Marketplaces have the choice between different types of fulfillment models (Image via F1online)
The success of an ecommerce B2C platform lies primarily in its fulfillment model.
Shopping online has become fairly simple for the customer, but behind the scenes things are much more complicated.
For an online retailer, picking a fulfillment model - the system by which a customer's order is 'fulfilled' - depends on a wide variety of factors: the suppliers you’re working with, the type of products you’re selling, the control you want to have over the experience, and of course the market.
But is there a model best suited for the young but rapidly expanding MENA market?
Stock it all
Some companies such as Namshi, the Dubai-based fashion retailer launched by Rocket Internet and operating in the GCC and Lebanon, chose to stock everything in their own warehouse. At Namshi, items are either bought by the company and stored in their warehouse, or products continue to be owned by the supplier but are stored on consignment at Namshi.
This model gives companies the flexibility to respond to orders quickly. As soon as they receive an order, they can retrieve the item immediately from the warehouse, package it, and send it on.
Another Rocket-Internet brand, African ecommerce leader Jumia worked much like Namshi for a while. But in February they made the switch to a pure marketplace model: they never buy any item themselves instead acting as an intermediary. They do still work on a consignment model, however, stocking sellers' items before they're sold in Jumia’s warehouse to be packaged.
According to Jumia Maroc general manager Bastien Moreau this method has many advantages: it’s faster, it eliminates all uncertainty about whether the seller has the item in stock, and the marketplace controls what is in stock, avoiding any unpleasant surprises. It’s a good way to make sure the client’s experience is seamless.
In Jumia Morocco's warehouse, outside of Casablanca. (Image via Wamda)
Cross-docking, the middle way?
Cross-docking eliminates the cost of stocking extra merchandise, putting sellers in charge of stocking of their items. When the marketplace receives an order, the seller is asked to bring the item to the marketplace’s warehouse in order to be packaged and shipped from there.
“This is the trickiest [model],” said Moreau. With so many steps, the model lends itself to error or manipulation: the product needs to be received by the marketplace’s inbound team, then labelled, put in stock, picked up by the inventory team, packed and shipped.
The Rocket Internet company charges each seller for taking care of this fulfillment.
The future of order fulfillment: drop-shipping
When Jumia stopped being a retailer, they also added a third fulfillment model: drop-shipping. Moroccan online marketplace Hmall went even further, stopping cross-docking altogether and focusing solely on drop-shipping.
Drop-shipping is when the sellers take care of both stocking and preparing the items. The marketplace company is only there to train the sellers on how to pack according to their standards.
“This has been our goal since the beginning, but the necessary infrastructure was not there,” Hmall CEO Kamal Reggad told Wamda.
In April, the marketplace finalized a large partnership with Moroccan postal service Amana to develop the ecommerce sector. They developed the necessary system for Amana and other shippers to handle this model which finally made it possible.
At the same time, the Hmall team has developed a strong relationship with their vendors and feel comfortable trusting them with the packaging and shipping of products.
“We are a B2C marketplace. Vendors sign an agreement with us before they start selling, we only pay them after the customer receives the order and is happy with it,” he said. If vendors don’t match with Hmall’s standards - a low out of stock rate of 3 percent, a 5 percent return rate, and 24 hour shipping delay - the platform will remove them from the marketplace altogether.
“It made more sense. It helps us shorten our shipping delays, and cut the costs related to fulfillment,” Reggad said.
“We trained all our sellers progressively over the past two months to insure a smooth transition,” he added. “Today we are really excited by the improvements of our KPIs... Our average delivery today is 3.5 days as opposed to eight days previously on the cross-dock model and 8 percent of orders are shipped in under 24 hours in the major cities, like Casablanca.”
Hmall’s warehouse was shut down on April 30 but no staff were laid off, he said. The staff moved to their last mile delivery team and some of them were transferred to vendor relations as the company continues to grow.
“That is how marketplaces are supposed to work,” Reggad said. “We are here to connect vendors with millions of potential customers by offering the platform, tracking system, simplified logistics, payment solutions.”
The right model for MENA
Jumia could get rid of the drop-shipping model, but they choose not to.
“We have a free solution, and then extra services. All those services bring cash in,” Moreau said.
For them, it’s important to keep different models available.
“Depending on the sellers and the products, certain fulfillment models are more relevant,” he explained. For fashion, he said consignment is definitely the most efficient. While for phones, drop-shipping is the most relevant because the volume is huge.
Still, they’re going to push the consignment model to offer a better user experience by incentivizing vendors. Vendors selecting this model will get a 'Jumia first' label on their products, benefitting from reduced fulfillment costs and better visibility on the website, said Jumia Egypt managing director Amaury Celier.