Local Fulfillment vs Origin Fulfillment
To optimize your eCommerce fulfillment strategy, it is important to understand the advantages and disadvantages of local fulfillment and origin fulfillment. Choosing one or the other, or choosing both, can have a major impact on various factors. These include delivery time, flexibility, and whether or not you have to pay taxes. So let’s start by dividing a little deeper into what either of them entail, and afterwards take a closer look at their advantages and disadvantages.
Definitions
Local Fulfillment
It is a fulfillment strategy in which your fulfillment facilities are close to where your customers are. Many companies that use this strategy produce elsewhere, often countries with low labor costs, and then ship the products in bulk to a fulfillment center in the country where they want to sell the products. For example, many well-known fashion brands produce in countries such as Bangladesh, China and Vietnam and use sea freight to ship their product to retail stores and local fulfillment centers in The United States. When customers order products online, their items will be shipped directly from the fulfillment center in the United States.
Origin Fulfillment
It is a fulfillment strategy in which you keep your fulfillment facilities close to where the manufacturers are. Many small or medium sized eCommerce companies use this strategy as it requires less investment to reach more global customers. It is often the case that these companies produce and fulfill from countries with labor costs, and then ship products directly to worldwide customers. When orders come in, the products are shipped directly using various express shipping services, including couriers like DHL.
Advantages and Disadvantages
Local Fulfillment
The main advantage of local fulfillment is that in most cases the delivery time is shorter. Products are already located close to the customer and can be shipped by using a local delivery service as soon as orders come in. However, an example of where this would not be the case is when a company only has one fulfillment center in the United States. It may take USPS about 5 days to deliver a package to the other side of the country, whereas DHL can deliver a package from China to any customer across the United States in 3 days. Another advantage of local fulfillment is that the total transportation costs (excluding taxes) are mostly lower. This is because in most cases freight forwarders use sea freight, which is cheaper than air freight as often used for direct express shipping. Moreover, since the fulfillment centers are local, it is much easier to handle returns and add them to the existing inventory.
However, there are also some significant disadvantages to having local fulfillment. First and foremost, it is much more capital intensive to have local fulfillment centers in every country you have customers in. In many cases, the rent and labor costs are also relatively higher since the products are sold in countries with higher wages compared to where they are manufactured. With local fulfillment it is also much harder to manage inventory risk, as you have to more accurately predict customer demand. You easily either keep too much inventory or not enough, which both result in huge costs. In addition, since products are shipped into the destination country in bulk, this means that you will have to pay taxes which in many countries can also result in very high cost.
Shorter delivery time in most cases- Transportation costs are lower in most cases
- Easier to manage returns
Higher rent and labor costs- Risk of keeping excessive inventory
- Risk of not having enough inventory
- Tax costs are higher
Origin Fulfillment
There are many reasons why origin fulfillment could be the best choice for your eCommerce fulfillment strategy, especially for small and medium sized ecommerce players. It is also the strategy used by dropshipping platforms, in which products are always shipped directly from where they are manufactured. One of the biggest advantages of origin fulfillment is that it gives great flexibility in managing inventory flows. Whenever stock is running out, it can easily be replenished due to its proximity to the manufacturer. Another major advantage is that for many countries you don’t have to pay taxes, since products are shipped directly for B2C purposes. It can save you tremendous costs if you choose the right strategy for the right destination countries. In addition, the labor and rent costs are often much lower in origin fulfillment since the fulfillment center is close to the manufacturer, which for most companies means it’s in a relatively low wage country. This more centralized approach makes it much more cost efficient, but also much easier to manage. All or most of your products are in one place which simplifies your inventory management and doesn’t allow complicated inventory allocation strategies. Lastly, it is also easier to test out new markets, as it requires very little investment. Just add the destination country to your sales channel and have your logistics providers add the shipping route and you’re good to go.
Of course, there are also a set of disadvantages to origin fulfillment. It can mean that you have to deal with local partners in countries such as China where the language barrier poses challenges. Depending on what kind of logistics partner you use, the delivery time might be longer compared to when you use local fulfillment. Also, it can be harder to manage returns since it’s not always possible to send the products back to where they came from. If really necessary, make sure to work with a logistics provider who can provide local returns in addition to origin fulfillment.
- Much higher flexibility for inventory
- Zero or low tax costs
- Lower labor and rent costs
- Easier to manage
- Easier to test out new markets
- Can be difficult to work with local partners
- Total delivery time can be somewhat longer
- Return handling not always possible
What Can Shipkoo Do For You?
If you are still not sure which fulfillment strategy is the best for your eCommerce business, drop us a line and talk to one of our specialists for advice. We can help you with origin fulfillment directly from Shenzhen, China, allowing you to ship your products straight from the “factory of the world” to wherever your customers are located around the world. Benefit from years of expertise and discounted volume rates to boost your eCommerce business!
