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A Brief History Of Fulfillment Centers

Posted On March 10, 2016 by Laura

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Fulfillment Centers are revolutionizing the way business is done in the present, and yet their true impact will be a thing of the future. As the world and the global economy walk hand in hand into a time where almost every transaction is carried out digitally and online, E-commerce and Fulfillment Centers will be at the helm of many businesses. To better understand the importance of Fulfillment Centers, and to show just how they came to such prominence, it is essential to understand the birth of E-Commerce and how that paved the way for what we have today.

Electric Baby: The Birth Of E-Commerce

Most people would pinpoint the start of E-Commerce as the moment when household names like Amazon and Google began emerging back in the late 90’s. However, E-Commerce had been gradually building years before, and to date it has been around for just over 40 years. E-Commerce began back in the early 1960’s with the integration of EDI (Electronic Data Interchange) and its implementation by several businesses. EDI laid the groundwork for B2B and E-Commerce by setting standards that allowed businesses to electronically share data with each other. The exchange of invoices, shipping orders and many other vital documents was a beacon for just how influential digital transactions could become. Over the next 20 years, technological advancements continued to lay placeholders along the road for E-Commerce.

The English Inventor and Entrepreneur Michael Aldrich is credited for the invention of online shopping in 1979. However, it did not reach its full potential until Sir Tim Berners-Lee created the World Wide Web and its accompanying browser in 1990. Since the invention of the World Wide Web, online shopping has become a viable economic option and solution and is the advent for many of E-Commerce’s advances over recent years. It has met many roadblocks and deterrents along the way, but it has definitely shown no signs of slowing down. One of those many roadblocks was the concern of data theft and the security involved in using a credit card to make purchases online. This was solved in 1994 with the emergence of SSL (Secure Sockets Layer) Encryption. SSL encryption provides a secure connection that allows for the transmission of private and personal data online. This encryption bolstered the faith of both consumers and businesses in digital transactions. Increased Security was established 10 years later in 2004, with the formation of the PCI DSS (Payment Card Industry Data Security Standard). The PCI DSS is simply an information security standard for companies, organizations, and individuals that handle branded credit/debit cards from the major card schemes.

The nature of E-Commerce is ever evolving and there are many kinks that need to be worked out as it goes along, but one thing is for certain, E-Commerce has been beneficial to the development of the global economy and it has resulted in the need for solutions to niche markets, resulting in the creation of Fulfillment Centers.

“Who You Gonna Call?” Solving Overwhelming Orders

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With the ever growing prominence of online transactions and the added convenience and comfort that they brought, it was no surprise that the markets around them began to integrate and adapt everything to E-Commerce. The looming question was never when would this fad end, but rather when would old methods of processing transactions no longer be capable of keeping up.

Several companies suffered huge blows blows to their customer service reputation with the integration of eCommerce and online shopping. The act of integrating your business with eCommerce automatically widened the scope of your reach and greatly altered the specific demographics that companies may have already been meeting. With such a diverse customer base in even more diverse locations, a lot of companies struggled to fulfill the high volume of orders that they were still so unaccustomed to.

There is a lot of immaculate work that goes into receiving orders, then proceeding to fulfill them, and delivering them on time to your customers. Understanding exactly what goes into this will illustrate just how easy it is to become overwhelmed with orders.

For most companies, the first step in the order process is receiving an order. The received orders have to be sorted to make the steps that follow run smoothly. They can be arranged by volume, location, delivery date or whatever parameters seem to pertain to the specific company. Once the orders have been received, the next step in the process is to print out the order slips which are then sorted according to delivery and shipping methods (expedited shipping, international shipping etc.) as well as those that have special instructions with them. For instance, some customers may want their orders gift wrapped or engraved, rather than using regular mailing packages.

After the process of receiving the order and printing the order slips, picking, packing and shipping are up next. This all-inclusive three stage process is one of the most important. Companies have to verify addresses and ensure that orders are going to the right destinations and at the end of it all they have to be coordinated enough to be able to confirm that the desired product and packages have arrived.

With such an intricate process it is quite easy to see how companies became inundated with orders. When business volume becomes too much of a challenge to keep up with, it seeps into other aspects of your company and this is damaging. It was often the case that corporations did not have the desired space to house all of their products (increased orders leads to increased production, supply, and demand). For others, they start focusing so much on fulfilling the immense number of orders they are receiving that they neglect every other aspect of their business and this leads to companies failing just as soon as they begin.

Some companies were lucky to have the available resources that go into handling all of these problems. However, not every growing company has the capital or the time to handle building new storage units, hiring new staff and training them as well as issues like taxes and maintenance of new equipment.

Why The Need For A Fulfillment Center?

Fulfillment centers were bound to be created sooner or later. It was merely the next evolutionary step in the growth and expansion of the supply-chain model. Fulfillment Centers are responsible for ensuring that orders are met on the tail end of the supply-chain. They are essentially in charge of warehousing, locating the item ordered, packaging it and shipping it to the desired address. Some fulfillment centers play a more central role if they are equipped to process payments and update the inventory of their respective clients, which is termed as e-commerce fulfillment.

The need for fulfillment centers springs up at two different points in the supply chain. Each of these positions has a different appeal depending on who is in need of the service. It could arise at the point in the supply chain between the manufacturer and the consumer or between the retailer and the consumer. Needless to say, if it is used for the former then that negates the need for having a retailer. Some manufacturers offer their goods directly to the consumer in effect bypassing the inventory, distribution and logistic sides of the supply chain. This is done for most small businesses that initially handle their own fulfillment on small scale orders. It is important for a lot of companies to be able to identify whether or not they even need to outsource a part of their business to fulfillment service providers.

For small businesses that handle their own fulfillment, it is a cost efficient and much more personable way of reaching your customers and building a brand that will be loyal to your product. However, as popularity grows and your orders begin to flood in, you will either have to expand your warehousing capabilities or outsource your order fulfillment. Some companies opt to expand and continue focus on their product while others prefer to outsource so they can dedicate their focus on different aspects of a budding company.

On the other hand, some major retailers outsource their fulfillment once they enter the arena of online shopping. With the growing conveniences that online shopping offers, retailers have had to step up to the plate and fulfill the influx of orders they receive on a daily basis. This is evident in the way major retailers such as Walmart and Target have each invested in constructing their own fulfillment centers. Fulfillment centers have now become the backbone of a part of E-Commerce. This is because not every E-Commerce transaction is going to call for the use of a fulfillment center but fulfillment centers almost always need the precedent of an online transaction occurring.

Fulfillment Centers: New Pillar of E-Commerce

Before the onset of the age of E-Commerce, fulfillment centers were merely an idea waiting to be shaped. Several businesses would contract shipping houses or utilise the postal service for orders that needed to travel quite some distance. The methods they had in place were simple enough to track their inventory as well as handle the packaging and shipping. However once the volume of orders gradually went up year after year, it only made sense that fulfillment centers would become a necessity. The direct correlation between an increase in volume and a need for more time, space and commitment can not be overstressed. This proportionality is key to the increased need of fulfillment centers.

In the late 90’s several prominent businesses were making headway as they revolutionized the global market by integrating their services with the budding prospect of E-Commerce. Amazon, eBay, Yahoo and a host of others, they paved the way for what would become one of the pillars of the global economy in the 21st century. Amazon was one of the few companies that never saw a need to find a 3rd party to handle its expansion, so they buckled down and did it on their own, which paid off in ways no one could imagine.

Fulfillment centers are there to take the weight of your company and provide the space and services you may be slipping under. The use of a fulfillment center does not imply that you cannot handle your own business, it is simply a good sign that your business has exceeded beyond any expectations you may have set on it. It is evident, without a doubt, that fulfillment centers are integral to the continued success of E-Commerce. Their pivotal role in bringing the supply chain full circle is unparalleled. Being able to witness their continued evolution is amazing and it will be even more so once they finish shaping the future of the global market.