Order fulfillment can either make or break your eCommerce business.
After all, if you can’t get your products to your customers in a timely and efficient manner, they’re likely to go elsewhere. But on the other hand, great order fulfillment can lead to good reviews and repeat business.
What’s more, eCommerce fulfillment is only getting more complex as the industry grows. With new technologies and shipping options emerging all the time, it can be hard to keep up, especially with commerce juggernauts like Amazon setting the industry standard so high.
That’s why we’ve put together this comprehensive guide to order fulfillment. Here, you’ll learn everything you need to know about how to fulfill orders from start to finish.
We’ll cover topics like:
- In-house vs. outsourced order fulfillment
- 3PLs and other order fulfillment services
- The order fulfillment process
By the end of this guide, you’ll have a good understanding of what it takes to fulfill orders successfully. So let’s get started!
What is order fulfillment?
Order fulfillment is the process of getting products from your warehouse to your customers. While the definition is simple, the mechanics of making it work smoothly are anything but.
Order fulfillment begins as soon as an order comes in. At that point, you’ll need to pick, pack, and ship the products to the customer. Depending on your business, you may also need to handle returns and exchanges.
There are a few different ways to fulfill orders, which we’ll discuss in more detail later on. But in general, you can either do it yourself (in-house) or outsource it to a third-party provider.
Why is order fulfillment so important?
Now that we’ve established what order fulfillment is, you might be wondering why it is important in the first place. Order fulfillment is really the centerpiece of your entire logistics operation.
Not to overstate the obvious, but without order fulfillment, customers don’t get products, and you don’t get paid.
Without it, your backroom operations will crumble, customer relations will suffer, and many of those same customers will go to a competitor that provides a better service.
Here are some other benefits of a refined order fulfillment strategy:
1: Reduce costs
It’s not uncommon for eCommerce businesses to underestimate order fulfillment costs. After all, taking orders, label printing, and packaging all cost money. Not to mention the actual work hours it requires to process those orders.
An efficient order fulfillment process will allow you to take a closer look at each component of your operation and find ways to reduce costs. This will have a direct impact on your business’s bottom line.
2: Improve customer service levels
Your customers are the lifeblood of your business, so keeping them happy is everything. One way to do this is by ensuring that their orders are fulfilled promptly and accurately.
This way, you can avoid the negative consequences of late or incorrect shipments, such as angry customers, chargebacks, and returns.
3: Enhance your company’s reputation
Your order fulfillment process is a reflection of your brand. If you provide a positive experience, your customers will remember it and are likely to come back for more.
On the other hand, if you’re constantly making mistakes with orders, your business will quickly develop a bad reputation. In the long run, this will sabotage your bottom line and potential business growth.
4: Optimize and scale your business
A streamlined order fulfillment process can also help you optimize and scale your business more effectively. When you have a handle on your fulfillment, you can better forecast inventory needs and plan for future growth.
What’s more, you’ll be able to take on larger orders without having to worry about fulfilling them accurately.
Plus, when you have a documented, well-planned order fulfillment strategy, it’s a lot easier to scale those processes to multiple warehouses or a growing employee base.
5: Increase sales
Last but not least, a well-run order fulfillment process can help you increase sales.
How? By ensuring that your customers receive their orders quickly and without any issues, you’ll encourage them to buy from you again in the future.
What’s more, happy customers are also more likely to tell their friends and family about your business, which can lead to even more sales.
Now that we’ve gone over some of the main benefits of order fulfillment let’s take a closer look at the process itself.
How does order fulfillment work?
The truth is that order fulfillment processes can vary and depend on your business model. A print-on-demand business will fulfill orders much differently than a dropshipping business.
(We’ll talk more about these specific business models later in the post.)
But to give you a general idea, here’s how the order fulfillment process works for most businesses.
A prerequisite step of order fulfillment is to get the products you ordered from suppliers. A rule of thumb is to set a shipment schedule with your supplier to get the items to your warehouse.
After receiving the inventory, you will classify and keep the items in your warehouse. It’s worth noting that the classification of your stock assumes a critical part in the order fulfillment process because it ensures the accuracy and speed of the process.
You should also classify the products based on the revenue it brings to your business, with the best-selling items organized close to the packing desk.
One of the most popular and effective means of stock classification is the ABC inventory method.
Now, once you’ve received your products from manufacturers and classified them according to their value, you’re set up for order fulfillment success.
Here’s a step-by-step breakdown of each part of the order fulfillment process.
Step 1: Receive customer orders
The first step is to receive customer orders. This can be done in a variety of ways, such as online, over the phone, or in person.
If you’re using a multi-channel inventory strategy, make sure to utilize inventory management software to integrate all your channels into one place.
That way, you can see all your received orders from a convenient dashboard.
Once you’ve received an order, you’ll need to verify that it’s complete and accurate. This is important because any mistakes at this stage could cause big problems down the line.
For example, if you accidentally ship the wrong product to a customer, it will be very difficult (and expensive) to fix the issue.
Step 2: Pick and pack products
After verifying that an order is complete and accurate, it’s time to pick and pack the products.
This involves finding the products in your warehouse and packing them up, so they’re ready to ship.
If you have a small business, you might be able to do this yourself. But if you’re shipping a large number of orders, it’s best to invest in some help.
You can either hire employees to do this for you or outsource the task to another company. This is called 3rd-party fulfillment, or 3PL.
Either way, it’s important to make sure that your products are packed correctly and securely. Otherwise, you’ll end up with a lot of damaged goods – and angry customers.
New to 3PLs? See our guides on 3PL inventory system and how much a 3PL costs to get started.
Step 3: Ship products
Once your products have been picked and packed, it’s time to ship them out to your customers.
To do this, you’ll need to generate shipping labels and choose a shipping method.
If you’re using a fulfillment company, they will typically take care of this for you. But if you’re fulfilling orders yourself, you’ll need to make sure that you’re using the right shipping method for each order.
For example, if you’re shipping a lightweight item to a customer who lives nearby, you might choose to ship it via USPS First Class. But if you’re shipping a heavy item to a customer who lives across the country, you’ll probably want to use UPS Ground.
Once you’ve chosen a shipping method, you’ll need to generate a shipping label. This can be done online through your shipping carrier’s website.
Once you have your shipping label, all you need to do is attach it to the package and drop it off at the post office or shipping center.
And that’s it! Your customer will receive their order in a few days (depending on the shipping method you choose).
Step 4: Track orders and update customers
The final step in the order fulfillment process is to track orders and update customers.
This involves keeping an eye on your orders as they make their way through the shipping process and updating your customers on the status of their orders.
If you’re using a fulfillment company, they will typically provide you with tracking information for each order. But if you’re fulfilling orders yourself, you’ll need to generate tracking numbers and update your customers manually.
Either way, it’s important to keep your customers updated on the status of their orders. The last thing you want is for them to be surprised when their order arrives (or doesn’t arrive).
So make sure to send them tracking information as soon as their order ships. And if there are any delays, be sure to let them know right away.
Optimizing your order fulfillment process
Now that you know the basics of how to fulfill an order let’s take a look at some ways you can optimize your process.
1. Use inventory management software
If you’re not using inventory management software, now is the time to start.
Inventory management software like SkuVault will help you keep track of your inventory in real time, so you always know what’s in stock and what needs to be ordered.
It will also help you automate your ordering process, so you can restock your products quickly and easily.
2. Use a fulfillment company
If you’re shipping a large number of orders and don’t want to deal with logistics, it may behoove you to outsource your order fulfillment to a 3PL.
Fulfillment companies specialize in storing and shipping products, so they can handle all of the details for you. This will free up your time so you can focus on running your business.
Plus, most fulfillment companies offer discounts on shipping rates, so you can save money on shipping costs.
3. Offer free shipping
Free shipping is one of the best ways to increase sales and improve customer satisfaction.
In fact, a study by Comscore found that free shipping is the number one factor that influences online shoppers.
So if you’re not already offering free shipping, now is the time to start.
4. Use flat-rate shipping
If you can’t offer free shipping, the next best thing is to use flat-rate shipping.
Flat-rate shipping is when you charge a single, fixed price for shipping, regardless of the weight or destination of the order.
This is a great way to simplify your shipping process and make it more affordable for your customers.
5. Analyze each piece of the order fulfillment process
The final way to optimize your order fulfillment process is to put each part of the process under a microscope.
This means taking a close look at every aspect of your process and finding ways to improve it.
For example, you might want to investigate different shipping carriers to see if you can find one with cheaper rates. Or you might want to change the way you package your products to save on shipping costs.
The bottom line is that there’s always room for improvement. So take a close look at your process and see where you can make some changes.
Types of order fulfillment
For your business to achieve successful order fulfillment, you need to make the right choice on how you will fulfill orders.
So, how do you find the right of order fulfillment – or how do you define “right” anyhow? Ask business leaders, and each one will recommend a different process.
The truth is that there isn’t a perfect solution for all businesses. Each organization will have different fulfillment needs, so the best thing you can do is evaluate your business and find a process that works best for you.
To help you make the right decision, we’ve put together a list of the most common types of order fulfillment.
1. In-house order fulfillment
In-house order fulfillment is when you fulfill orders using your own staff and resources.
This is the most common type of order fulfillment, and it’s often the best choice for small businesses.
With in-house order fulfillment, you have complete control over every aspect of the process. And since you’re not relying on a third-party company, it’s usually more affordable.
The downside of in-house order fulfillment is that it can be time-consuming and expensive to scale. So if you’re expecting a lot of growth in the near future, this might not be the best option for you.
2. Outsourced order fulfillment
Outsourced order fulfillment is when you use a third-party company to store and ship your products.
This is a great option for businesses that don’t have the time or resources to handle fulfillment themselves. It’s also a good choice if you’re expecting a lot of growth since most fulfillment companies can scale quickly to meet your needs.
The downside of outsourced order fulfillment is that it can be more expensive than in-house fulfillment. And since you’re relying on a third party, you might have less control over the process.
3. Dropshipping
Dropshipping is a type of outsourcing where the fulfillment company ships products directly to your customers on your behalf.
This is a great option for businesses that don’t want to carry any inventory. And since you’re not shipping products yourself, it’s usually more affordable than traditional outsourcing.
The downside of dropshipping is that it can be difficult to find a reputable and reliable supplier. And since you’re not in control of the shipping process, delivery times can be unpredictable.
4. Hybrid order fulfillment
Hybrid order fulfillment is a mix of in-house and outsourced fulfillment.
This is a good option for businesses that want the best of both worlds. With hybrid fulfillment, you can outsource some aspects of the process (like storage and shipping) while still maintaining control over others (like customer service).
The downside of hybrid fulfillment is that it can be more expensive than traditional outsourcing. And if you’re not careful, it can be difficult to keep track of your inventory levels.
5. Make-to-order
Make-to-order is a type of manufacturing where products are made after an order is placed.
This is a good option for businesses that sell custom or personalized products. And since you’re not carrying inventory, it’s usually more affordable than traditional manufacturing.
The downside of make-to-order is that it can be time-consuming and expensive to scale. And since you’re making products to order, delivery times can be longer than with other types of manufacturing.
6. Assembly on demand
Assembly on demand is a type of manufacturing where products are assembled after an order is placed.
This is a good option for businesses that sell products that need to be assembled (like furniture). And since you’re not carrying inventory, it’s usually more affordable than traditional manufacturing.
The downside of assembly on demand is that it can be time-consuming and expensive to scale. And like make-to-order fulfillment, delivery times can be longer than with other types of manufacturing.
7. Print-on-demand
Print-on-demand is a type of manufacturing where products are printed after an order is placed.
This is a good option for businesses that sell custom or personalized products. And since you’re not carrying inventory, it’s usually more affordable than traditional manufacturing.
The downside of print-on-demand is that you are beholden to whatever printing company you hire. If that company experiences pipeline issues (or even goes under), your entire business could tank along with it.
Ensuring successful order fulfillment requires careful planning and execution.
There are many different types of order fulfillment, each with its advantages and disadvantages.
The type of order fulfillment you choose will depend on your products, your business model, and your budget.
No matter which methodology you adopt, it’s essential to have a robust inventory management strategy and inventory management system in place to track your orders, maintain quality control, and forecast your sales into the future.
SkuVault does all these things and more, and we’ve helped hundreds of eCommerce business owners grow and scale through excellent inventory management.
To learn more about how SkuVault helps, sign up for a free demo or check out our features page.
