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Logistics Terms Fulfillment

Registration dateMAR 22, 2022

  1. 1) Definition1) Definition
    1. The dictionary meaning of fulfillment is the execution, performance, completion or processing and process of a customer’s order.

      Amazon, the world’s largest e-Commerce company, introduced FBA (Fulfillment By Amazon) for the first time as a ‘delivery service that performs the entire order process of e-commerce customers, including the role of existing logistics’.

      “Fulfillment’ goes beyond simple delivery in the distribution industry. It has become a service in which a logistics specialist is entrusted with a seller and handles the entire process of processing customer orders until the product is delivered to the customer. It is a ‘total logistics agency service’ that provides integrated management from product warehousing to storage, product selection, packaging, delivery, and exchange/refund service.

  2. Product Warehousing > Storage > Product Packing > Delivery > Returns ManagementProduct Warehousing > Storage > Product Packing > Delivery > Returns Management
  3. 2) Types of Fulfillment2) Types of Fulfillment
      1. · Order Fulfillment
        • This refers to general fulfillment services that handle inventory management, selection, packaging, and delivery to destinations and all types of fulfillment services.

      2. · E-commerce Fulfillment
        • This refers to services such as customer orders, production selection, packaging, and delivery using online.

    table of E-commerce Fulfillment table of E-commerce Fulfillment
  4. 3) Background on the Growth of Fulfillment3) Background on the Growth of Fulfillment
    1. With the development of the IT industry, the culture of delivery and shipping expanded. As the number of single-person households increased, the fresh food and home convenience food industry grew, and the consumer’s needs switched to wanting a reasonable price and high-quality service rather than a cheap product. Accordingly, with an increasing number of online orders, fierce competition for logistics services between companies has begun in the Korean e-commerce market. Innovation is taking place along with an accelerated growth rate.

      As the e-commerce market grew, the volume of logistics increased, and the demand for logistics centers also increased.

      Logistics services go beyond simple warehouse storage and delivery. It has become important to carry out large-scale and automated fast delivery and various requirements of customers. In particular, logistics services play a significant role in the Korean delivery market, where many people are densely populated compared to its small land mass. It has become an essential factor for companies to grow.

  5. 4) Classification on PL(Party Ls) by Phase4) Classification on PL(Party Ls) by Phase
    Party Logistics graphParty Logistics graph
    1. · 1PL (First Party Logistics)
    1PL (First Party Logistics) 1PL (First Party Logistics)
    1. Also called First Party Logistics, 1PL refers to the logistics service that internally conducts the logistics business that occurred in the company. Logistics work is directly carried out with the customers through the in-house department without the process of entrusting the service to an outside company.

    1. · 2PL (Second Party Logistics)
    2PL (Second Party Logistics) 2PL (Second Party Logistics)
    1. Named Second Party Logistics, this is also called Subsidiary Logistics.

      2PL refers to logistics services that are conducted through subsidiaries or affiliates that are separate and independent of the logistics business generated by the company. It is a system commonly practiced by large-scale global companies and conglomerates that have a large volume of their own.

    1. · 3PL (Third Party Logistics)
    3PL (Third Party Logistics) 3PL (Third Party Logistics)
    1. Also called Third Party Logistics, it refers to a case where a specialized logistics company is hired and outsourced logistics work to a specialized company. A company entrusts the entire warehouse management, inventory management, labeling, delivery, and logistics business to an outside logistics company. This is the most common logistics method, which is mainly used in shopping malls.

    1. · 4PL (Fourth Party Logistics)
    4PL (Fourth Party Logistics) 4PL (Fourth Party Logistics)
    1. Called Fourth Party Logistics, this is a system that goes one step further from 3PL. This refers to a service that provides logistics consulting and solutions beyond the outsourcing stage. 4PL, which has been established as a new trend in the current logistics market, is an integrated system that establishes a more efficient and systematic logistics method through smooth communication between businesses and consumers. It provides logistics and delivery as well as IT and supply chain (SCM) integration solutions. The term, fulfillment, is more commonly used than 4PL.

  6. 5) Advantages of Fulfillment5) Advantages of Fulfillment
    1. ① Simplification of Distribution Process

      The distribution process has been simplified by utilizing various new IT technologies from ordering to selecting and shipping processing. This allows the optimized process of operation.

      ② Logistics Service Specialized for Each Product

      Through the prediction based on data analysis, optimal transportation efficiency and product safety can be secured according to product size and quantity for each product ordered, enabling specialized logistics services.

      ③ Fast Delivery and Returns/Refunds

      Through the platform, orders from various channels can be linked in real-time to operate and ship inventory. A full service, including returns and refunds, can also be provided.

      ④ Lock-in Effect of Customers

      By providing fast, customized logistics services that customers want, customer loyalty can be gained through the most important ‘lock-in effect’ at the seller level. When a customer is satisfied with the service, the likelihood of moving to another service is reduced, thereby leading to the possibility of a continuous increase of purchases.

      *Lock-in effect : A phenomenon in which consumers stick with existing products and services without converting to other products despite the introduction of new products

      ⑤ Professional Inventory Management

      Advanced preparation and response are possible by predicting the cargo volume for each customer with an AI-based warehousing plan and historical analysis.

      ⑥ Cost Reduction

      Another advantage is an effective cost reduction such as labor costs and time used for logistics services.

  7. 6) The Future of Fulfillment6) The Future of Fulfillment
    1. Due to the influence of the untact culture from the prolonged COVID-19 pandemic, the e-commerce market is now more active in the digital transformation era. Also, there is a predominance in online purchases, as the number of consumers who purchase frequently is increasing according to the form of small-scale production of various forms.

      Fast and accurate logistics service in the e-commerce market is an important factor for both companies and consumers. Innovative logistics services have become the core of competitiveness.

      In particular, as the digital economy becomes commonplace and develops, a lot of expense and expertise are required to provide differentiated logistics services by combining various new IT technologies. Through the fulfillment service, companies can observe the effect of reducing logistics and leading to price competitiveness, and the customers can meet various demands more quickly and conveniently. The significance of fulfillment services is growing.

      The e-commerce market is expected to continue to grow in the future. The logistics service will become more advanced, and the fulfillment service will be developed to meet the diverse needs of customers in line with changes. Ultimately, active use of the fulfillment service will become more important to occupy a high position in the industry competition.