This article is written by Neeraj Salodkar, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Prashant Baviskar (Associate, LawSikho) and Zigishu Singh (Associate, LawSikho).
Table of Contents
Introduction
Have you ever wondered how e-commerce websites like Amazon, Flipkart, Myntra, etc., always have the required quantity of goods or services that the consumer needs? Do these e-commerce giants produce their own goods? Rarely. In case a particular good is out of stock, the website shows that the item is out of stock. It also shows how many items of the said good still remain. How is this possible? This article discusses the legal intricacies of the internal working of the e-commerce industries.
The phrase ‘Order Fulfillment’ can be divided into two parts, ‘Order’ and ‘Fulfillment.’ Order, in this context, is instruction, and fulfillment means carrying out. Therefore, when the two words are taken together, it means carrying out certain instructions made by a certain party to another. Therefore, an Order Fulfillment Agreement is an agreement whereby two or more two parties come together to fulfill the requirements of the parties. It is a type of agreement that is ubiquitous and renowned in the e-commerce business.
Parties involved and their role
The following parties are generally included in an Order Fulfillment Agreement:
- E-commerce website;
- Manufacturer or Wholesaler, as the case may be; (For the purpose of this article, it would be called as the manufacturer);
- The delivery company;
Presently, there are thousands of e-commerce websites. It is projected that by the year 2030, e-commerce will dominate offline shopping. This is already a reality in most metro cities.
The e-commerce websites hardly produce their own goods. They only sell the goods made or sold by the other manufacturers or sellers. They provide a platform for buying and selling goods and services. They provide assistance in bridging the gap between the buyers and the sellers. They help in bridging the gap between the demand and the supply. In other words, they connect the buyers with the sellers and the sellers with the buyers. (And they make money out of it.)
To achieve the above objective smoothly and successfully, it is essential to have a bug-free and updated website. Leaving the technical computer stuff apart requires smooth communication between the manufacturer and the e-commerce website. Whenever a certain item is going to be out of stock in a few hours or days, as the case may be, a reminder must be sent to the manufacturer to make available the said item so that it does not go out of stock. Here is when the Order Fulfillment Agreement comes into play.
Illustration and working of the contract
Before going into the details, it is important to know how the Order Fulfillment Agreement works. Following is an illustration:
Amazon is an e-commerce website that sells almost all kinds of goods to retail customers. It is owned by Jeff Bezos, the second richest man at the time of writing this article. On the website, goods are listed. The goods are not manufactured by Amazon. Suppose a laptop is being sold at a heavy discount on Amazon Big Billion Day. The seller is Appario Retail Private Limited, and the delivery is Fulfilled by Amazon. In this case, an Order Fulfillment Agreement would be entered into by the manufacturer, Amazon and Fulfilled by Amazon (that is Amazon itself). Here, Appario Retail Private Limited would inform Amazon about the quantity of the laptop that they can offer, the price, accessories, and other related goods. Amazon would display the same on its website. As soon as the sale starts, the quantity of the laptops will be bought. As soon as a consumer places an order on Amazon, a notification about the purchase, quantity and payment is sent to Appario. On the receipt of the said order from Amazon, Appario shall process the order in accordance with the terms and conditions decided by Appario and Amazon. After this, Appario shall physically deliver the product to the delivery company (which, in this case, is Amazon itself. In other cases, a shipping company like Excom Express, Delhivery, etc., is hired. Amazon has enough resources to be able to afford its own logistics and shipping). After this, the order shall be delivered to the consumer who placed the order. The placing of the order would automatically reduce the quantity available with the Appario. Appario would have to restock the goods as per the Order Fulfillment Agreement when the quantity dips below a certain pre-decided level.
All of the above needs to be in the Order Fulfillment Agreement.
This is how the entire system works. The above example is taken from a real-life situation. This is the link for the same. Amazon.in: Buy HP Pavilion x360 11th Gen Intel Core i5 14-inch(35.6 cm) Touchscreen 2-in-1 FHD Laptop (16GB/512GB SSD/Fingerprint Reader/Windows 10/MS Office/Natural Silver/1.41 Kg), 14-dy0053TU Online at Low Prices in India | HP Reviews & Ratings.
Important clauses in an order fulfillment agreement
The recitals
This contains the reason for entering into the agreement. For the above example, it shall be as follows:
WHEREAS Amazon is an online e-commerce company that sells various products on its website. It desires to engage a wholesaler who sells electronic goods like mobile phones, laptops, and goods of the like nature.
WHEREAS Appario is a wholesaler that sells electronics in bulk. It agrees to be engaged as a wholesaler for electronic goods for Amazon.
Exclusivity
In this clause, it would be mentioned whether the manufacturer shall be exclusive to the e-commerce website or not. In case it is exclusive, then Appario shall deal only with Amazon and no one else. It would be as follows:
Appario shall be the exclusive supplier of Electronic Goods (this shall be defined) and related product order fulfillment services of Amazon.
Scope of work
The ambit and scope of work shall be decided in this agreement. It may be as follows:
The following shall be the scope of work of Amazon:
- Amazon agrees to develop and maintain the website for selling the products of Appario.
- Amazon agrees to develop and maintain a customer service interface for the purpose of placing orders and other related customer service requirements.
- Amazon agrees to conduct all marketing and merchandising efforts, collect all orders and send the same to Appario.
- Amazon agrees to pick up the Electronic Goods from Appario and deliver them to the customer who placed the order. (Hereinafter called as “customer”)
- Amazon shall be responsible for collecting the payment from the customer and paying the same to Appario after deducting applicable taxes as per the terms and conditions laid down in this Agreement.
The following shall be the scope of work of Appario:
- Appario shall be responsible for filling, packing, and delivering the orders of the Electronic Goods that it receives from Amazon within 1 day from the receipt of the order.
- Appario shall be responsible for restocking the Electronic Goods as and when required by Amazon. The restock must be done within 7 days of the date of receipt of the request from Amazon. In case the restock is not possible due to certain issues outside the control of Appario, then Appario must forthwith apprise Amazon of the same.
- Appario shall fulfill all Amazon’s orders promptly and completely.
Relationship of the parties
This clause shall clarify the relationship between the parties. Usually, both of the parties act as independent parties. One is not an employee of another. Both are independent contractors. This is crucial as it limits the parties’ liability and stops the application of labor laws. This clause clarifies that the relationship is purely that of independent contractors, and in no way should it be considered as employee-employer, joint venture, partnership, agency, as the case may be.
Indemnification, insurance and limitations
This clause states that each party shall indemnify, hold harmless and defend the other party for the lapses caused by the breaching and negligent party. Such clauses are essential and help protect any party from the breach and negligence of the other party. For example, Appario mentions certain technical specifications of a particular laptop. It mentions that the laptop has 16 GB of Ram whereas the laptop has only 8 GB of Ram. On the basis of this representation, a consumer buys the laptop. The consumer finds that the laptop has only 8 GB Ram and files a suit for misrepresentation against Amazon. In this case, the negligent party has been Appario and not Amazon. Therefore, in this case, as a suit has been filed against Amazon:
The legal fees;
- Any compensation that Amazon had to pay to the customer as a result of the suit,
- Any other incidental expenses related and ensuing from the negligence of Appario.
Shall be compensated by Appario to Amazon. The same applies to Amazon as well. In case Appario suffers due to the negligence of breach of contract by Amazon, then Amazon shall recompense Appario.
Governing law and jurisdiction
The law that is applicable is mentioned here. This clause is extremely important in the case of international dealings. The jurisdiction clause mentions which court shall have the jurisdiction in case any dispute arises.
Arbitration, conciliation, and mediation
Presently, going to courts is nugatory. Nobody benefits except the lawyers, who earn fat fees from the dispute. Therefore, adding an arbitration, conciliation, and mediation clause help oust the court’s jurisdiction and privatize justice. Any mode and method of arbitration can be opted for.
Conclusion
Clear-cut terms and conditions must be agreed upon between the manufacturer and the e-commerce website to avoid future disputes. Drafting a good and clean contract assists in carrying the business forward and avoiding extensive legal fees in the future. Nothing should be done orally. All intricacies must be well documented in the agreement itself. In case certain terms and conditions are not suitable, the same must be negotiated between the parties.
References
- https://searchcio.techtarget.com/definition/e-commerce#:~:text=E%2Dcommerce%20(electronic%20commerce),or%20consumer%2Dto%2Dbusiness.
- https://www.netsuite.com/portal/resource/articles/erp/order-fulfillment.shtml
- https://www.sec.gov/Archives/edgar/data/1125856/000114576305000005/exhibit102itpd.htm
- https://retail.economictimes.indiatimes.com/re-tales/shopping-in-2030-how-ai-analytics-and-tech-will-enable-our-lives/2803
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