Ecommerce Technology: How Online Orders are Fulfilled [Part 2 of 3]
By: Mike Penterman
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In the first part of this three-part blog series, we defined eight ecommerce technologies to grow your business. Now let’s look under the hood to reveal what happens behind the scenes to make order fulfillment successful.
Understanding ecommerce fulfillment
Imagine a customer browsing your website. They see a product for sale and decide they must have it. They add that product to their cart, complete checkout, and submit their order. Now what? After an ecommerce order is submitted, all kinds of magic happens behind the scenes to get the product to the customer’s doorstep. To understand how it all works, let’s analyze four key stages within the fulfillment flow chart:
- Checkout
- Payment Processing
- Fulfillment
- Back-Office Operations
1. Checkout
After the customer adds the product to their cart and proceeds to checkout, they enter their shipping and payment information, and submit their order. Up to this point, the customer experience has been mostly driven by a combination of your experience platform (CMS or DXP) and commerce platform, with your order management system (OMS) involved to the extent of displaying available stock and the estimated delivery timing, along with the full cost of delivery, taxes and applicable fees.
To optimize your global ecommerce revenue, it is critical to localize the checkout experience to reflect the currency and payment preferences consumers culturally expect. As part of that localized experience, your customers also expect to see the full cost of their order, inclusive of all local taxes and shipping and handling fees.
To avoid negative customer experiences, it is important to have a landed cost calculator to display the full cost of shipping the product to their doorstep. This way, your customer won’t be surprised by additional fees, such as any duties, after the purchase. Depending on the vendor, the landed cost calculator functionality might be included in your fulfillment integration or OMS capabilities.
Technology integrations that come into play at checkout include:
- Payment Gateway – Enables local currency, payment methods, data and security compliance, and the secure fields needed to capture and process the customer’s payment.
- Fraud Prevention – Screens the order and flags it if fraud is detected.
- Tax Management – Calculates and displays the appropriate sales or VAT tax.
2. Fulfillment
Getting your product to the customer’s doorstep requires a warehouse to store your inventory and a carrier to transport packages. One way to improve the order fulfillment process is to partner with a third-party logistics (3PL) provider. This allows you to automate all the work that goes into managing ecommerce logistics. As soon as an order is placed on your site, the details are routed to the appropriate warehouse. How the data is transmitted depends on your ecommerce integration, but this is typically achieved through an event webhook where order details are sent from your commerce or OMS platform.
Your OMS platform should use smart sourcing to identify which warehouse has the product in stock and is in the best position to fulfil the order in a timely manner. Once order details are received, the warehouse pulls the product from stock, prepares the packaging, and hands it over to the carrier for delivery. Both the carrier and warehouse update their system records to let you know that the order has been fulfilled.
3. Payment Processing
Once the customer submits their order, the payment processor captures the transaction details, complies with payment card industry (PCI) standards, and facilitates settlement. To settle a card payment, the processor submits the transaction details to the acquirer (the merchant’s bank) who then passes those details on to the issuer (the bank that financially backs the customer’s card) via the card network (card scheme). The issuer then approves or denies the payment authorization request.
An important metric to follow is your acceptance rate (i.e., success rate or authorization rate), which is the rate at which transactions are approved. The inverse metric would be your decline rate, which is the rate at which transactions are declined. Assuming an authorization request is approved, the payment processor then remits funds to your bank account in the form of a payout.
Another important thing to look for when comparing payment providers is the ability to process payments locally (i.e. local acquiring) to optimize global conversions. While many providers advertise the ability to do local processing, the hidden secret is that they require you to have a legal entity in the region. For many brands, the time and expense to establish local entities around the world is too much of a burden and causes major delays in reaching new markets.
4. Back-Office Operations
The final stage is the back-office work that goes into running a successful ecommerce business. If you plan to sell in multiple countries, these operations can become increasingly complex and burdensome. Managing taxes and regulatory fees alone can be a daunting task even for the largest of companies.
While your local taxes can be relatively straight forward, each state and country has its own nuances that can cause confusion. And while emerging markets, such as Brazil, can look attractive for your global expansion efforts, the tax requirements are some of the most complex in the world. Wherever you sell, each tax authority has its own unique requirements.
There is a significant amount of work required to collect and remit taxes, reconcile sales from around the world, repatriate funds into your local currency, and manage refunds and chargebacks. Scaling your operations to register with tax authorities and keep up with the ever-changing rules will delay your time to revenue and cut into your profit margin. Many brands choose to automate these operations through a partner integration so they can focus on their core competencies.
Why brands choose Digital River to simplify back-office processes
In the final segment of our 3-part blog series, we’ll reveal why many leading brands choose Digital River to simplify the most complex challenges of running a successful global ecommerce business.
To learn more about how Digital River can simplify back-office operations and optimize your global ecommerce revenue, connect with us today.