Logistics: an important success factor in e-commerce
As the number of merchants on online marketplaces increases, well-functioning logistics processes can be a major advantage in attracting the attention of potential target groups.
One of the most important success factors in e-commerce is the efficiency of your logistics. How and where do you store your goods? How can you deliver orders to your customers? How do you deal with returns?
You can either manage the logistics processes in e-commerce yourself or outsource them. Logistics through outsourcing is suitable for you if you do not have your own resources to organize the entire logistics chain of your online commerce.
Outsourced logistics processes are associated with such terms as dropshipping and fulfillment. Which model suits you better depends on many factors: your offering, sales geography, resources, and more.
Let’s take a look at the differences between dropshipping and fulfillment and what logistics processes they can cover.
Fulfillment and dropshipping: what’s the difference?
Fulfillment and dropshipping are two important alternatives that traders in e-commerce can use to deliver goods to the end consumer.
Both models of handling logistics processes are quite similar.
Both fulfillment and dropshipping involve outsourcing. However, there are differences.
With dropshipping, only the preliminary stage of delivery is delegated, whereas with fulfillment you can transfer the entire delivery process to your fulfillment partner.
The main difference is who acts as the goods owner.
The logistics model of fulfillment assumes that the products belong to the entrepreneur. In this system, the online shop works with a fulfillment partner who stores the merchant’s goods in a fulfillment centre and carries out the entire logistics processes.
With dropshipping, the entrepreneur is only the owner of the online shop. The goods and warehouse belong to the supplier or manufacturer. He also takes care of the delivery of orders to the customers.
For a better overview, we have compiled a comparison table with the most important differences between the two models of logistics processing in e-commerce:
How do the parties involved in the logistics processes cooperate?⇒
According to the contract between the dropshipper (online shop/trader) and the supplier/manufacturer
According to the contract between the online shop/retailer and the fulfilment service provider
|Who is the owner of the goods? ⇒
Das Produktangebot gehört dem Lieferanten/ Hersteller
The product range belongs to the trader/entrepreneur himself
|Where are the goods stored? ⇒
In the supplier’s/manufacturer’s warehouse
In the warehouse of the fulfillment partner
|Who delivers the goods to the customers? ⇒||
The fulfillment service provider
How do the logistics of dropshipping work?
Dropshipping is a form of online trade in which the online shop or dropshipper acts as an intermediary between suppliers and customers.
This business model assumes that the entrepreneur advertises and sells the goods on his website.
Such logistics processes as storage and delivery to customers are carried out by the supplier or manufacturer who owns these products.
Dropshipping is a low-cost and low-risk online sales method as entrepreneurs do not have any inventory or production facilities.
In this business model, the online shop is not tied to a warehouse.
The logistics of dropshipping work according to the following scheme:
- The customer places an order in your online shop.
- You forward the order data to the supplier.
- The supplier sends the order directly to the customer.
With dropshipping, the online shop has practically no costs. The online retailer takes the customer’s payment and forwards the order together with the money to the supplier.
The seller’s profit in dropshipping is the difference between the purchase price of the product from the manufacturer and the price paid by the customer.
The task of the entrepreneur, who is the intermediary in this model, is to manage the online shop and attract customers.
E-commerce logistics through dropshipping is suitable for:
- aspiring entrepreneurs without much start-up capital;
- business people who want to test a product or marketing strategy or enter a new market;
- entrepreneurs who are not willing to invest in their own product range and storage facilities.
Handling logistics processes through dropshipping is attractive because it does not require a large investment for the initial purchase of goods. However, it is important that you choose your suppliers very carefully, as you bear full responsibility for the products you buy.
Fulfillment for your e-commerce
Fulfilment in e-commerce means all the operations and processes associated with the escort and delivery of goods from the time the order is placed until it is handed over to the customer.
In other words, the retailer does everything to organise the logistics of its online business in such a way as to enable fast and smooth order processing.
The main functions of fulfilment in e-commerce include:
- Placing and storing goods, orders and parcels in the warehouse;
- Receiving orders and placing orders, distributing parcels and sorting them for onward delivery to destinations;
- Order picking, packing all goods and shipments;
- Ensuring payment for orders;
- Such logistics processes as transport and delivery of shipments, parcels and orders;
- Handling any problems with orders and parcels (for example, returns).
Some fulfilment partners can also offer the following services:
- call centre: inbound and outbound communication;
- parcel tracking;
- marketing activities;
- creation of product images and product videos;
- preparation of promotional materials.
Fulfilment is suitable for those traders who are just opening an online shop or producing goods and therefore do not yet want to invest in organising logistics and renting a warehouse.
This model of handling logistics processes is also useful if you want to grow and optimise your business. If your marketing strategy aims at expanding your sales geography to other regions or countries, accessing different marketplaces, reducing the cost of hiring and training employees, fulfilment can be an optimal solution for your e-commerce.
Fulfilment service providers already have optimal processes in place for preparing goods and working with carriers. When you outsource your fulfilment, you don’t have to contact them yourself and manually dock the two services.
Fulfilment in e-commerce is therefore suitable for you if you want to be involved as little as possible in the event of unforeseen challenges and at the same time improve service quality and logistics processes.