Understanding Order Fulfillment: Process, Strategy, and Best Practices
By Abhishek Sebin on
In the evolving world of e-commerce, understanding order fulfillment is the backbone of any successful online business. Whether you are an established online retailer or just starting your business, mastering the art of e-commerce order fulfillment can help you scale heights in your industry. From the moment a customer clicks "Buy," a well-coordinated process begins to ensure their purchase arrives on time and in mint condition. But what happens in the background?
Order fulfillment is more than just getting a package from one place to another. It encompasses every step, from placing an order to reaching your customer's doorstep. Read a comprehensive overview of the order fulfillment process in this blog by PostShip.
We will help you understand the process, strategies, and best practices to improve order fulfillment for your business. Focusing on order fulfillment strategies improves your business, enhances customer experience, and builds brand loyalty.
Continue reading below!
What is Order Fulfillment?
Order fulfillment involves the entire process, from placing an order to delivering the product to the buyer's doorstep. It involves multiple steps, including inventory storage, order packaging, order processing, picking, packing, shipping, tracking, and managing returns. Effective fulfillment is crucial for online stores in e-commerce, as it directly affects operational efficiency and consumer satisfaction.
Order Fulfillment Process
Order fulfillment starts after a customer completes an e-commerce purchase from your site. It involves several steps, beginning with the system logging in the order and ending with it being picked from storage and packed securely. It is then shipped through a reliable carrier and delivered to the customer.
Inventory Receipt and Storage
This involves accepting products from suppliers, checking for damage, and updating inventory systems. Once products arrive at fulfillment centers or warehouses, they must be properly stored. This process involves recording the inventory, assigning storage locations, and making sure everything is organized for quick access when orders come in.
Order Processing
Order processing involves receiving the customer's orders, validating the order details, checking inventory availability, and preparing items for shipment. This step may also include payment processing and fraud detection.
Picking
Picking is selecting the correct items from inventory based on the order.
Packing
Securely packaging items to prevent damage during transit and include necessary documentation like invoices and return labels.
Shipping
After packing, the items are handed to a shipping carrier for delivery to the customer. Delivery times can vary based on the customer's location, the shipping method, and the carrier. Order tracking information is typically sent to the customer at this point. The shipping stage also involves managing returns and exchanges.
Returns Processing
Returns are an inevitable part of the e-commerce experience. A streamlined returns process ensures that the returned items undergo inspection, are restocked, or disposed of as needed, and that the customer receives timely refunds or replacements.
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Order Fulfillment Goals
The primary goal of order fulfillment is to deliver the right product to the customer within a stipulated time while minimizing errors and costs.
Order Fulfillment Methods
Businesses can adopt various strategies to ensure order fulfillment based on the package size, order volume, and operational capabilities. Here are two order fulfillment methods:
- Manual process: This involves human intervention in completing various tasks involved in the fulfillment process, like picking and packaging the orders. It works well in regard to flexibility but is prone to errors and inefficiencies due to its reliance on manual labor, especially for large order volumes.
- Automated process: Larger order volumes automated by utilizing order management systems and automated shipping solutions. This method improves the speed and accuracy of fulfillment operations and minimizes human error.
Effective order fulfillment is critical to maintaining customer satisfaction and operational efficiency in any business that sells products. By understanding the importance of order fulfillment, companies can better strategize their operations to meet the rising demands of the online market.
But what’s the importance of order fulfillment? Let’s read about that next.
Importance of Order Fulfillment
A well-planned order fulfillment process can boost customer experience, build loyalty, and give you a competitive edge. It can also help reduce operational costs and improve customer service.
Impact on customer satisfaction and loyalty
Order fulfillment process influences customer satisfaction. When customers place an order, they expect a timely and accurate delivery. Research shows that 24% of consumers abandon their shopping carts if deliveries are delayed.
A retailer consistently delivers products in good condition and on time, fostering trust and loyalty. This positive appeal encourages repeat purchases. To enhance their fulfillment processes, brands must set high standards for delivery speed.
Competitive advantage in the market
A robust order fulfillment strategy can help differentiate a brand from its competitors. Companies streamlining their operations, from inventory management to shipping, can respond to customer demands and market changes faster. This agility is essential to staying relevant in today's e-commerce environment.
For instance, retailers that utilize 3PL (third-party logistics) providers outsource their logistic requirements and maximize their fulfillment potential. They can focus on core activities such as marketing and product development while ensuring that order processing and shipping processes are swift and accurate.
Reduced costs and improved customer service
By automating various aspects of the fulfillment process, such as order processing and inventory tracking, online firms can minimize labor costs and reduce human error.
Companies implementing advanced warehouse management systems (WMS) to optimize the order picking and packing processes are an example. This leads to faster turnaround time, lowers operational costs, and enhances overall customer experience by facilitating timely deliveries.
Learn more about optimizing e-commerce shipping process to maximize sales and profit in this blog by PostShip: Ecommerce Shipping: Methods, Strategies, and Solutions for 2024
Order fulfillment directly impacts customer satisfaction and loyalty. It also helps reduce costs and improve service quality. However, to prioritize efficient order fulfillment strategies, businesses should know the various types of order fulfillment processes so that they can stay ahead of the game.
What are the different types of order fulfillment? See below.
Types of Order Fulfillment
E-commerce businesses have several options for order fulfillment, each with its advantages and disadvantages. The best choice for your business will depend on factors such as sales volume, available resources, and customer locations.
The most popular methods include the following:
In-house or Merchant Fulfillment
In-house fulfillment is when a business handles the entire order fulfillment process internally, from storing inventory to packing and shipping orders to customers. This option gives you complete control over the process, but it can be time-consuming and expensive, especially as your business grows.
- Store Inventory in company-owned warehouses or facilities.
- Receive customer orders through the company's online store or sales channels.
- Pick, pack, and ship orders to customers using the company's resources and shipping carriers.
- Handle customer service and return processing.
Process:
For example, a clothing retailer keeps its entire inventory in its own warehouses, processes orders through its website, and ships products to consumers using its own logistics team.
Outsourced Fulfillment
Outsourced fulfillment is when a business hires a third party provider, known as a 3PL (third-party logistics), to handle the entire order fulfillment process on its behalf. Outsourcing helps you free up time and resources to focus on other areas of business.
- Send inventory to the 3PL's warehouses for storage.
- Receive customer orders through the company's online store or sales channels.
- Forward orders to the 3PL for processing.
- 3PL picks, packs, and ships orders to customers using their own resources and shipping carriers.
- 3PL handles customer service and returns management.
Process:
Example: An online electronics seller who sends their products to a 3PL's warehouses, and following a customer's order on the website, the 3PL picks, packs, and ships the item to the customer.
Dropshipping
Dropshipping is a retail fulfillment method in which a store doesn't keep the products it sells in stock. Instead, the store purchases the item from a third party and facilitates shipping directly to the consumer. Every order is forwarded to the supplier, who ships the product to the buyer. This model minimizes the upfront costs but might sacrifice product quality and delivery times.
- Partner with a dropshipping supplier that offers the products the store wants to sell
- List the supplier's products on the store's website
- When a customer places an order, the store forwards the order and payment to the supplier
- The supplier ships the product directly to the buyer using their own packaging and shipping methods
- The store handles customer service and any issues related to the product
Process:
For instance, an online pet store lists cat collars from a supplier on its website. When a customer buys a cat collar, the store places the order with the supplier, who then ships the collar directly to the customer.
Hybrid Fulfillment
A hybrid fulfillment strategy combines in-house or in-network warehousing with outsourced fulfillment partners or 3PL locations. Businesses can fulfill some orders in-house while outsourcing others or use dropshipping for certain products while keeping the most popular items in stock for quick delivery.
Use Cases
- Expanding fulfillment networks: Growing businesses opt for hybrid fulfillment to expand their fulfillment capabilities by combining their warehouses with 3PL locations.
- Optimizing enterprise fulfillment: Large companies with their warehouses can use 3PLs to handle order overflow, seasonal spikes, or remote warehouse locations. Online sellers can also import products directly from suppliers to third-party locations for shipping.
- Combining FBA with in-house: Brands using Fulfillment by Amazon (FBA) keep some inventory in their own warehouses because they have storage limitations, and they ship local orders themselves.
For example, a furniture brand manufactures products in its factories, later stores them in its warehouses, and uses 3PL locations to fulfill orders in remote areas or during peak business seasons.
E-commerce businesses have several fulfillment options based on their needs, resources, and growth stage. The proper fulfillment strategy can help optimize costs, improve customer satisfaction, and scale operations.
But what are the factors to consider before choosing the right fulfillment strategy? Read below.
Choosing the Right Fulfillment Strategy
The right strategy for e-commerce order fulfillment is essential for your business's success and growth. Right fulfillment process encompasses all the steps to get a customer's order from your warehouse to their doorstep.
It includes inventory management, picking, packing, and shipping. Your fulfillment strategy should align with your business goals, resources, and customer expectations. Here are some critical factors to consider when selecting the best e-commerce fulfillment strategy.
Sales Volume
Evaluate your current and projected order volume to determine if in-house fulfillment is feasible or outsourcing is required. If a small or medium business processes a few dozen orders daily, in-house fulfillment from your home or a small warehouse may be manageable.
However, if your sales are rapidly growing and you are processing hundreds of orders daily, outsourcing to a 3PL provider with the capacity to handle higher volumes would benefit your business.
Team Strengths and Resources
Assess your team's capabilities and resources to handle order fulfillment operations. Check the availability of warehouse space, equipment, and a workforce to handle order processing and shipments.
For instance, for businesses with a larger warehouse and a dedicated team to pick, pack, and ship orders, in-house or merchant fulfillment will be viable. Conversely, if you lack the necessary infrastructure and expertise, partnering with a 3PL provider with established fulfillment centers would be more suitable.
Customer Locations
Analyze where your customers are located to optimize shipping times and costs. If your consumer base is primarily on the East Coast, having your fulfillment center in New York would reduce shipping zones and costs compared to shipping from the West Coast. If your customer base is spread across the country, considering a 3PL with multiple warehouses strategically located near major population centers would be beneficial. This allows you to leverage ground shipping and provide faster delivery to your customers.
All these factors will help you choose the right fulfillment strategy for your e-commerce business. It’s also important to understand how each order fulfillment option can impact your business’s operational efficiency and customer satisfaction. How do we differentiate?
Let's compare the various fulfillment options to see which might be the best fit for your business.
“I’ve been using the PostShip on my Shopify store and it's really cool! It makes tracking orders super easy and the notifications are helpful. The app is easy to use and I like how it keeps getting better with updates. My customers are happier now because they can see where their orders are. I think it's a great app for any online store!”
- Mini Joy | United States
Comparing Order Fulfillment Options
How are in-house and outsourcing order fulfillment different in terms of business benefits? Let's differentiate all the order fulfillment options below.
Even with the best strategies, challenges may arise in the e-commerce order fulfillment process. And these challenges directly affect customer experience and business performance. What are the potential order fulfillment challenges? Let's explore them below.
Challenges in Order Fulfillment
E-commerce order fulfillment is critical for online retailers, as it directly impacts business growth and customer relations. We will break down some of the points below.
Incorrect Order Information
Receiving incorrect order information leads to significant issues in the fulfillment process. This challenge arises from human error during data entry or miscommunication between systems. When customers receive the wrong items, they are dissatisfied, which increases operational costs due to returns and reshipments.
To avoid this, e-commerce companies should implement automated systems for order processing and utilize barcode scanning technology to improve accuracy.
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Supply Chain Disruptions
Supply chain disruptions are another major hurdle for e-commerce fulfillment. Factors like natural disasters, geopolitical tensions, and pandemics can impact product availability and shipping timelines. These disruptions can lead to stockouts or delays in order fulfillment, impacting consumer trust and brand reputation.
To counter these issues, businesses should diversify their supplier base and develop contingency plans that allow flexible sourcing and logistics.
Seasonal and Event Fluctuations
Seasonal demand can pose a unique challenge for e-commerce order fulfillment. During peak seasons like holidays or special sales events, order volumes surge. Black Friday and Cyber Monday see massive spikes in online shopping. If businesses are not prepared for these surges in demand, there will be inventory shortages or overwhelming fulfillment processes, leading to delays in shipping and deteriorating customer satisfaction.
To manage this effectively, sellers must analyze historical sales data to forecast demand and adjust their inventory levels accordingly. Implementing scalable solutions can also help accommodate an increase in order volume without compromising service quality.
International shipping complications
International shipping adds complexity to e-commerce fulfillment due to varying regulations, customs requirements, and shipping costs across different countries. Businesses often face problems like longer transit times, customs delays, and unexpected tariffs that can frustrate consumers awaiting shipments.
To navigate international shipping complexities, e-commerce businesses must partner with experienced logistics providers who understand local regulations and offer the best practices for shipping internationally.
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Businesses must adopt effective strategies to overcome these common challenges in order fulfillment. Let's explore some actionable best practices that will help you fine-tune your order fulfillment operations.
Best Practices to Improve Order Fulfillment
Online merchants can implement several strategies to enhance the order fulfillment process. These strategies streamline business operations and improve customer retention and overall efficiency.
Optimize Inventory Management
Effective inventory management is vital for e-commerce businesses. It involves maintaining accurate stock levels to prevent stockouts and overstocks, which can lead to lost sales and increased costs.
- Utilize Technology: Implement inventory management systems that provide real-time visibility into stock levels across all locations. This helps identify slow-moving items and set reorder points to avoid stockouts.
- Distributed Inventory: Consider splitting inventory across multiple fulfillment centers. This allows faster shipping and dispatching of orders from the nearest location to the customer, reducing transit times and costs.
Use data-driven decisions
Leveraging data to predict order trends, optimize shipping routes, and improve customer experiences. Data can also help identify the bottlenecks in the fulfillment process.
- Analyze Customer Behavior: Data can help you understand purchasing patterns, which can help you optimize inventory levels and fulfillment strategies. It can also help merchants anticipate demand and keep stock accordingly.
- Performance Metrics: Track key performance indicators such as order accuracy, delivery times, and customer feedback. Analyzing these metrics can highlight areas for improvement and help refine operational strategies.
Automation
Automation refers to transforming e-commerce order fulfillment by increasing efficiency and reducing errors by using software.
- Automated Systems: Implement automated storage and retrieval systems (ASRS) and other technologies to improve picking and packing processes.
- Order Processing Automation: Use software that automates the order processing workflow, from order receipt to shipping. This includes automatically generating picking lists and tracking updates for customers, which can reduce handling time and support tickets.
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Maintain Transparency with Customers
Transparency is essential in building trust with customers throughout the order fulfillment process.
- Clear Communication: Send immediate order confirmations and provide real-time tracking information. Keeping customers informed about their order status reduces anxiety and turns them into loyal shoppers.
- Proactive Updates: If shipment delays occur, communicate with customers about the situation. To retain them, offer solutions like discounts on future purchases or free shipping on their next order.
Improve Relationships with Shippers
Strong relationships with shipping partners will help in efficient logistics operations.
- Collaborative Planning: Work closely with carriers to develop a mutually beneficial plan that outlines expectations, routes, and service levels. This collaboration leads to improved delivery performance and cost savings.
- Resolves Issues Promptly: Address any issues or claims quickly and professionally to maintain a positive relationship with carriers. Good partnerships result in better rates and priority service during surge times.
Continuous Process Improvement
Businesses should see continuous process improvement periodically.
- Regular Reviews: Conduct regular assessments of fulfillment processes to identify problems or inefficiencies. Customer feedback is a valuable resource for understanding pain points in the fulfillment process.
- Adaptation to Trends: Stay informed about industry trends and technological advancements to enhance the fulfillment experience. Adapting to changes in consumer expectations or market conditions is essential to stay competitive.
By implementing these best practices, e-commerce businesses can improve their order fulfillment processes, enhance customer satisfaction, reduce operational costs, and increase profitability.
We will summarize the key points discussed below.
Conclusion
Mastering order fulfillment is paramount for the long-term success of any e-commerce business. A well-executed fulfillment strategy enhances customer satisfaction, builds brand loyalty, and provides a competitive advantage in the e-commerce market. By optimizing inventory management, leveraging data-driven decisions, automating processes, and maintaining transparent communication with customers, businesses can scale up their operations and improve efficiency.
Furthermore, nurturing strong relationships with shipping partners and continuously refining fulfillment practices ensure they can adapt to evolving consumer demands. Prioritizing these best practices will reduce costs and drive sustainable growth and customer retention in a competitive e-commerce landscape.
A comprehensive post-purchase experience platform, PostShip transforms order tracking and return management into revenue-generating opportunities for SMBs. Schedule a demo to learn how we reduce your operational costs and help generate more revenue.
