Imagine the following. You go to an e-commerce site and buy a pair of running shoes. You are anxious to receive the shoes because the ones you are wearing are worn out. The shoes arrive in three days. You take the shoes out of the box, which has the name of the online company from which you bought the shoes on it. You glance at the order form in the box, which also has the name and logo of the website from where you purchased the shoes. If someone asked the shipping location for your shoes, you would probably say a warehouse owned by the online company that sold the shoes to you. Actually, you would have no way of knowing the shipping location for your shoes. As we discuss next, there are three primary ways that online businesses fulfill orders and ship products. Each choice has pluses and minuses. Two of the three choices involve partnering with other companies.

Option #1:

Partner with drop-shippers. Drop-shipping is a distribution strategy in which online retailers do not maintain inventory but instead when an order comes to them, they pass it on to a manufacturer, wholesaler, or other retailer who fulfills the order. Here is how it works. An online site that sells running shoes, for example, takes an order. It then transmits the order electronically to the appropriate shipper, such as New Balance. New Balance then packages and ships the item, usually in a day or so. The shipper places the product in a box with the online retailer’s name and logo, and the buyer never knows the difference. The advantage of drop-shipping, from the online retailer’s point of view, is that it does not need to maintain warehouses or employ packaging and shipping personnel. It also does not need to anticipate demand or get stuck with outdated merchandise. Lower profit margins are the disadvantage of this option in that the online retailer must share the profits from each order with one or more drop-shippers.

Option #2: 

Partner with a fulfillment company. Many online retailers partner with fulfillment companies that handle their warehousing, packaging, and shipping for them. Amazon Fulfillment Service, Ship-wire, and Ship-Bob are examples of fulfillment services. Here is how they work. An online company offers a certain number of products for sale. The manufacturer ships the products to the fulfillment company. The fulfillment company then receives, tags, and stores the online company’s inventory. When the online company receives an order, the order is transferred electronically to the fulfillment company. The fulfillment company then pulls the items from the online company’s inventory, places them in a box, and ships them to the customer. The box will look as though it came directly from the online company. The fulfillment company will also handle returns. As with drop-shipping, the advantage of this approach is that the online company does not need to maintain warehouses or employ packaging and shipping personnel. The disadvantage is that there is a cost for the service the fulfillment company provides.

Option #3:

Fulfill your own orders. Some online retailers fulfill their own orders. For example, Riffraff, an online women’s clothing company, has a brick-and-mortar store in Fayetteville, Arkansas. Adjacent to the store is a warehouse, where the company stores its inventory and fulfills its online orders. The manufacturers of the products Riffraff sells deliver Riffraff’s inventory directly to its warehouse. When a customer places an online order, Riffraff employees pull the merchandise from shelves in the warehouse, place it in a box, and ship it to the customer. The advantage of this approach is tighter quality control in that Riffraff controls the process. Its employees, rather than a drop-shipper’s employees or the employees of a fulfillment company, handle its merchandise, package it, and ship it to the customer. Its employees also handle customer returns. The disadvantage is that the firm must maintain a warehouse and packaging and shipping personnel.....

Discussion Questions:

1. If a company sold a product that was trendy, such as teen clothing, which of the fulfillment approaches would be the best choice? Explain your answer.
2. If a company wanted to focus all its energy on its core business, such as product sales and research and development, which of the approaches to order fulfillment would be appropriate and why?
3. Ship-Bob (www.shipbob.com) is a fulfillment service that started in 2014. Spend some time studying Ship-Bob’s website. Describe the fulfillment services that ShipBob could offer an online company that sells running shoes and apparel.
4. Reread this chapter’s “Opening Profile,” which focuses on Yishi Foods. According to the feature, is Yishi Foods a drop-shipper, does it use a fulfillment service, or does it maintain warehouses and fulfill its own orders?
Explain why you think Yishi Foods made the choice it did regarding fulfillment and shipping.