What Is Order Fulfillment and It’s Process and Strategies

Lakshmi D

11 months ago

For the past day, an important news story has been making headlines in the logistics management communities in the US. What’s that?

Walmart has opened a new high-tech fulfillment center of 2.2 million square feet at McCordsville, twenty miles northeast of Indianapolis. Why is it important?

This McCordsville fulfillment center is the largest fulfillment center of Walmart and will enable them to fulfill more orders quickly. Also, this new fulfillment center and Walmart’s existing fulfillment centers will allow them to reach 95% of the US population.

We regularly or infrequently see more headlines of various companies investing in order fulfillment operations. So, knowing more about order fulfillment, its importance, process, and strategies is critical. Let’s fill in!

What is Order fulfillment?

Order fulfillment is receiving, processing, packaging, tracking, and delivering orders to the final customer destination.

Why is order fulfillment important?

As a critical component of the sales process, order fulfillment ensures customers receive the order on time.

When your business poorly executes the order fulfillment process, it delays deliveries. If customers do not receive their orders on time, they won’t buy from that company again. So, order fulfillment is the essential component that impacts the customer experience.

With an effective order fulfillment process, businesses can ensure the trust and loyalty of customers. A loyal customer with word of mouth brings in more customers, and they minimize the cost of acquiring new customers.

Order fulfillment affects the bottom line of the company. With an efficient order fulfillment process, businesses can reduce their shipping costs and improve their turnaround times which helps them increase their sales and revenue. Also, it allows companies to track, refill, and manage their inventory levels.

Today, consumers are comfortable and happy buying products online like never before. In a recent global survey of 31,040 shoppers, 41% said they wanted to receive the product within 24 hours, and 24% wanted to receive their orders in less than two hours. There is more competition as they expect the deliveries to reach them immediately, like the same or the next day.

For customers to admire a brand and be its loyalist, it is necessary to fulfill their orders within a business day, keep consumers in the communication loop till the products are delivered, and ensure a smooth and seamless returns process. So, order fulfillment is critical for businesses to provide customers with cost-effective, timely, and delightful deliveries.

What are the processes involved in Order fulfillment?

Our customers are just a few clicks away from getting what they need at their doorstep. But a process goes on from the time a customer places their order. The process involved between the time a customer places the order till they receive it at their doorstep is called the order fulfillment process. Let’s look at it step-by-step.

1. Receiving the order

The first stage of order fulfillment is receiving the order. During this stage, the business receives the order, customer information, payment details, and special requests. This information is stored in an automated system to ensure the accuracy of the order-related information.

2. Storing the order

During this stage, the ordered items are temporarily stored in a warehouse, storage facility, or other storage systems for easy picking and packing. At this stage, businesses check if items are safe and secure and if the inventory levels are accurate and optimized for better space.

3. Processing the order

In this stage, the fulfillment team from the nearest warehouse retrieves the order from storage, prepares, packs, and organizes it for shipment, along with its documentation. It is necessary for warehouse staff to check if items are safely packed and well-protected during transit and meet shipping requirements like weight size or size limits. This process is crucial to ensure the right products are shipped to the customers at the right time. Any minor delay in order processing can affect the on-time delivery rates for a business.

4. Shipping the order

The packaged orders are transported from the warehouse to the final customer destination during this stage. This stage involves arranging a courier, creating shipping labels with recipient’s address, and providing tracking access and timely notifications to customers till the product reaches their doorstep.

5. Returning the order

In this final stage, customers return the products if they feel the items do not fulfill their requirements or expectations. Customers expect return processes to be quick, easy, efficient, consistent, seamless, and frictionless. For instance, once they return an item, the payment must be initiated quickly. If a replacement is made, the item delivered must fulfill their expectations in terms of quality, and the reattempted delivery needs to reach them at their preferred time window.

A frustrating return experience forces them to choose another provider that can impact brand reputation and profitability.

What are the Order fulfillment strategies, and which is right for your business?

How many orders am I currently shipping?
How many orders is my business looking to ship next year?
How many SKUs should my business use for online and offline fulfillment?
Are my customers scattered across different regions or centralized in one region?
Does my product need more customization?
Does my business cater to an international customer base?
Should I sell my products on an e-commerce website or an online marketplace?

Every business has a different answer to these questions, with varying needs concerning order fulfillment. So there is no fixed rule for selecting the order fulfillment strategy. Enterprises need an order fulfillment strategy to streamline their fulfillment cost-effectively and provide a delightful shopping experience to consumers. Let’s look at the numerous order fulfillment strategies and their applicability to a business.

1. In-house

In-house order fulfillment, also called self-fulfillment or merchant fulfillment, is a model in which businesses manage order fulfillment activities with their internally owned resources. D2C order fulfillment strategy is the best example for this in-house order fulfillment where the company receives the order from the customer and directly ships that order to that customer.

This method suits local or large-scale e-commerce businesses that want greater control over the end-to-end operations of order fulfillment. But as the business grows, it can be costly and hard to scale order fulfillment with the in-house model. There are two ways enterprises opt for when their order volume gets too high.

Increasing operational capabilities and investing in an order fulfillment technology
Outsourcing order fulfillment to 3PL (third-party logistics provider)

As it’s costly to increase operational capabilities and invest in technology as businesses grow, they opt for outsourcing.

Pros	Cons
Complete control over order management	Higher time consumed in fulfilling orders, reducing the time spent in marketing, managing, and growing business.
Low-cost option for new, local, or small businesses	Difficult to downsize the warehouse space when sales slow down.
Complete control over returns management, shipping accuracy, and on-time delivery rates	High picking and replenishment costs involved

2. Third-party

In the third-party fulfillment model, a business outsources everything with the third-party vendor business, like shipping, inventory management, order processing, order management, and warehousing. A manufacturer partnering with Amazon or FedEx to fulfill the customers’ online orders is an instance of using a third-party fulfillment strategy.

3PL companies specialize in logistics and supply chain management and help them optimize their order fulfillment process. This is the best fulfillment option for businesses that want to save time involved in managing order fulfillment operations with in-house resources.

Pros	Cons
As 3PL companies discount volume shipping rates, it minimizes shipping costs.	Reduces control over the entire order fulfillment process
Frees up time for businesses to focus on marketing, strategies, promotion, and branding.	Increases the likelihood of complicating returns management and frustrates customers
Makes businesses flexible to handle the spikes or slowdowns cost-effectively	Quality of deliveries and delivery experience needs to be compromised.

Is it possible to gain end-to-end visibility even while partnering with 3PL companies? Yes, it is. Delivery orchestration software like ShipFlex makes it easier for businesses to optimize their carrier selection and third-party delivery process based on their requirements. Beyond this, it provides a consistent branded tracking experience and live visibility that’s equivalent to an in-house company experiencing it.

3. Dropshipping

Dropshipping is a method where the merchant never gets involved in the logistics or supply chain apart from selling the product. Only the manufacturer produces, stores, and ships the product. After placing an order from the online store, the merchant forwards it to the manufacturer. And the manufacturer dropships the product directly to the customer’s destination.

Pros	Cons
Easy to start as there are no upfront costs	Zero control over the order fulfillment process
Minimal staffing costs	Less control over customer experience
Low inventory, warehousing, and shipping costs	Minimum scope for high-profit margins

4. Hybrid

A hybrid model combines in-house, third-party, and dropshipping models. For instance, a company would prefer to handle order fulfillment of all the popular products or items that need to be assembled before shipping in-house. It can outsource its fulfillment during holidays, peak seasons, or festivals.

Also, it can drop ship bulky, non-custom, and oversized items directly from the manufacturers, which customers purchase irregularly. This hybrid model approach is suitable for companies prioritizing flexibility in order fulfillment.

Pros	Cons
Provides added flexibility in order fulfillment	Difficult to manage inventory moving across different parts
Cost-effective approach if businesses select the right strategy	Time-consuming as the business should juggle the different solutions for orders
Easy to set up as it needs less staff on payroll	Minimal control over shipping accuracy

5. Using stores as distribution nodes

This is the latest advancement in order fulfillment. Earlier, businesses found it efficient to centralize their shipping from mega distribution centers to fulfill e-commerce orders. This helped them consolidate inventory and ship products efficiently to customers and stores. But things have changed as time passes.

The rapid rise in omnichannel fulfillment options like BOPIS and BOPAC has made fulfillment much more decentralized. Businesses can create miniature warehouses using stores as fulfillment or distribution centers. The stores can simultaneously fulfill orders from these modern warehouses for omnichannel, pure offline, and online shopping.

Pros	Cons
Minimizes transit time and shipping costs as retail locations are closer to customers	Increases the unit cost of order fulfillment
Enables more effortless and seamless returns	Requires added workforce to manage fulfillment when order volume goes up
Increases store traffic and margins	Additional costs incurred in inventory management

Last-mile tracking + Analytical Insights + Automation + Time Slot management = Optimal Order Fulfillment

The most crucial decision for your supply chain and logistics is selecting the appropriate order fulfillment strategy. A company must choose this strategy based on future goals, customer demand, and current business constraints. All said and done, a business needs technological assistance whether they carry operations in-house, outsource it to third-party logistics providers or follow a hybrid strategy.

But a question arises on what to look for in order fulfillment from technology. There are four aspects that a business should consider while investing in a tech solution. They are last-mile tracking, advanced analytical insights, automation, and time slot management. Another question arises regarding which solution a business can invest in for its order fulfillment operations.

Locus’ customer experience and dispatch management platform has been one of the world’s best and leading logistics solutions. It provides branded tracking experience to businesses that carry their order fulfillment internally and to those that partner with third-party providers. Its advanced analytical insights help companies to spot operational inefficiencies, strengths, and bottlenecks and rectify them in upcoming orders.

There is one more critical aspect that Locus’ customer experience and dispatch management platform helps businesses in its order fulfillment – time slot management. With its delivery-linked checkout feature, Locus enables your customers to select their time slots. It connects these time slots with capacity-led bookings, helping businesses fulfill orders to customers at their preferred time.

Last but not least, the most critical task that Locus specializes in is its automation in sorting, assigning orders, and routing. Its parcel sorting helps businesses ensure the right orders are assigned to the right driver who regularly serves in a service area. Based on 180+ real-world constraints, it creates optimal route plans for scheduled, dynamic, reattempted, and last-minute orders. These optimal route recommendations maximize the number of orders drivers deliver and let them complete their tasks before the scheduled time.

Are you looking to optimize your order fulfillment for varying order volumes?

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References:

https://www.statista.com/statistics/1279369/delivery-time-expectation-online-shoppers-worldwide/
https://corporate.walmart.com/newsroom/2023/01/18/with-walmarts-new-associate-to-driver-program-the-wheel-is-within-reach