Fulfillment 101 (Part 1)

When you first start doing fulfillment and are doing maybe ten shipments a day, almost anything will work. You can use rudimentary tools provided by the postal service or UPS to buy and print postage. You can probably just stack your inventory in the corner and root through it to find what you need. You can manage your inventory with hand counts and maybe spreadsheets.

Eventually, when you grow a bit and realize you need something more sophisticated, it is easy to quickly get overwhelmed by expensive and complicated solutions. When you get to that point, it is absolutely valid to throw up your hands and just outsource fulfillment; there are good reasons to do exactly that. However, if you want to keep fulfillment in house, here are some things you need to know if you want to do a basic, typical setup. I do not mean to suggest that this is the only way to do it; there are all kinds of different strategies for fulfillment but this is a common one.

First, you need two key systems (normally software) that preferably are going to integrate with each other.

  • Inventory (used to track the quantities and location of every item you sell)
  • Shipping (used to buy/print shipping labels and store information about shipments)

Second, you need three physical areas in your warehouse

  • Picking (where product is stored in cases or bins in a structured way so that employees can quickly fill orders)
  • QA/prep (a pre-ship area where shipments can be prepped and quality assurance can be done)
  • Shipping (a station where the label is printed and affixed)

Third, you need employees to make it happen. You have some flexibility obviously, but typically, you have pickers, packers and shippers.

Talking through all of this will take some time and I can’t do it it all in this post. However, I will talk today about the first topic: systems.

Inventory system

Inventory systems are complex and they tend to be expensive. However, as you grow and especially as your SKU count rises, they become indispensable. I would say that our inventory system is the most important piece of software we have. It is really the brains behind the entire operation. Here are some of the key things we expect it to do:

  • Keep an accurate count of every item in the warehouse. In other words, as new shipments come in, inventory has to be increased. When shipments leave, inventory has to be decreased. We also expect it to keep track of another more virtual inventory count; it needs to track inventory that has been ordered but not yet arrived and inventory that has been sold but not shipped.
  • Provide reports of how much inventory we have, how fast every SKU is selling, and much more.
  • Generate purchase orders to replenish inventory. Inventory systems figure out when to reorder based on predetermined reorder points or formulas.
  • Integrate with our shipping system with inventory levels so that the shipping system knows which orders have the necessary inventory to ship.
  • Push inventory levels to selling channels so that they know whether inventory is available to sell.
  • Integrate with handheld barcode scanners to improve accuracy.

We have used Finale Inventory for years and it is a great solution. It is not inexpensive but then again, no decent inventory system is going to be cheap. We like Finale because it does everything we need it to do and the support is good. It also provides tools that make it easy to get data in and out of their database. If you need advanced integration, they provide an API as well.

Shipping system

If you watch much TV, you have probably seen ads for ShipStation. ShipStation is a very popular and quite good system that your shipper can use to quickly weigh packages, calculate shipping costs, and print labels. We have used several shipping solutions and I recommend ShipStation above any of them. Here are some other things it will do for you:

  • Integrate with most sales platforms to pull in your orders automatically with no programming required. If you have custom sales channels, an API is available.
  • Push tracking numbers back out to your sales channels and also directly to your customers.
  • Integrate with your inventory system (such as Finale) to automatically decide when orders can be shipped. When inventory comes into your warehouse, on-hold orders are automatically queued to ship.
  • Shop rates between all the major carriers. This is important because while UPS, USPS and other carriers provide free versions of similar software, you are locked into just one carrier.

It is not unreasonable for a single station to process 60-100 packages an hour using ShipStation or a similar program and these solutions are extremely cheap. For example, you ship an unlimited number of packages with ShipStation for just $150/month.

In my next post, I will talk about the physical warehouse layout a bit. See you then.

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