E-Commerce Fulfillment 101: A Guide For Managing Your Business

E-Commerce Fulfillment 101: A Guide For Managing Your Business

Whether you are a new company entering the game, an established organization introducing this part of fulfillment, or an organization trying to scale to keep up with the demand that’s been growing out of proportion since Covid hit, you need to know how to handle orders.

Logistics has become essential and with it the ability to navigate materials handling seamlessly. People’s expectations are high, and there’s no time to waste if you want to stay afloat, let alone compete.

What is E-Commerce Fulfillment?

E-commerce fulfillment is the process of storing, packing, and shipping online orders. This includes picking from shelves, packing orders, and even handling returns. Typically, order fulfillment encompasses 6 components:

  1. Inventory Management
  2. Warehouse and Storage
  3. Receiving
  4. Pick & Pack
  5. Shipping 
  6. Returns 

Having a good process in place can be hugely beneficial because you will waste less money and other resources, as well as increase your efficiency and keep your end customers happy.

How to Choose a Fulfillment Strategy

Selecting the right e-commerce fulfillment strategy depends on your unique business needs and priorities. Is the customer journey the most important aspect of your business? Or is discounted bulk pricing the biggest priority? Let’s review the three different types of fulfillment available, and the benefits and disadvantages of each. This will help you narrow down your options and identify the best strategy for your e-commerce business. 

1. In House Fulfillment 

In-house fulfillment is the most standard e-commerce fulfillment strategy and has been used for mail-order businesses for years. In this model, the business purchases and stores all of its own inventory, and also fulfills and ships all of its own orders for customers. By handling every step of the order fulfillment process, this model has the most control over inventory pricing, storage, shipping, and customer experience. However, it also means they are solely responsible for facilitating and managing these complex processes. Here are the benefits and disadvantages of in-house fulfillment for e-commerce. 


  • Discounted unit prices for bulk purchases
  • Visibility and control over costs 
  • Oversight of fulfillment and shipping services
  • Management of the customer experience and customer data


  • High overhead costs (warehouse, employment expenses, utility costs, etc.)
  • Time-consuming to own every aspect of the business
  • Inventory demand planning is critical to success
  • Comprehensive staffing and warehouse management are required for success
  • Difficult to test out new products 


2. Fulfillment Companies 

In a fulfillment company model, the e-commerce business purchases its inventory in bulk, but instead of storing and shipping orders to customers themselves, they use a fulfillment center. This means the business has control over the initial inventory management, and then they pass ownership to the fulfillment center for the receiving, storing, and shipping of goods to customers. With fewer overhead costs, profit margins are determined by the costs of the goods and the fees from the fulfillment company. 


  • Discounted unit prices for bulk purchases
  • Lower overhead costs (warehouse, employment expenses, utility costs, etc.)
  • Time saved by outsourcing warehouse and shipping operations


  • Demand planning is critical to success
  • Less control over the customer journey, including fulfillment and shipping services
  • Limited power over customer data
  • Difficult to test out new products


3. Drop Shipping

Using a drop shipping model makes the e-commerce business a proverbial “middleman” rather than a standard vendor. For instance, customers purchase orders through the e-commerce website, and those orders are passed directly to the drop shipper. Then, the drop shipping company, usually a manufacturer or specialized warehouse, packages and ships the goods directly to the buyer. 

This model outsources every aspect of the inventory management, warehousing, and shipping processes. Likewise, the e-commerce business focuses solely on the marketing, selling, and customer service aspects of the business. 


  • Low overhead (warehouse, employment expenses, utility costs, etc.)
  • Time saved by outsourcing inventory, warehousing, and shipping
  • Demand planning is not as significant, there’s never a risk of overstocking a product 
  • It’s easy to test out different products on new audiences


  • Pay a higher price per unit since products are not purchased in bulk
  • No control over the supply chain
  • Profit margins depend on prices negotiated with the drop shipper
  • Less control over the customer journey, including inventory, fulfillment, and shipping services
  • Very limited customer data and insights


Why is E-commerce Fulfillment Important?

E-commerce fulfillment is usually high in the number of orders, but low in the number of items per order, causing the Cost Per Unit to go up – shrinking profits and/or pushing prices up. Depending on the number of daily orders received, there are two ways in which organizations can handle growth: by hiring more people or adopting automation.

Let’s explore:

Due to the labor shortage, hiring more people is challenging, but it’s viable option, at least until the numbers no longer add up. You can only have so many people in your Distribution Center and still run an efficient operation, at some point the place becomes chaotic and less efficient (think of a small ice cream shop with 5 people scooping out ice cream, adding 5 more people will likely actually slow everything down because people will be getting in each other’s way.) Also, the human margin of error is higher, what are those errors costing you? The cost of not implementing some sort of automation is difficult to measure, but it’s there.

These challenges have made it so that automation is increasingly replied upon.


How to Choose a Fulfillment Model 

For Small Businesses:

If you’re a small business with less employees, Goods to Person solutions like AutoStore and AGVs can make a big difference because they are incredibly scalable. You can start with something as small as your budget and facility will allow, and continue to grow your operation as you see fit. In the case of AutoStore, you can add more robots and grow the grid as you continue to increase your inventory. If you get AGVs, you can add more robots and increase the number of pods being brought to the pickers.

Another viable option with a smaller amount of automation is Light Directed Picking. This option can allow you to start with a smaller budget while still increasing the efficiency of your DC. It can also be used in unison with other solutions in order to bring the most out of your operation. If you deal with hanging garments, perhaps you’d like to consider a solution such as Garment On Hanger, which does not sort individual units, but it can process large numbers of hanging garments and transport them to different parts of your DC, where they can be pushed to and from trolleys, etc. 

For Medium and Large Businesses

Depending on unique needs, timelines and budgets, solutions for these businesses can differ greatly.

  • Pouch Sorters can provide you with the ability to make use of the space above your DC and can be a great solution for an e-commerce operation
  • AutoStore doesn’t need aisles with pickers or lights, and is as dense as they come! So the savings in the long run can continue to increase, and so will the opportunity to continue scaling
  • Tilt tray sorters can be an excellent choice for parcel sortation, as it’s fast and the trays are specifically designed to handle packages really well
  • Bomb Bay sorters provides a great option for retail, it’s fast, it’s versatile and you can fulfill many stores’ orders by waves

Catered to You

At SDI Element Logic, we know that all businesses do not operate the same. We offer flexible solutions based on the unique needs of your business. Contact us