Today, ecommerce has become an unstoppable force in the global economy, upending traditional ways of buying and selling. In 2022, online retail sales accounted for 19% of total global retail sales. With the continuous growth of demand, e-business began to face challenges that are difficult to solve on their own. Order flows are increasing every day. And customers expect orders to be processed quickly, goods to be delivered quickly and returned easily.
The rapidly growing ecommerce sector is increasingly in need of efficient and reliable fulfillment solutions, which fulfillment companies can provide. According to SC Logistics data, in 2022, 57% of companies either partially or fully outsourced their fulfillment, and an additional 20% planned to do so by the end of 2023. Starting a fulfillment center under these conditions can be a highly profitable venture, especially with proper planning.
For those who want to successfully enter this promising business sector, we have prepared a step-by-step guide on how to start your own fulfillment company. This process requires attention to many aspects, and we will cover each of them in detail.
Prepare for Launching Your Fulfillment Business
The successful start of a fulfillment company should begin with preparation, during which you need to define your strategy, analyze the market and competitors, and also consider all the necessary investments for the development of your future fulfillment company. This stage is critically important, as it is where you build the foundation for your future business. Where should you start?
1. Determine the Specialization of Your Fulfillment Company
First of all, you need to decide which market segment you will work with: from clothing to food products that require special storage and transportation conditions. It is important to choose a niche that suits your skills, resources and market needs. Choosing a specialization will allow you to narrow your focus and become an expert in your chosen field.
2. Analyze the Market and Competitors
Analyze the fulfillment market in your region and within the chosen specialization. Identify the current demand, market trends, and potential clients. This will help you gauge the viability of the chosen market segment.
Also research your competitors, identifying their strengths and weaknesses. Determine what services they provide and what prices they have set. This will help you develop a unique offer and determine the competitive advantages of your company.
3. Develop a Growth Strategy
A growth plan will assist you in outlining the route to success for your fulfillment company and gaining a deeper comprehension of your approach to accomplishing your objectives. Begin by pinpointing precise goals you aim to reach within the next 1-3 years as well as in the long run. Select strategic growth directions that will steer the crucial actions required to attain these objectives.
These can be strategies to increase the efficiency of operations, reduce costs, expand the range of services or introduce new technologies. And identify the necessary resources, including financial, human and technical, that will be required to implement your development strategy.
4. Create a Financial Business Plan
Before starting a fulfillment company or any other business, it’s crucial to forecast all your upcoming expenses and revenues. Begin by creating financial projections for the first 3-5 years. Identify all operational and administrative costs, including rent, labor expenses, equipment purchases, and marketing expenses. Distinguish between fixed and variable costs. Calculate the break-even point to understand the monthly workload required for your future fulfillment business to turn a profit. This financial planning will provide you with a clear financial roadmap for your business.
Break down your financial business plan into monthly or quarterly segments to track the dynamics of income and expenses throughout the year. This will help you manage your finances more accurately and plan for additional resources if needed. A financial business plan will also be valuable if you are considering external investment options.
5. Find Suppliers and Partners
Identify the products and services you’ll need to provide quality fulfillment services. You will certainly require packaging materials, transportation services, technical equipment, warehouse management software, and other resources. Analyze the market and select potential suppliers. Pay attention to their reputation, the quality of their products or services, pricing policies, and logistics capabilities.
Agree on all necessary terms with the selected suppliers and partners, from delivery schedules to payment conditions. After registering your fulfillment company, draft written contracts to establish the obligations and rights of each party. Successful collaboration with suppliers and partners can significantly impact the efficiency and competitiveness of your business.
6. Resolve All Legal Formalities
Consult with a lawyer or accountant to register your fulfillment company in compliance with all the legal and tax requirements of your country. Ensure that you adhere to all the laws and regulations relevant to your chosen industry.
Choose a Location for Your Fulfillment Center
The choice of location for your fulfillment warehouse is one of the most strategically important decisions when starting a fulfillment business. The effectiveness of your logistics and your competitiveness will depend on making the right choice.
The ideal fulfillment center location should provide proximity to major transportation hubs. Research the availability of transportation networks such as highways, railways, ports, and airports. This is crucial for ensuring fast delivery and reducing logistical costs.
Assess the availability of qualified labor in the region. Pay attention to the presence of professionals in logistics and warehouse management. Also, consider the growth prospects in this region. Explore the possibility of expanding your operations in the future and the availability of additional warehouse space.
Assemble a Professional Team
When creating a fulfillment company, it’s crucial to assemble a team that understands market needs and has experience in logistics and warehouse management. The effectiveness of your fulfillment center’s operations and your company’s position in the market will greatly depend on this team.
Conduct interviews with potential candidates and assess their abilities, motivation, and alignment with your company’s culture. Focus on their experience in logistics and order fulfillment.
Provide training and professional development opportunities for your team. This may include training in warehouse management, customer service, software usage, and other skills necessary for their roles.
Optimize Warehouse Management
Warehouse management plays a central role in starting a fulfillment center. Optimizing this process can improve efficiency, reduce costs, and ensure high levels of customer service. Consider implementing a modern 3PL warehouse management system (WMS) as a top priority. It will help automate and optimize warehouse processes, including inventory management.
Maximize the efficient use of available warehouse space. This involves designing an optimal layout for your products, reducing the distance traveled by staff, and minimizing order assembly times.
Automate All Order Fulfillment Processes
Automation is also a pivotal factor in the triumph of a fulfillment company. In 2022, approximately 53% of businesses reported that automation had notably diminished their expenses related to order fulfillment.
The initial phase of this procedure entails integrating with the online marketplaces and e-commerce platforms utilized by your clientele. This integration enables your company to receive orders in an automated manner, keep inventory data current, and hasten the order processing workflow. This will result in clients enjoying swifter service, while your team can channel their energies toward other pivotal assignments.
To enhance the efficiency of order fulfillment within your warehouse, institute automated procedures for packaging and order compilation. Leverage sorting systems and conveyors to accelerate order processing and diminish the likelihood of errors. These technological advancements can curtail the duration of order fulfillment and augment precision, which holds paramount importance in ensuring customer contentment and cost reduction.
Ensure Effective Logistics Management
If you are starting a fulfillment company offering logistics solutions for online business, you should be able to provide fast delivery. At the same time, it is necessary to actively look for ways to reduce delivery cost while maintaining efficiency. Optimize your routes. This will help to reduce costs and reduce travel time, which is especially important when processing orders in bulk.
Logistics management also requires the application of modern technological solutions. Integrating your system with various delivery services allows you to choose the best delivery options for each order and optimize delivery costs. Real-time order and inventory tracking provide visibility into your logistics flows, enabling you to respond to changes and delays promptly, minimizing their impact on customers.
Invest in Marketing to Attract Customers
In order for your business to be visible and competitive in the fulfillment market, you need to actively promote your services. Create an informative website and maintain an active online presence through social networks and business platforms. Launch advertising campaigns to bring your offer to the target audience.
It is important not only to invest in marketing, but also to control and analyze the results of your marketing efforts. This will allow to adjust your strategy, identify effective methods and reduce the cost of inefficient channels.
Consider Franchising Your Business
Franchising allows you to operate under a recognized and established brand, accessing a well-honed business model. You’re not starting from scratch but utilizing a system and processes that have already proven their effectiveness. This significantly reduces the time and effort required for launching and growing a business.
Moreover, fulfillment companies that have already earned the trust of clients have a better chance of attracting a new audience. Customers tend to choose established and reliable fulfillment centers. This option can quickly bring a customer base to your company.
However, it is worth remembering that franchising also means subordination to someone else’s business model and management. If you prefer complete independence and your own management, the option of buying a franchise will not suit you.
Starting a fulfillment center from scratch is an ambitious and promising endeavor that demands strategic planning, investments, a deep understanding of logistics processes, and modern technologies. Software solutions like Ysell.pro can help your business efficiently manage all aspects of order fulfillment.
You’ll be able to respond promptly to changes in demand, reduce lead times, and provide a high level of customer service. This, in turn, will impact the growth of your client base, and the profitability of your fulfillment company will be directly tied to the growth of your clients.
Equally important is the creation of an exceptional team capable of managing complex logistics operations and adapting flexibly to market changes. Professionals in their field can not only process orders quickly and deliver them to end consumers but also build strong, trust-based relationships with each customer.
Remember that in the fulfillment industry, treating each customer’s business as your own and continuously striving to optimize processes are fundamental components of success.