CPG Order Fulfillment 101: Everything You Need To Know
Replacement and replenishment. If there’s one thing you need to know about shipping consumer packaged goods (CPG), it’s how important those two processes are.
CPG goods can be eCommerce cash cows because they operate almost like a subscription business. They are bought, used up, and must be bought again.
However, as part of that, customers need to be kept happy so they continue to trust the brands they buy from. It’s hard to do that if items show up in the mail broken or late.
In order to achieve the enviable steady revenue promised by the CPG sector, CPG companies have to juggle a lot of different keys to success. Among them, you have brand recognition and trust, the price sensitivity of their customers, and savvy supply chain management.
These factors combined make it hard to ship CPG orders. Shipping can get expensive, cumbersome, and has a tendency to push brands to plain brown boxes. Yet in the world of CPG, shipping must be done inexpensively, efficiently, and ideally with custom packaging for maximum brand recognition. It’s a conundrum.
For all these reasons and more, CPG companies need to be very careful which third-party logistics providers (3PLs) they trust with their brand. That’s what we’ll talk about in this article.
We’ll discuss:
- Qualities that set CPG brands apart from the competition
- Challenges of fulfilling CPG products
- Qualities CPG 3PLs companies must have
Let’s start with a brief definition of CPG.
What are CPG (consumer packaged goods)?
Consumer packaged goods (CPG), according to Investopedia, are “products that are sold to consumers and are used for daily personal or household use.” Your average CPG item is going to be packaged in a way that makes it easily identifiable and purchasable. This is because it needs to be easy to find at any number of different retail outlets – online and offline.
Some examples of CPG include food, beverages, clothes, tobacco, makeup, and household products. The common thread being that CPG products are items that require routine replacement or replenishment.
It’s a broad category and tough to neatly categorize. So it’s helpful to consider some examples:
- Food and beverages including cereal, snacks, soda, and bottled water
- Personal care products including shampoo, soap, toothpaste, and cosmetics
- Household items including cleaning supplies, paper products, and pet food
Typically, CPG products are manufactured in large quantities so they can be sold at lower prices. At the same time, though, brands like Grove or even Bath & Body Works can and do sell upscale CPG products.
We touched on this earlier, but for CPG brands, success comes from balancing product quality, brand image, and pricing. Sustainability is increasingly becoming a key factor as well. Here’s how these factors influence success and tie back to fulfillment:
1. Product quality: There is a comfort in buying CPG products. You know what you’re going to get, every single time. Which means quality, and consistency, in particular, is king.
Many popular CPG products must be replaced or replenished. Customers have lots of opportunities to have good experiences, as well as bad ones. All it takes is one negative experience with a brand or product, to initiate a switch when it is time to place another order.
One mistake to lose a customer. That means CPG brands which consistently deliver high-quality products are more likely to retain customers, and over time, generate more revenue. For these reasons, safety, testing, and quality control are especially important.
Fair or unfair, customers will also conflate shipping experience with overall product experience. An Ipsos poll shows that as many as 85% of online shoppers say “a poor delivery experience would prevent them from ordering from an online retailer again.”
2. Brand image and identity: With tight margins and the importance of customer retention, a distinct visual identity and consistent brand voice across all channels, including packaging, are essential.
Partnering with a third-party logistics (3PL) provider capable of supporting custom packaging needs is crucial for maintaining brand image. Otherwise, even the most beautiful CPG products will leave the warehouse in cardboard boxes and kraft yellow mailers.
3. Sustainability: Sustainability isn’t going anywhere. More and more, we’re seeing that consumers are willing to spend more on sustainable products. To reinforce that point, consider that a Pew Research poll shows that a majority of US adults – regardless of age – consider the climate to be a top priority.
The upshot of this is that if customers think you care about the environment, they are more likely to spend money on your products.
Sustainability can take many forms in the CPG industry. Changing up materials to use more recycled and biodegradable ones is one way. Another is through optimizing transportation routes to reduce carbon emissions. No matter what, though, it’s important to find a 3PL that is on-board with sustainable best practices. Otherwise, it’s hard to take action on these good intentions.
4. Price and value: It’s no surprise that pricing is always important in eCommerce. However, it’s more so the case in CPG, because customers must keep renewing their commitment with every purchase. They look at their receipts and order confirmations over and over again, and they must say, each time, “this is OK, I want to keep spending this money.”
With that in mind, while customers don’t want to overpay, most are willing to pay more for products that exceed expectations. Many will pay extra for sustainable products too.
Of course, it’s impossible to keep prices where they need to be when overspending on logistics. Postage, in particular, is a profit margin destroyer. Every public promise made by a CPG brand needs to be supported by a supply chain ready to keep those promises.
6 unique challenges of fulfilling CPG
Quality. Brand image. Sustainability. Price and value. It’s easy to see why these four factors are important to success in CPG. But it’s also important to consider why it’s hard to balance these factors, especially when considering logistics.
Fulfilling orders for CPG products requires the right approach to fulfillment. This is true whether shipping in-house or hiring a fulfillment center. To illustrate this point, let’s consider six ways where CPG fulfillment is uniquely difficult:
- Supply chain management. Even for the simplest operation, supply chain management can be tough. But in CPG, there are typically multiple suppliers, manufacturers, distributors, and retailers involved. Timely, efficient fulfillment means minimizing lead times and optimizing inventory levels. Or, put another way, it means coordinating the efforts of a lot of different companies from different time zones and cultures. Any 3PL involved needs to be able to slip seamlessly into the larger workflow of distributors, retailers, and DTC consumers alike without adding additional hurdles for the business owner.
- Quality control. Consistency is vitally important in CPG. Brands must be proactive about testing and quality control. While much of this falls on manufacturers, it’s often smart to find a 3PL that can do this as well.
- Pricing. CPG brands reach broad audiences. That means there is a lot of pressure to keep prices low. This has the knock-on effect of making profit margins tight, so shipping must be done cheaply without compromising quality.
- Retailer relationships. CPG brands often nurture retail relationships so they can grow and scale. Many 3PLs are purely interested in shipping DTC. So that means any 3PL working with a CPG brand needs to also be comfortable shipping B2B and retail as well.
- Custom packaging. CPG brands use packaging to reinforce their brand, stay memorable, and increase perceived product quality. That means the ability to handle custom packaging is a must-have for CPG 3PLs
- Sustainability. Over half of Millenials and Gen Z will pay as much as 10% more for sustainable products. Brands that focus on sustainable practices such as using recycled or biodegradable packaging and eco-friendly shipping methods can justify charging more.
This is always great in an industry with such tight margins. The trick is just finding a 3PL that can support this.
5 qualities your 3PL must have when fulfilling CPG orders
Now that we have outlined the stumbling blocks, we can focus on qualities that good CPG 3PLs have.
1. Competitive pricing
Optimizing fulfillment expenses is a good way to keep margins in check. This is especially true when you consider that fulfillment expenses are often higher in eCommerce than in traditional retail channels.
Accordingly, CPG brand owners must choose 3PLs that offer a good combination of proximity to customers as well as reasonable postage and service rates.
The ideal CPG 3PL will…
- Have warehouses close to most of your customers
- Provide competitive postage rates
- Provide competitive rates for core and value-added services
2. Quality control and inventory inspection as a service
CPG fulfillment needs to be oriented around maintaining high customer retention, as any negative experience can lead to losing business. This involves two aspects: selecting a 3PL without a history of shipping issues and, when possible, finding 3PLs that offer quality control and inventory inspection as value-added services.
The ideal CPG 3PL will…
- Seldom have items break in the mail
- Proactively find ways to reduce shipping damage
- Provide quality control and inventory inspection services
- Deliver items on-time the vast majority of the time
3. Retail & B2B fulfillment services
Selling wholesale is a significant part of CPG business, and maintaining strong retail relationships is critical. It’s important to seek out a 3PL that is able to handle retail and B2B shipping even if you are only shipping direct-to-consumer (DTC) now.
Retail and B2B fulfillment is a specialized skill that not all 3PLs have. It’s better to work with a partner that can do it when you don’t need it than to work with one that can’t when you do.
The ideal CPG 3PL will…
- Offer B2B fulfillment
- Offer retail fulfillment
- Be able to provide examples of past and present projects in the B2B and/or retail space
4. Ability to handle custom packaging
When you’re shipping CPG products, you need to make sure your 3PL is equipped to handle custom packaging. The archetypal 3PL, as part of their standard process, will retrieve items from shelves, place them in standard boxes or bags, apply postage, and put the items in the mail. Custom packaging, in other words, takes extra work and not every partner can support that.
Any 3PL partner you work with needs to be able to handle custom packaging. That way, you will have the ability to ship anything from unique box sizes and shapes to products with custom labels, inserts, and branding materials.
The ideal CPG 3PL will be able to…
- Handle custom packaging
- Ship items in their own containers
- Provide examples of past or present projects involving custom packaging
5. Eco-friendly processes
Because of the increased amount of attention on environmental issues, it’s important for CPG companies to follow eco-friendly processes in their fulfillment operations. One way you can signal true commitment to eco-friendly business practices is to focus on eco-friendly shipping. It’s easy to point to the carbon emissions prevented by doing so.
The ideal CPG 3PL will…
- Have warehouses near your customers
- Be able to ship using eco-friendly materials
- Can show its efforts to reduce its carbon footprint
Final Thoughts
CPG success hinges on balancing quality, customer experience, branding, and price. Managing these factors together requires a well-run supply chain. Finding the right shipping partner can make all the difference.
It may take time to find the right 3PL. But once you do, it will make it easier to retain customers for life, all while spending less time and energy on shipping.
Need help fulfilling your orders? Click here to request a quote from Fulfillrite.
Brandon Rollins is Director of Marketing at Fulfillrite. His main areas of expertise are online marketing and supply chain management.
It may take time to find the right 3PL. But once you do, it will make it easier to retain customers for life, all while spending less time and energy on shipping.
