E-commerce fulfillment: Everything you need to know
and updated on 01 June 2021
E-commerce in the Middle East is growing rapidly having generated once again double-digit growth in 2020 (19.8%), due to eMarketer. It is estimated that the Gulf states increased their e-commerce profit four times between 2015 and 2020 from about $5 billion to $20 billion and the amount of e-commerce companies by 25% from 2019 to 2020 resulting in a higher global penetration. Hence, the sector’s growth in this region is impactful.
Middle East and North Africa’s (MENA) entire e-commerce market size, including all categories, has been forecasted to be worth US$48.6 billion in 2022, up from $26.9 billion in 2018, due to Go-Gulf. While the internet penetration rate in the Middle East is over 90%, almost half of all internet users in the region shop online. As a recent report by Dubai South shows, retail sales via e-commerce in the Middle East nearly doubled from 2-3% in 2019 to 5% in 2020 with the United Arab Emirates (UAE) being the most advanced e-commerce market with a penetration rate of 4.2%, followed by the Kingdom of Saudi Arabia (KSA) at 3.8%.
Why e-commerce sellers should not miss out Given the fast growth of e-commerce in MENA but the still relatively low retail market share (5%) paired with the region’s high internet and e-commerce user penetration rate, the potential of e-commerce in MENA is immense. COVID-19 has accelerated the e-commerce trend remarkably, with many retailers opting to invest heavily in online platforms to remain relevant and recoup any losses generated in brick-and-mortar stores due to months of lockdown and changing shopping behavior of the population. Electronics, fashion, beauty, groceries, and home products account for 98% of the e-commerce market in those two countries. Those figures and facts make MENA, especially KSA and UAE, attractive markets for e-commerce sellers and those to be.
Once sellers decide to enter the MENA e-commerce sector, many aspects need to be considered to establish a successful business. One of them is the set-up of an efficient e-commerce fulfillment infrastructure and strategy. This is crucial to any e-tailer’s success as a short delivery time has become one of the most important factors of the competitive advantage. And moving products at high speed requires solid supply chain and fulfilment management. Companies with inefficient e-commerce supply chains can expect to lose business to their competitors.
But what does it mean for a seller to have a well-thought e-commerce fulfillment strategy in place? In this article, we take a closer look at e-commerce fulfillment and answer relevant questions. What does the term “e-commerce fulfillment” describe, why do you need a strategy, and how do you select the right fulfilment partner for your business? In addition, we explain why you should identify key performance indicators (KPIs) for your e-commerce fulfillment processes, and which are typical costs associated to fulfillment services. In the end, we talk about future trends in the e-commerce sector which you should consider for staying relevant in this fast-moving market in the long run.
What is e-commerce fulfillment?
E-commerce fulfillment describes the supply chain of an item sold online and applies to business-to-business (B2B) and to business-to-consumer (B2C) orders alike. For B2C orders, the end consumer may place the order on the seller’s website or via an online marketplace such as Amazon, Noon or Namshi. The chain of fulfillment activities comprises receiving the goods to be sold and storing the inventory at a dedicated place. Depending on the business size of the e-commerce seller, this can be a garage, an office, or an e-commerce fulfillment warehouse. Once an incoming online order is generated, the item is picked, packed, prepared for shipping, and transported to the end consumer’s destination. Should the customer not be satisfied with the item and return it, e-commerce fulfillment also includes reserve logistics. The order fulfillment process steps start with the incoming order and end with the delivery of the item to the customer’s address. E-commerce fulfillment services can be handled in-house by the e-commerce business itself or outsourced to a professional 3PL partner.
Why is an e-commerce fulfillment strategy important?
As in e-commerce one of the most important factors for success is the customer’s experience which is hugely based on the efficiency of the supply chain management, seamless fulfillment can be considered the backbone of e-commerce. That is why a well-planned strategy is essential for any seller scaling quickly or newly entering the ecommerce market in the UAE. It is the only way to ensure that products reach the consumers as quickly as possible and that ever changing consumer demands are met in time. There are three main strategies which can be implemented:
In-house fulfilment All e-commerce fulfilment steps can be organized in-house controlling efficient inventory management and fast deliveries. Well-established players such as Amazon or Noon who have sufficient resources might invest in their own professional logistics management including e-commerce fulfillment warehouses and employees. However, for small and mid-sized companies, self-management of the logistics processes only makes sense while managing a limited inventory. Once a company grows and scales, the logistics handling requires more effort, resources, and time which most players simply do not have.
Outsourcing to a 3PL provider provider Hence, for most players, it is convenient to fall back on professional logistics service providers benefiting from their expertise in running logistics operations, available technology set-up and established networks resulting in efficient processes, faster growth, and long-term cost savings for the company. And most importantly, while others take care of the logistics needs, business owners can dedicate their time to further improving, and developing their products.
Drop shipment Drop shipment is a strategy that has been becoming more popular among e-commerce players in the UAE as it does not require to keep own inventory in the UAE. The online retailer forwards incoming orders to a manufacturer or wholesaler who might be located outside the UAE and sends the items directly to the end consumer.
How to decide whether to partner with a 3PL partner?
There is no golden rule for that, of course. However, if you have been observing some of the following developments within your business, it might be time to consider outsourcing your e-commerce fulfillment processes to a professional 3PL provider to give yourself more time to focus on the core business.
When your business is growing, and fulfilment is keeping you from focusing on your core competencies.
When you start to face stock issues, either you are overstocking, or you are running always short of stock.
Your daily orders increase rapidly resulting outgrowing your team’s capacity.
You are using outdated technology impacting your fulfillment’s efficiency.
Your inventory volumes vary largely due to seasonal pike times making it difficult to adjust the storage space accordingly.
Source: RSA Global What should you consider when choosing an e-commerce fulfillment partner?
The 3PL sector in the UAE is highly competitive and fragmented which makes it more difficult to select the right partner for your business. That is why you should do some research before taking the decision. The overall goal should be to find a provider that will properly handle your inventory, provide a positive experience to your customers, and help you grow and scale your business. Here are some points you should evaluate in the process of your selection:
Speed of shipping Slow delivery time is one of the main reasons why customers withdraw from an online order leading to lost revenue for you. Market leaders like Amazon have set the bar high by providing delivery times between 24 hours and 2 days. Hence, make sure to select a partner with proven effective fulfillment processes in place enabling fast shipping.
Location of e-commerce fulfillment warehouses One important factor for fast delivery is the location of the e-commerce fulfillment warehouses close to your customers. So, make sure you know where the facilities of your potential logistics partner are situated. And think about your future markets as well. Should your business grow, and you decide to enter new regions, it is beneficial when your partner’s networks stretch across those markets.
Advanced e-commerce fulfillment software The rapid speed of e-commerce needs different warehouse infrastructure and management than traditional supply chains. Reduced order sizes, greater frequency of picking and packing and quicker replenishment mean that available warehouse areas need to be utilized more effectively. The increased volume of single-item orders requires the use of e-commerce fulfillment software solutions such as warehouse management systems (WMS) and barcode technology. WMS systems use sophisticated automation tools assisting with streamlining warehouse space and activities which enable the business to deliver orders on time. Barcodes allow to track all activities happening inside a fulfillment facility such as receiving, replenishment, packing, shipping, returns and labor-tracking. Without implementing a smart warehouse design and technology, capacity issues, inadequate storage and a productivity drop might occur negatively impacting your customer experience. Hence, carefully review the e-commerce fulfillment software used by the 3PL company and ensure that it can be easily implemented and integrated with your own systems.
Return Management Research shows that customers return up to 30% of their online orders. This means that returning goods from their destination to their point of origin, called reverse logistics, must be provided. Growing expectations of replacement or refund of returned products is a huddle e-commerce companies need to deal with. Hence, it is crucial to work with a fulfillment partner who supports you professionally in your reverse logistics processes.
Scalability capacity Ensure your 3PL partner is large enough and has the right expertise, facilities, and partners in the markets you are and will be catering to. The e-commerce sector is growing rapidly, and you need to be able to scale quickly should online orders increase rapidly. Otherwise, you could face huge losses. So, finding a fulfillment partner who helps you grow, and scale is fundamental for your success.
Why do you need to identify KPIs?
To meet consumers’ expectations in terms of speed and demand and continuously improve your processes, you must observe your e-commerce fulfillment operations closely and continually measure their efficacy. Only this will help you to reveal room for enhancement. This can be achieved by establishing strong KPIs which are set in line with your specific business goals. While KPIs might vary depending on businesses’ different objectives, most companies’ set-up their fulfillment KPIs around these categories:
Receiving Creating KPIs around the initial reception of your products will show you whether your inbound inventory process is working well. You should know whether the inventory received always arrives on time and in accurate amounts. The earlier you disclose discrepancies, the sooner you can fix them.
Putting away You should measure the time from your inventory’s arrival to being made available for sales. By knowing this frequency and comparing it, you will be able to evaluate if this process can be further accelerated.
Inventory Management As explained before, a WMS is a must to maintain an overview of inventory accuracy as it helps tracking Stock Keeping Unit (SKU) picking activities and replenishment as well as conducting cycle counts on a regular basis. KPI’s for cycle count accuracy usually show the percentage of counts that do not require adjustments and those needing adjustments apply and how many.
Shipping As customer expectation is high on shipping, most sellers establish KPIs related to timely shipping. This can be done by defining a set time by when online orders must get in to be sent out the same day. The related KPI would reveal the percentage of orders which meet that goal. Another typical KPI measures the delivery time accuracy per item by comparing estimated with actual shipping time.
Quality Ensuring high quality on your e-commerce fulfillment processes will avoid mistakes leading to higher customer satisfaction as they are more likely to receive correct and timely orders. Quality can be checked by performing regular audits. However, audits can be time consuming and costly. Quality issues can also be tracked via KPIs around returns and customer complaints.
If you partner with a 3PL, involve them early on in identifying your KPIs. Due to their experience, they should be able to recognize the most critical areas for you to measure to achieve your strategic objectives. Even though defining clear KPIs might be time and resource consuming, the effort will be worth it as your operations are set up for optimal performance.
Which costs apply when outsourcing to a fulfillment service company?
Fulfillment fees are the costs related to all e-commerce fulfillment process steps described in this article. Expenses usually include fees for the set-up of the fulfillment project, the inventory intake and receiving, storage, pick and pack, shipping, kitting, return and account management, as well as fees for any additional services such as value-added services. The amount of the cost per fulfillment activity depends on the complexity of the handling process and may be charged as flat rate (e.g., one time set-up fee) or on hourly or per-unit basis (e.g., fee for each item, pallet, or bin).
What are future e-commerce trends & developments?
The COVID-19 outbreak in early 2020 has accelerated the growth of e-commerce in MENA which has been positive for e-commerce players but challenging at the same time. Many retailers and suppliers have been forced to rethink their e-commerce fulfillment set-ups as market conditions changed. Overall demand for online products and consumers’ expectations increased dramatically. Here are a few trends that resulted from that development and you should prepare for to stay on top of the e-commerce game.
Resilient supply chain While COVID caused large supply chain disruptions on the hand, it increased the customers’ desire to receive orders even quicker. Consequently, retailers have realized that they need to focus on creating robust, adaptive, and agile supply chains and fulfillment processes to ensure a continuous and seamless flow of goods. Compiling a clear contingency plan, localizing and diversifying own products and sources, belong to the main capabilities needed to ensure supply chain resilience.
Timeliness and last-mile delivery The pandemic has accelerated consumers’ shopping habits and their delivery expectations in the UAE. Some retailers, in particular wholesalers such as grocery stores, have reacted quickly and upgraded their last-mile delivery. Hence, to stand up to the competition, ecommerce sellers should now invest heavily in sophisticated and efficient distribution and complex last-mile delivery models resulting in even higher customer satisfaction. Not an easy task for e-commerce companies in the MENA region due to infrastructure challenges like the absence of street addresses in some MENA countries. To tackle this logistical challenge, conveniently located e-commerce fulfilment warehouses, real-time monitoring of shipments and advanced technology are helpful.
Data & Technology As most industries, also e-commerce and logistics are witnessing greater automation in the various steps involved across the fulfillment process. Artificial intelligence-based technologies and robotics automate administrative tasks and plan fulfillment processes as well as minimize human errors. Drones and smart lockers will play increasingly crucial roles in facilitating last-mile deliveries and improving customer satisfaction. Eventually, data collection and analysis will gain even more importance when it comes to the enhancement of fulfillment warehouse productivity and smart utilization of resources.
Sustainability The pandemic has given sustainability across various industries a new pulse bringing it more into the focus of governments, companies end consumers. Customers nowadays pay more attention to the sustainability of a product including the way the item is being manufactured, processed, and transported. Hence, companies who re-evaluate their e-commerce fulfillment processes with more focus on creating them efficient and carbon-neutral will have a competitive advantage and are more likely to build a loyal customer base.
The rapid growth of the e-commerce sector in the MENA region is attracting ecommerce sellers and encouraging retailers to become etailers. However, to build a successful online business a professional e-commerce fulfillment set-up is required guaranteeing a seamless flow of goods and high customer satisfaction, the most important aspects to stay competitive. Consequently, online sellers must choose a fulfillment strategy in line with their business size and long-term goals. If they outsource their e-commerce fulfillment operations to a professional 3PL provider, they should evaluate available options to ensure finding the right partner for achieving their objectives. Another important aspect of e-commerce fulfillment is to continuously observe and optimize operations to maintain fast processes. Hence, the careful determination of OKRs is highly recommended to measure the efficiency of your e-commerce fulfillment process steps and identify room for enhancement. Costs usually apply to each fulfillment service category and are charged as flat rate or on hourly or per-unit basis which makes it easy to add or omit service items. The unexpected outbreak of COVID-19 has illustrated the weak points of e-commerce and identified clear trends. So, e-commerce companies should focus on building resilient supply chains, accelerating their last-mile delivery, collecting and analyzing data, applying technology, as well as creating sustainable supply chains to stay relevant in the mast-moving and highly competitive sector.
With our team of e-commerce fulfillment experts, global network of fulfillment warehouses and partners as well as employed technology infrastructure, we are here to advice you on your individual e-commerce fulfillment strategy as well as KPIs selection making sure to keep your supply chain efficient and your customers happy.
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