This post is by Jake Rheude, the Director of Marketing for Red Stag Fulfillment.
It may not be as sexy as writing optimized product descriptions or creating the perfect video story to share with your Instagram followers, but shipping and fulfillment are vital to your success on Amazon or eBay.
Here are ten key terms that every seller should know:
A third-party logistics (or 3PL) company provides warehousing, order fulfillment and shipping services to other businesses.
The key service for online sellers is usually ecommerce fulfillment. When your order volume gets too high to handle in-house, you can turn to a 3PL to handle fulfillment for you. They provide all the services you need to outsource your logistics operations so that when orders come in, they are fulfilled and sent out by your 3PL instead of you.
Some 3PL services are essential to providing order fulfillment, such as receiving inventory, warehousing, picking, packing and shipping. Some companies provide add-on services such as kitting, customization and returns processing.
2. Distributed inventory
If your customers are located all over the U.S., or even all over the world, having your inventory in multiple warehouses across different areas makes shipping out orders faster and cheaper.
In the U.S., this could mean spreading your inventory between warehouses in Los Angeles, Atlanta, and New York. This way, instead of every product traveling to every location from one warehouse, you can choose the closest one to save time and money.
Having distributed inventory also opens up the range of shipping services and speeds that you can offer customers. If you can provide two day shipping across the whole of the U.S., instead of three to four day shipping, customers are more likely to buy from you.
Shrinkage is a nice way of saying your inventory has disappeared, either due to damage, theft, or improper handling.
When large volumes of products are being moved around, it seems inevitable that some will get misplaced, which is why many 3PLs have built-in shrinkage clauses that release them from liability in case they damage or misplace a certain amount of your goods. This is usually limited to a specific percentage of your inventory, and often ranges from 2-10% (my company is unusual in having a 0% shrinkage allowance).
Self-fulfillment is essentially the opposite of outsourcing to a 3PL — it means you do it all yourself, in-house (it can also be called DIY fulfillment). This applies to any business that handles its own inventory and can cover receiving, sorting, packing, and/or shipping the products.
Any small ecommerce business just starting out will almost certainly do self-fulfillment in the beginning. As order volume increases, they have a number of options to keep up the pace. Either they scale up their operations to a professional level, switch to Amazon FBA, or contract with a 3PL. Some use a combination of all three to get the right balance for their product types and customers.
5. SKU breadth
SKU breadth is simply a way to measure the number of different products you sell. The more SKUs you offer, the wider your SKU breadth. This is not so much of an issue for self-fulfillment, but if you contract with a 3PL, be aware that certain companies have SKU breadth requirements. Some outright refuse to work with businesses that have a wide SKU breadth, and others simply charge more.
Generally, the more SKUs you sell, the harder (and therefore more costly) it is to manage your inventory. If you are planning on contracting with a 3PL once you get large enough, keep your SKU breadth in mind.
The simplest way to think of omnichannel is seamlessly integrating every place where your customers can buy from you, and the data you have from each of those channels.
Each platform you sell on (physical stores, website, Amazon, eBay, Shopify, Etsy, Facebook Marketplace, etc.) keeps data in its own silo, because they are not connected. But you are connected to all of them, so you need to combine the data you have from each one.
Customers today expect to collect orders, get customer service, and deal with returns through whichever channel they prefer to use, regardless of which channel they originally used to buy from you.
7. Dimensional weight
Most people think that the weight of a package determines how much it costs to ship, but that’s actually not entirely true.
When shipping items, two different types of “weight” are calculated: the actual weight, in pounds and ounces, and the dimensional weight. Dimensional weight, also known as volumetric weight, is the volume that the package takes up – and you are charged for the higher of those two numbers.
Each major U.S. carrier (UPS, FedEx, USPS) has its own unique formula for calculating dimensional weight. This is why it’s so important to be as lean as possible with large and light items, because the dimensional weight will be higher than the actual weight.
If your items are small and heavy, you’ll be charged for the actual weight, so the more you can cut down on the weight of your packaging, the better.
8. Reverse logistics
This is one of those fancy industry terms, and in this case, it means “returns”. Depending on whether you do self-fulfillment or outsource to a 3PL, this could be handled in-house or done at a warehouse thousands of miles away.
There are a lot of costs associated with returns that are worth evaluating when you put together your returns policy. The two biggest costs are shipping the product back for storage, and the cost of restocking the item. This is why you’ll frequently see a restocking fee charged to customers who return items, to try to recoup some of those costs, though that practice is exceedingly unpopular.
Kitting is combining multiple SKUs to sell together as one SKU, or to put it a little more simply, multiple products to sell together as one product.
Selling and shipping kits, instead of individual products, reduces both packing and shipping costs. It can also increase your average order size because you’re selling multiple items instead of just one. Even if you lose a little bit of your margin to sweeten the deal for customers, you can likely break even on that with the savings on packing and shipping, and you also get to turn over more inventory.
The downside to kitting is the labor. Someone has to take all those individual items and put them together into one box. Different 3PLs have different rules about that too. Some will fulfill kit orders for you, but only if they come pre-assembled, and some will do the assembly (or disassembly) for you on demand.
10. Last mile
Finally, fittingly, the last mile. It’s the final and most expensive step in the shipment process, where the package is taken to the customer’s doorstep.
Instead of being transported on a massive container truck, which is very cost-effective for moving large quantities over long distances, it’s usually done with a small to midsize van. The lower number of items that can be transported is one of the things that contributes to the higher cost.
Shipping companies are constantly trying to decrease the cost of the last mile, and experimenting with various new methods in order to do so. Drone delivery is still in its infancy and hasn’t been successful yet, but in-store pickup is now commonplace and extremely popular.
This post was by Jake Rheude, the Director of Marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of the founders’ own ecommerce business challenges.
Jake has years of experience in ecommerce and business development, and in his free time enjoys reading about business and sharing his own experience with others.