12 Fulfillment Terms You Need To Know

November 19, 2020
Post by
Seal-Bin Han
12 Fulfillment Terms You Need To Know

3PL

Third-Party Logistics (3PL) is the use of third-party businesses to outsource aspects of a company's logistics and supply chain services. A business might seek out a 3PL for services like warehousing, distribution, and fulfillment. Why use a 3PL? It’s similar to why it’s easier to use Gmail than to solder together an email server in your garage. By outsourcing logistics tasks to a specialized firm, the 3PL's client gets superior service and is freed to focus on their core competencies.

Last Mile

Not a literal mile! Last mile refers to the last leg of the package’s journey – from fulfillment hub to its final destination. Because getting a package to an exact address is pretty difficult, the last mile can account for up to 28% of a shipment’s total cost. Keeping last mile costs low is the cornerstone of any fulfillment process.

Finished Goods Inventory

What distinguishes finished goods inventory from just plain, old inventory? Finished goods refers specifically to goods that have already been manufactured, are in stock, and are available for purchase. It’s usually the amount of undamaged inventory in your warehouse. This count will be tracked in your WMS (Warehouse Management System) so you can avoid stockouts and put in new orders before your reorder point.

Stockouts

When you run out of inventory for a product, you have just experienced a stockout. Stockouts are bad news for any company because they prevent your customers from purchasing your product. After setting up your marketing flows, paying for ads, and driving traffic to your site, the last thing you want to prevent a sale is an avoidable inventory problem. Reputable 3PLs help you to avoid stockouts by tracking order velocity and prompting you to ship new inventory at the reorder point.

Reorder Point

This is the level of inventory at which you need to replenish your stock. Typically, the reorder point is calculated based on the average throughput of a given business’ sales over a set period. At Hook Logistics, we work with each client to find a reorder point that ensures they never experience stockouts but also aren’t paying for extraneous storage. Once the reorder point has been reached, you are automatically notified to send more pallets to ensure that every order can be shipped without delay.

Palletization

A pallet is a flat platform used as a foundational structure for storing inventory. Palletization is the process of arranging cartons on the pallet so as to maximize stability and spacial efficiency. Pallets are used for storing and transporting inventory because they allow dozens of boxes to be moved at once with the aid of a pallet jack or fork lift. Because of this, retailers typically receive and store goods in  palletized form so they can rearrange the inventory faster and store it more compactly.

TI x HI

Sometimes called a Ti-High, Tie-High or Ty by Hi, TI x HI refers to the number of cartons stored on a tier (the TI) by the number of layers high that the cartons will be stacked on the pallet (the HI).

If a pallet’s TI x HI is five x six, how many boxes are on the pallet? 30, because each pallet has six layers of five cartons each. Think of it as a six-layer cake, with five bites in each layer!

Floor-Loaded

When you purchase goods from a manufacturer abroad, they are most-likely going to ship the goods to you floor-loaded. This means that the shipping container is filled by individual cartons, as opposed to pallets.

Why? While palletization is great for storing inventory in a warehouse, pallets are a poor way of utilizing the dimensions of a shipping container. In order to reduce your unit cost as much as possible, your objective should be to pack as many units into a shipping container as you can to lower your freight bill.

When goods arrive in the States, floor-loaded inventory is typically palletized before moving on to its destination. Many wholesalers work with a 3PL for this stage of their supply chain. The 3PL will receive the goods floor-loaded from abroad, unload the container, palletize the products, run basic quality assurance, and then ship the goods out to the retailers’ distribution centers.

Dropshipping

Dropshipping is a retail fulfillment method where the seller purchases the item from a third party and has it shipped directly from that third party to the customer. Usually, this behind the scenes process is not emphasized to the customer.

If you are in the furniture business, the cost of moving containers filled with chairs or beds or couches from Asia or South America to North America can be extremely expensive. In addition to the tight margins, you may need to be on the hook for hundreds of thousands of dollars of inventory at once. Some sellers mitigate this risk via dropshipping. Instead, the product only leaves the manufacturer or 3rd party vendor’s facility after the goods have been purchased by the consumer.

Although this reduces the merchant’s risk, there are clear downsides in terms of customer experience. For one, dropshippers don’t control their own supply or logistics, leaving them at the whim of bad actors and unfortunate events. Order delays and lost inventory naturally follow. Second, as Americans become more accustomed to two-day or even same-day shipping, the delay of dropshipping is increasingly untenable. Those who have experienced a tardy Alibaba.com order know the pitfalls of slow drop-shipping all too well.

Batch Fulfillment

The art of fulfillment is to break down every recurring process into repeatable actions that maximize speed to completion and minimize downside risk in order accuracy. 3PLs typically excel at the task of fulfilling orders because of their specialized knowledge of these processes.

One technique that helps 3PLs fulfill orders efficiently is batch fulfillment. This is an approach to fulfillment where all orders with the same recurring SKU(s) will be picked and packed at the same time from the same bin(s), instead of picking each order by itself. When incorporated into a workflow successfully, this reduces the time spent walking between bins, resulting in more orders fulfilled per hour.

Stock-Keeping Unit (SKU)

“My name is Stock-Keeping Unit, but most people call me skew.”

Every unique item you sell should have its own SKU code, consisting of letters/numbers that represent that item. The number of SKUs in stock refers specifically to the number of distinct products – not the total number of units.

No two companies follow the same rules when it comes to codifying a universal SKU system. As an example, here is the SKU of the same product as labeled by our wholesale business and one of our competitors:

OUR SKU CODE: SHGOWN1-B-S

OUR COMPETITOR’S SKU CODE: BWGG33415BS

Same product. Same manufacturer. Different codes and systems.

eCommerce Fulfillment

When people purchase goods from your online store, you need to make sure you get them what they ordered - stat. Many people start their e-commerce businesses in their own homes or apartments, so it is only natural for them to fulfill orders themselves at the beginning to save money and have full control over the fulfillment/shipping process.

Eventually, when your orders start to stack up, that New York City apartment is not going to cut it. At this stage, most e-commerce companies partner with a 3PL who stores their inventory in a warehouse and ships it out on their behalf.

Retail Fulfillment

Retail fulfillment processes can vary enormously from business to business. When a wholesaler signs a deal with a retailer, the fulfillment requirements and conditions are unique to the product type and to the retailer. The 3PL will receive goods from a manufacturer abroad, and sort the inventory from floor-loaded into pallets. Each carton is barcoded and each pallet is shrink-wrapped and labeled. Finally, the details are clearly laid out in a “packing slip” given to the driver who then accepts the shipment and drives it to the final destination.

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Post by
Seal-Bin Han
Seal is an international man of mystery. He enjoys long romantic walks with his dog, Mango, preferably near or adjacent to warm coastal waters. He doesn’t like cilantro.

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