kilometres,
there are some important packaging rules to follow to ensure your shipment
arrives in one piece:
- The shipment should be in a very strong or reinforced container
- Avoid unnecessarily large containers – they increase shipping expenses
- Place heavy objects on the bottom, light objects on top
- Product should be braced and weight evenly distributed
- Include moisture-resistant fillers like Styrofoam pellets
- Properly label which end is up
- Palletize for efficiency and use straps or shrink wrap for extra protection
- Security is an issue, so you shouldn’t mark the outside of the container
with info that would make the package attractive to thieves
- Ensure proper labelling and placards for regulated goods
Securing your shipping package is of little use if you don’t properly
label what you’re shipping. Following these points will ensure that your
shipment isn’t misdirected:
- If possible, use a printer to generate your labels
- If handwritten, write with large letters, preferably with moisture-proof
ink
- Place and heavily secure the label where the package is opened (usually
on top)
Documentation
A commonly used shipping strategy is to apply the label to the front of the
envelope containing the product invoices and receipts, instead of sticking
the documents inside the container. You may wish to include additional promotional
material or a personalized thank-you letter to the customer.
Shipping to International Destinations
Shipping to international destinations can be a complex process with many
rules and regulations. International shipping often requires special documentation,
and consular, port, and handling fees. If you do choose to export products
by yourself, there are packaging and documentation procedures that need to
be followed.
Labelling
If you do not label your products appropriately, there is a very high chance
that your shipment will be delayed or worse, confiscated. Using waterproof
ink, remember to label your container with:
- A shipper’s mark
- Declarations, including country of origin, port of entry, and container
weight and size
- Clearly displayed caution messages (fragile, this side up, etc.)
- Clear indication of whether the shipment contains hazardous materials
- “Made in Canada” must also be permanently marked on all US-bound
goods and packaging*
*Keep in mind as well that each country has its own unique labelling requirements.
Documentation
Improper documentation may result in your shipment being seized by Customs
and monetary penalties. Depending on where you’re shipping, there are
many documents that may need to be prepared, including:
- A Consular Invoice, which is a document that describes the good as well
as its value
- A Certificate of Origin, which indicates the product’s origin
- An Export License, or General Export Permit, which authorizes the export
of goods, and special “controlled” goods, to certain countries
- An Export Packing List (some contries require a detailed description of
shipments)
- An Insurance Certificate, which protects the purchaser if the shipment
is lost or damaged
- An Export Declaration (B13A)
- Additional requirements may be required by the country to which you are
exporting
Freight Forwarders
You may consider using a freight forwarder, a company that is very familiar
with shipping costs, rules, and regulations and help get your products to their
destination. Using the services of a freight forwarder can come at a steep
price, so it’s a good idea to research freight forwarding costs before
accepting international orders. You may ultimately find that the costs associated
with long distance shipping prevent you from selling your products internationally,
especially if your margins for each sale are thin.
What if Something Goes Wrong?
Shipping an order does carry certain obligations and protections for consumers.
It is important that you become familiar with the basic buyer and seller rights
in the event that a shipped good is damaged or lost. You should also consult
with your freight forwarder.
Your Shipping Rights
When you send your product out the door, you’ll be depending on a third-party
carrier to get your package to the customer. It is imperative that you research
major carriers’ policies (i.e., the “fine print” that outlines
the terms and conditions on the Bill of Lading) to see what they offer for
compensation in the event that a package is damaged or misplaced. Most reputable
carriers offer the following to its customers:
- 100% refund of credit to the shipper if the package is not delivered
- Partial or full refund if the package is not delivered on time
Your Customer's Rights
While it is frustrating when a package gets lost during shipment, it is generally
a good business policy to either replace the damaged good or refund the customer’s
money. You may, however, place the onus of responsibility on the carrier by
including a “Damage” or “Lost Goods” clause in your
company’s Terms of Sale. Under such a clause, the onus will be placed
on the customer to recoup their money from the carrier. Such a policy, however,
tends to be business unfriendly. Consider lost or damaged goods during shipping
an unfortunate cost of doing business.
Returns and Warranties
You should offer your customers substantive return and warranty protection
to cover lost or damaged goods. Ensure that you provide your customers with
a detailed outline of your policies, usually contained in a “shipping
policy” or “return policy” document. It is also a good idea
to have these policies in separate, easy-to-find pages on your website. Standard
return policies include:
- For damaged shipments, offer customers at least 14 days after delivery
to return goods
- For “dead on arrival” goods that don’t work after being
opened, offer at least 14 days
- Products produced by another manufacturer should be covered by warranty
Quality Assurance and Consumer Protections
Without question, your site will succeed (or fail) based on how well you serve
your customers. Here are some quality assurance strategies to consider when
you launch your e-commerce site.
Order Modification
In some instances, your customers may wish to change their order before shipping.
Ensure that each customer order has a unique identifier like an order number
that the customer can use later through your website to change their order
(such as product, delivery date, etc.).
Backorders
There may be instances where some of your products may not be in stock. It
is important that you offer your customers the opportunity to place an order
in anticipation of the product being available for shipment in the future.
It is generally good practice to only charge the customer when the product
becomes available for shipping.
Order Status
There are a variety of ways to offer your customers a way of tracking their
order shipment. You may want to integrate some simple options in order to improve
your customer service:
- Automatically email the customer a shipping tracking number after the purchase
is made
- Give links to shipping carrier pages where the tracking number can be entered
- Offer the customer email support to help them track their order
- Offer the customer a toll-free number where they can call to find out the
status of their order
Shipping Insurance
To offer yourself (and your customers) protection, you may want to take out
shipping insurance. Such insurance usually covers loss, damage, or delay of
cargo. There are different types of insurance, however, so make sure you know
what your insurance policy covers. Depending on what type of transport you
use, the risks and costs will vary. International shipping, as you might expect,
is more expensive than domestic insurance. Usually you purchase shipping insurance
through the carrier, and it covers 110% of the stated value of the good, as
well as the shipping costs.
Additional Resources
There is a great deal of information available to anyone who wants to find
out more about strategic channel intermediaries, Incoterms, duties, international
warehousing, and other tips at the export resources below:
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