Hybrid Fulfillment: A Solution for Fast Ecommerce Growth

You’ve probably heard of hybrid cars and hybrid work, but are you familiar with hybrid fulfillment? The principle is much the same: Combine different things to try and get the best of both worlds. 

Order fulfillment is one of the most complex, resource-intensive parts of ecommerce—and it’s not just a struggle for new businesses either. Fulfillment is one of the aspects of managing an online store that becomes even more challenging as you scale. Any edge you can give yourself can make a massive difference to you and your customers.

Here’s a breakdown of exactly what hybrid fulfillment entails, the different hybrid fulfillment strategies on offer, and how the hybrid approach can help you grow your business.

What is hybrid fulfillment?

Hybrid fulfillment is a logistics strategy that combines multiple fulfillment methods, such as in-house warehousing and third-party logistics (3PL), to meet customer demands efficiently. 

The hybrid fulfillment approach allows businesses to leverage the strengths of each method, optimizing inventory management and reducing shipping times. Implementing hybrid fulfillment can enhance flexibility and scalability, catering to diverse customer needs in ecommerce.

While it might seem like a no-brainer, hybrid fulfillment is still a rare approach. Businesses often turn to outsourced fulfillment as a means of freeing themselves from the investment of time and resources required of self-fulfilling. They don’t want to have to think about fulfillment, focusing instead on other impactful parts of running their business, like marketing and customer support. 

Hybrid fulfillment does require a higher level of time and effort in planning and maintenance than outsourcing to a single fulfillment partner, but the upsides may be worth that investment. 

Types of fulfillment

In-house or self-fulfillment

In-house or self-fulfillment is when a business fulfills their own orders from start to finish. This means storing inventory, picking and packing it as each order comes in, buying and printing shipping labels, and either delivering these orders or bringing them to a carrier for delivery. 

When you have only a few purchases each day, it usually makes sense to own the order fulfillment process yourself. It’s cheaper to self-fulfill a small number of orders, and you maintain full control over your inventory. 

But as your order numbers grow, in-house fulfillment can quickly eat up more and more resources. You may need to pay hefty costs to rent warehouse space to store your inventory and to pay employees to undertake all of the picking and packing. And you’ll likely invest a ton of time into the process, dealing with everything from buying materials to managing returns. Most businesses reach a point as they scale when outsourcing just makes sense.

Shopify Shipping gives you complete control over this part of your ecommerce fulfillment process. Save box sizes, buy discounted shipping labels, add tracking details, and print personalized packing slips, all from your Shopify admin. 

“Getting 200+ orders a day out the door can be hectic with printer malfunctions,” says Jenni-Lynn Williams, CEO of Snarky Tea. “Shopify helps us consolidate and view, at-a-glance, what was printed, shipped, and is moving along in the postal system.”

Third-party fulfillment

Outsourcing fulfillment to a third-party logistics company (3PL) can free you from the burden of storing inventory, picking, packing, shipping orders, and dealing with returns. It’s a quick way to regain time and resources that you can use to grow other parts of your business. Of course, outsourcing comes at a cost, but so does self-fulfilling. 

There are a number of advantages to using a 3PL beyond simply not having to do the work:

• Lower shipping costs. As a high-volume shipper, a 3PL typically will negotiate preferable rates from carriers, with savings that are passed on to you and your customers. This could also allow you to ship to more cities, states, and countries—maybe even the entire world!
• Faster shipping speeds. Speed is important when it comes to keeping buyers happy. Thankfully, 3PLs take advantage of modern technology, highly trained teams, and strong carrier relationships to fulfill orders much faster than you would typically be able to do yourself. A supportive 3PL will also distribute your inventory across its warehouse locations, which speeds up delivery time by bringing your inventory closer to your buyers.
• Transparent, accurate shipping times. For your customers, knowing exactly when an item will be delivered might be the extra push they need to click that Buy button. When you’re fulfilling your own orders, you may be impacted by holidays, staff shortages, and more. But your 3PL will never take a day off, and it’s bound by the terms of your service-level agreement. So, having a fulfillment partner allows you to provide your buyers with accurate shipping times at checkout. 

If you use Shopify Fulfillment Network, an end-to-end logistics solution built specifically for Shopify merchants, you have the added bonus of being able to track orders fulfilled by Flexport from within your Shopify store admin. This makes it easy to get started and easy to follow orders as they’re delivered.

Dropshipping or print-on-demand

Dropshipping has risen massively in popularity in the past decade. Essentially, it entails a complete separation of the supply chain aspect of your business from the marketing or sales side. When someone places an order from your store, that order is automatically sent to a supplier, who then packs it up and ships it to the customer. 

The advantage of dropshipping is clear: You don’t need to invest any money upfront for inventory or worry about anything related to logistics or fulfillment. 

Here’s the downside: By not touching any aspect of your inventory logistics, it’s not easy to provide quality control or customer support when issues arise. You’re putting a lot of trust in the supplier to minimize fulfillment issues. Plus, because many dropshipping businesses rely on suppliers in Asia or South America, it can mean slow shipping times for customers in Europe or North America. 

Print on demand takes the dropshipping model to the extreme. Whereas in dropshipping the inventory typically already exists and is picked and packed when a supplier receives an order, with a print-on-demand model, the inventory isn’t created until that order is placed. 

A print-on-demand company will manufacture the item when it is purchased and then handle the fulfillment. This approach is typically used for clothing businesses or art, but is becoming more wide-reaching for a variety of products, thanks to 3D printing technology. 

Benefits of a hybrid fulfillment model

Hybrid order fulfillment is a popular choice for many ecommerce businesses because it offers:

• Flexibility. With the hybrid fulfillment method, you’re never locked into a bad situation. If you’re unable to fulfill orders because your printer breaks or your warehouse is out of stock, your 3PL or dropshipping partners can still serve many of your customers. If you can’t handle the uptick in orders for Black Friday, you can adjust and shift more responsibility onto a fulfillment partner.
• Cost savings. As your business grows and changes, hybrid fulfillment means you have more open doors to walk through to find the right fit. This flexibility is also reflected in how much you spend. The hybrid approach lets you find the cheapest option for each situation and each SKU.
• Durability. With flexibility comes greater durability—your business’s ability to withstand all the challenges thrown at it to succeed in the long run. With multiple fulfillment methods, you can more easily pivot in response to issues, because you always have a backup plan. 
• Speed. As a small business, you’re probably not able to afford a bunch of warehouses all over the country or around the world. By partnering with 3PLs, you can widen your network of fulfillment locations. In doing so, you’re able to bring inventory closer to buyers, no matter where they are. This proximity leads to faster delivery times—often two days or less—and happier customers.

Approaches to hybrid fulfillment

How you approach hybrid fulfillment should result from a comprehensive examination of your business, including your inventory (size, type, SKU count), your market (niche, location, average order value), your finances, and your goals. 

Broadly speaking, here are the main ways you can approach hybrid fulfillment.

Use different fulfillment methods for different SKUs

With this approach, you and your fulfillment partners have a different set of SKUs that you each fulfill. Maybe you want to handle fragile or expensive inventory yourself while sending your high-volume, low cost items to a third party. 

This is arguably the easiest approach to hybrid fulfillment. Because you’re each only responsible for a subset of what you sell, it’s a fairly straightforward split of the work. However, things can get complicated if a customer’s order includes SKUs being fulfilled in different ways. This can lead to multiple shipping labels and fees and a fragmented buyer experience.

Use different fulfillment methods for the same set of SKUs

Imagine your business is on the East Coast and you’re working with a fulfillment partner on the West Coast. You each handle shipping for one geographic area in the country. 

This requires a bit more coordination and organization, but is still a common way to use hybrid order fulfillment. The challenge here is how you address issues or product shortages in one location or through one method. For example, you might find yourself trying to self-ship across the country, missing your delivery deadlines.

Use overlapping fulfillment methods for some SKUs but not for others

Imagine you sell hats through your store. You decide you want to use one partner to fulfill beanies and another partner to fulfill baseball caps, but you want both partners to fulfill visors. 

This approach requires a lot of coordination and planning. You need to ensure that each fulfillment provider can communicate with one another and that the boundaries and priorities dictating who owns what are crystal clear. Ultimately, there are very few situations where this approach is beneficial to you or your customers. 

How to choose what inventory to send to fulfillment partners

First, always consider your inventory’s proximity to your buyers. Revisiting that hat company example: If you’re located in Vermont and you use a 3PL based out of Florida, it might make sense for you to fulfill beanies while your fulfillment partner handles visors and baseball caps. This could lead to faster shipping speeds for both you and your partner. 

Of course, don’t just assume that more people in colder climates want more beanies. Analyze your historic sales data to identify patterns in terms of which SKUs are being purchased by customers in what geographic areas. Shopify Fulfillment Network actually does this for you—identifying optimal warehouse locations and distributing your inventory based on previous Shopify sales data.

Next, consider the cost of fulfillment between all approaches. We’re not just talking about the cost of shipping here. What are the secondary costs to consider with each approach? Does your 3PL partner charge more for certain types of returns? If you run an apparel business, for example, how expensive is it for your 3PL to restock a returned t-shirt versus a returned wedding dress? 

Other fulfillment costs might include:

• Charges for large item storage
• Inbounding inventory to their warehouses (if your SKUs change seasonally, this can quickly rack up fees)
• Peak periods or high-volume events like flash sales (maybe you only put self-fulfilled items on sale) 

Finally, consider the volume and complexity of each SKU. Generally speaking, the simpler the item is to pick and pack, the better suited it is for outsourced fulfillment.

Do you sell a luxury or high-value item that only gets purchased once per week? It might be worth self-fulfilling that or even using a dropshipping model if your supplier allows. Meanwhile, you’ll likely want to outsource fulfillment of that shirt you sell 100 times each day. 

Do you have any items that require assembly or some other type of special treatment before shipping? Again, that’s probably something you want to do yourself. 

Key technologies in hybrid fulfillment

When you’re using multiple methods and multiple partners are involved, each with their own systems and tools, it can be a lot of work just getting everything up and running. 

You need to ensure that communication is happening at all times, that orders are getting pushed out the door, and that your customers’ questions are being answered. It’s a lot easier to track hybrid fulfillment processes when you can oversee it all in one place—that’s where ecommerce integrations come in handy.

Inventory management systems

The last thing you want is to take payment for a product, only to find out you don’t have it in stock from the predetermined fulfillment center. That kicks off difficult customer conversations that might affect your bottom line, like telling them their order will be delayed or refunding them for an item that’s out of stock. 

An inventory management system (IMS), like the one built in Shopify, helps maintain a positive customer experience by giving you real-time visibility into your inventory. That includes knowing how much stock is available for which products and where they’re located. 

An IMS also helps reduce costs through inventory balancing. Say you’re using Amazon’s fulfillment services for orders placed through the marketplace and managing fulfillment in-house for orders made through your website. Your IMS shows that the Amazon warehouse has just 50 units in stock, whereas your storage facility is holding 3,500 units. Instead of placing a new order with your supplier and forking out money upfront on new inventory, it makes more sense to redistribute inventory from your warehouse and have equal amounts in each. You can buy more stock when you’ve sold your existing inventory.

Order management software

Order management software (OMS) compiles omnichannel orders into a single dashboard, allowing you to process, track, and fulfill orders from a single tool. It doesn’t matter the sales channel they originated from, or the fulfillment method used to pick, pack, and ship the customer’s order. 

This is especially useful if you need to reference order data in customer support inquiries. You can check the OMS to see the method used, the fulfillment status, and the tracking number to offer complete transparency into last-mile delivery.

Warehouse management systems (WMS)

Warehouse management systems (WMS) handle all aspects of running a warehouse operation. 

You can use WMS to:

• Find inventory levels, locations, and statuses across the warehouse
• Forecast demand and inventory levels
• Optimize picking and packing processes
• Buy shipping labels and co-ordinate pickups with carriers
• Schedule warehouse employee shifts

Most third-party fulfillment services have their own WMS. Check that theirs integrates with your ecommerce platform for full visibility into your supply chain. Shopify, for example, integrates with WMS solutions like ShipHero and Shipbob to show inventory and fulfillment data from partners in your Shopify admin. 

Automation and robotics in fulfillment

An order comes through to your OMS. Which fulfillment method should you forward it onto? Thanks to automations in this industry, you don’t have to make these decisions manually. Order routing rules use your predetermined criteria to divert incoming orders to the most appropriate fulfillment method. What became a tedious manual process happens in seconds automatically.

Robotics are another type of warehouse automation that you can use in your hybrid fulfillment strategy. Automated storage and retrieval systems (AS/RS), for example, locate and retrieve inventory. From there, it’s ready for your warehouse team to pack. 

Hybrid order fulfillment lets you get the best of both worlds without investing in expensive technology for your own warehouse. You could handle local orders from your retail store, for example, and outsource online fulfillment to a 3PL that already has these robotics in action. 

Best practices for implementing hybrid fulfillment

Choose the right partners

Customers don’t care who fulfilled an order. If something goes wrong—like their item arriving late or damaged—it’s you who will take the fall. Choosing the right fulfillment partners will prevent these issues from impacting your reputation and customer experiences. 

Before choosing a 3PL partner or dropshipping supplier, ask:

• What are their shipping guarantees? You might promise two-day delivery for orders you’re fulfilling from your US warehouse. But if your dropshipping supplier is based in the EU, they might only be able to commit to a five-day timeframe. Make this distinction clear to customers to set expectations upfront.
• What’s their order accuracy rate? The higher your partner’s order accuracy rate, the less you’ll have to spend rectifying their fulfillment mistakes.
• What quality control measures do they have in place? You will be getting complaints from unhappy customers if items arrive broken, faulty, or expired. Make sure your partners have adequate storage conditions and use protective shipping materials. Food, beverages, and pharmaceuticals will spoil if your fulfillment partner doesn’t have climate controlled storage facilities to store them, for example. 
• Do they offer compensation for late or damaged goods? Partners might be the ones fulfilling orders, but it’s your reputation on the line. 3PL or dropshipping services that offer compensation have some skin in the game. There’s a financial risk to them if they don’t meet their promises, which can motivate them to fulfill their orders quickly and accurately. 
• Can they integrate with your technology? Hybrid fulfillment gives you the best of both worlds—but if you’re spending hours manually tracking orders, it defeats the purpose. Choose fulfillment services that integrate with Shopify, like the Shopify Fulfillment Network, to sync order fulfillment data with your existing infrastructure.

Establish clear communication channels

A hybrid model means you’ll be collaborating with different fulfillment partners. Strong communication—particularly relating to issues like inventory levels, shipping delays, and packing errors—give you the opportunity to fix these problems before the customer experience is impacted.

Say, for example, that your 3PL’s shipping carrier is overwhelmed and unable to stick to the deadline for same-day fulfillment. You need to know as soon as possible. Although your partner is the one fulfilling the order, the onus is on you to inform the customer of any shipping delays before they have to ask why there’s a hold up. You could work with the partner to prioritize orders from high-value or first-time customers before the delivery date is postponed.

Set quality standards

When you use different fulfillment methods, they’re not all going to have the exact same performance. You might self-ship orders slower than your 3PL can. Your dropshipper might take weeks to ship an item to your customers. And maybe you like to do custom packaging inserts in each box, but your print-on-demand supplier doesn’t support this feature. 

This inconsistency isn’t necessarily a deal breaker, but it can be a source of frustration for detail-oriented entrepreneurs trying to build a consistent brand identity and ecommerce experience.

If this is important to you, set quality standards and fulfillment checklists that you expect all of your partners to follow. For example, if you want to include custom packing inserts but your print-on-demand supplier can’t support it, explore other options. If being consistent with your brand messaging is important to you, changing your product packaging might be more cost effective than dropping the supplier for exclusive in-house fulfillment. 

Regularly review and optimize order fulfillment processes

Order fulfillment changes as your business grows. The systems you have in place to manage 50 monthly orders will be vastly different from the one that’s handling 5,000 orders. But you don’t make that jump overnight. 

Regularly reviewing your processes is what helps you scale output while meeting customer expectations, managing costs, and maintaining operational efficiency. 

Look at order accuracy, delivery times, shipping costs, and returns to understand the effectiveness of each fulfillment method. Also consider customer feedback: How do returns, Net Promoter Scores (NPS), and customer satisfaction scores vary by the fulfillment channel used?

Future trends in hybrid fulfillment

The fulfillment industry has undergone rapid change in recent years, and those advancements aren’t set to slow down any time soon. Trends expected in the hybrid fulfillment industry include the following:

Sustainability practices in fulfillment

Customers don’t just prefer to buy from companies that help with their sustainability efforts—they’re willing to pay up to 9.7% more for their products, on average. 

Cater to climate-conscious consumers with your hybrid fulfillment strategy by:

• Using eco-friendly packaging materials 
• Choosing partners that offer carbon-neutral shipping 
• Routing orders to the nearest fulfillment center to reduce transport emissions 
• Using eco-friendly energy sources like LED lighting and solar panels
• Shipping multiple items in the same package to minimize emissions and waste

Artificial intelligence and machine learning

Artificial intelligence (AI) tools work by combining machine learning and natural language processing to analyze data. In a supply chain context, you can use AI to pull insights and automate repetitive processes, ultimately helping you fulfill orders more quickly and accurately.

The supply chain AI space is constantly evolving. Here’s what you can already do using this type of software:

• Run quality control checks on inventory. 
• Forecast demand to optimize inventory levels across multiple fulfillment centers.
• Maintain equipment and machinery with predictive failure alerts. 
• Automatically route orders to a particular fulfillment center based on weather or traffic conditions.

Is hybrid fulfillment right for your business?

Much like there are a number of different fulfillment methods, there are an exponentially higher number of ways you can mix and match them to help your business thrive. 

If your top priorities are flexibility and speed, or you want to bring in a partner but not hand over complete control, hybrid fulfillment might be exactly what you’re after. On the other hand, maybe after reading this guide, you’ve realized that using a single fulfillment method is a simpler approach that’s better suited to your needs. 

Either way, Shopify Fulfillment Network can help you find the perfect mixture of fulfillment methods for your store. The app connects your store with Flexport, a leading logistics provider, who will speed up shipping and help you grow your business, while taking time-consuming order fulfillment off your plate.