Order Fulfillment Strategies for 2023

Fulfillment strategies play a critical role in the success of any business, and the right strategy can greatly impact a company’s ability to meet customer expectations and drive growth. In this report, we take a deep dive into the various fulfillment options available and analyze the pros and cons of each approach to help you make informed decisions for your business. Whether you’re a small start-up looking to expand, or a large corporation looking to streamline operations, this report has something for everyone. Get ready to unlock the full potential of your fulfillment strategies and drive your business forward.

The results reveal that overwhelmingly, SMBs manage order fulfillment in-house but feel constrained by rising warehouse costs and labor management difficulties. Transitioning to an asset-light model of operations becomes an appealing solution to these issues.

Fulfillment Strategies: Current State

The survey revealed that 89% of merchants currently operate at least one owned warehouse, but in-house fulfillment strategies aren’t working. Merchants reported several fulfillment strategy challenges in 2022: 

• Increased warehousing costs (79%)
• Labor management became more time consuming (36%)
• Concerns about environmental sustainability (30%)

Overwhelmingly, small to mid-sized businesses (SMBs) manage order fulfillment in-house. However, 45% of respondents indicate a desire to move their team away from time-consuming logistics management and back towards focusing on their company’s core competencies.

Rising warehouse costs, a changing labor market, and awareness of the environmental impact of current fulfillment strategies compounded merchants’ challenges. With these complexities in the changing market, the SMBs indicated three needs in logistics management going forward:

• End-to-end solutions (38%)
• Comprehensive logistics technology (36%)
• The ability to scale and automate (31%)

35% of SMBs felt that outsourcing fulfillment would alleviate logistics labor and allow for greater focus on core business functions. However, traditional outsourced fulfillment strategies often do not meet the SMBs’ expectations. Traditional models can require long-term commitments to an average daily volume (ADV) of orders in return for storage space, which limits the SMB’s ability to scale. Oftentimes, a warehouse management system (WMS) may not have the technological connectivity an SMB needs to simplify day-to-day operations. Regional 3PLs offer limited delivery coverage.

Under these current conditions, employing multiple providers in a patchwork-fashion for nationwide delivery coverage is often the solution. However, utilizing an asset-light fulfillment strategy would prove less time-consuming and more efficient.

The Future of Fulfillment Strategies

The survey reveals that there is an appetite for a more flexible, scalable, and asset-light model of fulfillment management. 74% of respondents agree that the future of fulfillment is in co-warehousing models. In analyzing the data, three distinct fulfillment strategies emerge as key:

1) Co-warehousing

A co-warehousing model allows merchants to share resources including space, labor, and technology at reduced operating costs. This model provides scalability and technology options to SMBs that are usually reserved for larger businesses.

67% of respondents agreed that we will see a shift away from the large, single merchant warehouses towards the smaller, distributed co-warehousing models. In fact, 33% have already transitioned to co-warehousing, and 65% are planning to make long- and short-term investments in leased warehousing space over the next 1 to 2 years. Many respondents identified key benefits to the co-warehousing model, including:

• Cost savings (60%)
• More time to focus on other areas of their business (41%)
• Access to higher quality inventory technology (40%)
• Optimized inventory distribution that reduces time in transit on final mile deliveries and thus reduces carbon emissions (39%)
• Scalability (38%)
• Access to better fulfillment capabilities (33%)

With higher benefits for reduced costs and outsourced logistics, it is clear that co-warehousing is the future of fulfillment.

2) Strategic Partnerships with Retail Brands

As consumer demand shifts, many large retailers find themselves with excess capacity in highly-automated fulfillment centers. This has led retailers like GAP Inc. to open up space to small to mid-sized retailers looking to take advantage their advanced fulfillment capabilities. A full 90% of SMBs are open to a shared warehousing agreement with a retail brand under certain circumstances. Common concerns were found to make merchants hesitant to seek out a retail partner:

• Retailers prioritizing their own products/ services over the SMB’s during peak seasons (47%)
• Lack of flexibility and ability to pivot when supply chain issues arise (38%)
• Lack of transparency in inventory and customer data (37%)
• Sharing customer data with the retailer (35%)
• Integrating new technology into the SMB’s existing logistics tech stack (34%)

In addition to these concerns, SMBs were found to be open to shared warehousing if the following circumstances were also met:

• If the model proved to be more cost-effective than other options (22%)
• If there is a clear contract (21%)
• If the retailer is not a direct competitor (16%)
• If there were different capabilities compared to those offered by 3PLs or other providers (16%)
• If a neutral third party was involved to ensure orders are prioritized (15%)

For this reason, GAP Inc. has partnered with UPS-owned Ware2Go to serve as a neutral third party to manage the ins and outs of SMBs’ fulfillment and provide a supply chain technology platform to plug into their warehouses without disrupting day-to-day operations.

3) Investment in Better Technology

A winning order fulfillment strategy relies on the industry’s ability to evolve technology and tech access in order to meet the demands of an ever-changing market. 36% of SMBs report that improved technology can alleviate their time spent on warehouse and fulfillment logistics. In fact, 39% have reevaluated their warehouse technology providers and costs over the past 1 to 2 years, and 33% believe that co-warehousing will offer better access to fulfillment and automation capabilities. 

When ECR4Kids expanded into marketplace sales, they discovered how quickly customers expected their items to be delivered. Lee Siegel, CEO of ECR4Kids observed that, “If it’s not available to them, and if it’s not going to ship within 24 hours, they’ve already moved on to someone else. You have to be positioned geographically, and with the right technology, and with the right mindset, to be able to react to consumers’ needs, essentially on demand.” Sales Manager Justin Siegel further emphasized the importance technology has in communicating with the customers. “If [the technology] is not in place, they’re inundated with customer interaction that make it very challenging to do business in marketplace.”

SMBs are looking for the following technology capabilities in 2023:

• Technology that enables real-time inventory visibility (44%)
• Technology that enables inventory re-allocation between warehouses and sales channels (36)
• Technology that offers delivery insights into the order fulfillment status (35%)
• Technology that provides predictive analytics to assist with forecasting and procurement (34%)
• Technology that provides insights on customers’ locations and buying behaviors (33%)

The Future is Asset-Light

An ever-changing market has shown SMBs the value that co-warehousing models can bring in times of changing consumer demand. Flexible fulfillment models like co-warehousing simplify logistics, reduce capital expenditure, and allow merchants to focus on what matters most to their business. Partnering with a trusted retail brand and implementing newer technology will also help alleviate costs and labor management so that companies can focus on their core competencies.

To learn more about how Ware2Go, a UPS Company, and Gap Inc. are bringing enterprise fulfillment capabilities to merchants of all sizes, read all about their new collaboration here.