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Fulfillment, cross-dock, dropshipping–what is the difference between the logistics models in eCommerce?

Choosing a logistics model in eCommerce is one of the first decisions we need to make when we start selling on the Internet. This, however, does not mean that we have to remain true to it once and for all. Today, we’d like to analyze the most popular eCommerce models: Fulfillment, cross-dock, dropshipping, as well as our own warehouse and suggest which one to choose.


A logistics model is nothing more than a way to manage sales, storage, and shipment of our products. However, choosing the right eCommerce logistics model is not the easiest thing to do, and that is for several reasons. First of all, some of them are still little known on the Polish market, which makes it difficult to find suitable partners who will provide a given service (e.g., distributors or courier companies). Moreover, if you are only just beginning your adventure with logistics, the various model names may sound quite mysterious. Dropshipping, eCommerce fulfillment, cross-docking–even knowing the language is of little avail in this case. Therefore, for everyone to be able to choose the logistics model that best suits their individual business needs, we will explain what the most popular ones are based on:


eCommerce logistics models: Own warehouse


This solution seems quite natural, especially at the beginning. When we are just "starting up" our online store, arranging a micro-warehouse in our apartment or garage is pretty easy. With fewer orders, we can do most of the work ourselves. At this stage, the product variety or the number of orders does not require us to automatize the product coding and scanning system or have a ramp for unloading the delivery.


However, this logistics model stops working as soon as you start to grow. An increased number of orders forces you to invest in storage space, additional employees, obtaining appropriate approvals, and attestations. Then, very often, it is not only money that turns out to be the barrier, but, above all, knowledge and experience in constructing a warehouse infrastructure.


As can be seen in the diagram above, in the case of having your own warehouse, the logistic process is quite complex, and what is more, coordinating it is the store owner’s responsibility.


Dropshipping

 

What often discourages people from investing in their own warehouse is a large investment in the product assortment. And on top of that, no one can guarantee that all your products are going to be bestsellers. At this point, another model comes to the rescue. Dropshipping. In this option, you act as a middleman where customers place orders at your store. However, storing, packing, and sending the goods is the responsibility of the distributor or manufacturer. This solution is often chosen by small online stores that do not have the means to invest in their own warehouse and more developed logistics solutions. 


Fiscal settlements may prove to be a disadvantage with this type of solution. Under the law, you are still the seller and are required to provide receipts or invoices. Besides, many suppliers are still reluctant to operate on this model, and if they do decide to implement it, they are quite reluctant, e.g., to pack their products according to your guidelines. Usually, you have no control over the quality of packaging and the standard of shipping. It is also rare to be able to insert something or otherwise personalize a parcel. It’s a significant obstacle in building a loyal group of customers.


So, what role does the store owner play in this model? They take care of sales, marketing, and customer flow in the store. The supplier provides a comprehensive service of storing, packing, and shipping products to customers.


Cross-docking in logistics


This eCommerce logistics model is often confused with dropshipping. However, it is fundamentally different. In cross-docking, you need at least a small storage space that will serve you to repack the goods before they are re-dispatched. This makes it possible not only to pick sets (the essence of cross-docking is to collect products from multiple suppliers and deliver them to one recipient) but also to add leaflets or samples and brand the packaging. However, this model requires extremely efficient operations. After all, each parcel is delayed by one day, compared to the one you would send from your own warehouse. Therefore, all processes must work flawlessly so that this delay is not increased.


The advantage of cross-docking in logistics is, of course, the minimization of warehouse space costs. These goods, which leave the warehouse very quickly, free up space for further shipments. However, due to the number of orders, this model requires extremely structured documentation and automation of processes.


Fulfillment in eCommerce


This model involves the full outsourcing of logistics to an external company. Therefore, you do not need your own warehouse (all products are stored in the operator's warehouse together with the products of other online stores), and when the customer places an order, the product information is automatically sent to the operator's system. Next, they pick the order, pack the product according to the client’s guidelines, and ship it. You, as the owner of the eStore, can keep track of the progress of shipping parcels.



A big advantage of using eCommerce fulfillment, much like the dropshipping mentioned above, is the conversion of fixed costs into variable costs. In other words, you do not pay a fixed amount for the warehouse space. And it does not matter if there are 10 thousand or only 10 products in it. What’s more, you do not have to hire employees. And bear in mind that, when developing an eCommerce business, it is difficult to predict and prepare for large fluctuations (seasonal or temporary trends). In this model, you only pay for the number of parcels sent. Moreover, you do not have to oversee such things as courier contracts, handling returns, or seemingly simple but time-consuming packaging.


A combined model


Some stores utilize a combined model, mixing the above models together. Their selection depends, of course, on the specifics of the business. For example, if you have a wide range of products (from oversized items to small accessories), you can choose, for example, to use dropshipping only for large and troublesome goods, and store small ones in your own warehouse. This also allows you to build a varied store offer. Furthermore, a clever strategy is, for example, to store bestsellers at home and to complement the offer with items delivered via cross-docking. The combined model is also used if you conduct separate sales for B2B and B2C channels.


Choosing the eCommerce logistics model


If someone expects an unequivocal answer, then they will be disappointed. Unfortunately, without a thorough knowledge of the store, including the volume of orders, type of products, and even location, it is impossible to determine which model will meet the requirements of a given business to the greatest extent. However, to make it a little easier, we have prepared the following table. It may prove to be helpful, especially in determining the direction in which we want to develop our online store. Then the choice of the eCommerce logistics model may turn out to be not so challenging!

 

  OWN WAREHOUSE DROPSHIPPING CROSS-DOCKING FULFILLMENT

 

Less than 1000 orders per month

 

X   X  

 

Large dimensions

 

  X   X

 

Products that require special storage

 

X     X

 

Same-Day- and Next-Day-Delivery

 

X     X

 

Packaging branding required

 

X     X

 

Little experience in logistics

   

  X   X

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