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What is order fulfillment? A guide for serving your customers

There’s a lot of elbow grease that goes into landing a sale, but you also know that the hard work doesn’t end there. Once a customer has made a purchase, you need to start the order fulfillment process.

Order fulfillment is when you complete the transaction by selecting and delivering the purchased products to your customer. In a broad sense, order fulfillment applies to any type of business that’s filling a customer’s order. However, it’s most commonly discussed in the context of ecommerce businesses.

Think of order fulfillment as the bridge between a customer placing an order and actually receiving the product in their hands. It sounds simple in theory, but with everything from inventory management to supply chain problems, there’s a lot that goes into effective and efficient order fulfillment.

Why is efficient order fulfillment important?

The speed with which you fill orders carries a lot of weight—both for your customer satisfaction and for your business’ bottom line. Here’s why:

  • Customer expectations are high: Today’s customers have become accustomed to receiving orders quickly—something many have coined the “ Amazon effect .” Your customers don’t want a long lag period between when they complete a purchase and when they receive their product. In fact,  53% of customers  say the speed of delivery is an important consideration when shopping online, and 25% have actually canceled an order due to slow shipping speeds.
  • It gets inventory off your shelves: Businesses need to ensure they have accurate inventory to fill customer orders. Promptly fulfilling customer orders after they’re purchased streamlines inventory management and gives you a real-time grasp on what products you have readily available.
  • It’s better for the environment: Efficient order fulfillment eliminates unnecessary steps in the process where you might be increasing emissions or otherwise wasting valuable resources. Not only does this serve the planet and please your customers ( 70% of consumers  in the United States and Canada say it’s important for a brand to be eco-friendly), but it can also reduce your business’ order fulfillment costs.

The five steps of the order fulfillment process

As we mentioned, on the surface, order fulfillment seems fairly straightforward: you receive the order, and then you fill it. Sure, that’s the gist. However, there are a few more steps involved in the typical order fulfillment process.

Step #1: Receive the order

The customer places an online order via a business’ website or app, and the business receives a notification that the order has been placed.

Step #2: Process the order

During order processing, the business confirms they have appropriate inventory to fill the order and logs the purchase in their inventory management software, order fulfillment software, or accounting software. This piece is often automated when businesses use software that integrates with their online store.

Step #3: Pick the product(s)

The purchased product is retrieved from where it’s stored—such as on a pallet in a warehouse—and set aside to be sent to the customer.

Step #4: Pack the order

The product is packed in preparation for being sent to the customer. Fragile items are wrapped carefully, the customer’s address is applied, and packing slips are included. This paper trail is a helpful record for both the customer and the business to ensure the package contains all of the items that were ordered.

Step #5: Ship the package

The packaged product is sent to the customer from a warehouse or order fulfillment center and delivered to their door via a delivery service.

Those are the standard five steps, but there’s one more that comes up from time to time: processing returns. It’s estimated that 15-40% of online purchases end up being returned by customers, which means businesses have to take the extra step to log that return, receive the product, and re-update their inventory accordingly.

Three types of order fulfillment

There isn’t just one way to go about order fulfillment. There are a few different order fulfillment models and approaches that businesses use to get products into their customers’ hands. These include:

  • 3PL: Stands for third-party logistics, where a business outsources their order fulfillment to a different provider. We’ll discuss this one in a little more detail below.
  • Merchant fulfillment: The seller or business handles all aspects of the order fulfillment process on their own (including warehousing inventory, getting required insurance and licenses, etc.). You might also hear this referred to as in-house fulfillment. It gives businesses control over the entire process, but it can also be costly—especially as a business gets bigger.
  • Dropshipping: The manufacturer of the product handles the order fulfillment process. When the business receives a customer order, they pass that information along to the manufacturer who ships the order directly to the customer. Keep in mind that if a manufacturer is international, order fulfillment might take longer.

What is 3PL and what type of business is it right for?

To reiterate, 3PL stands for third-party logistics. A business using 3PL for their order fulfillment is outsourcing the aspects of their supply chain and fulfillment operations—from warehouse management to delivery—to an outside company or vendor (known as an order fulfillment company).

Like anything in business, this approach offers some advantages as well as some drawbacks.

Pros of 3PL:

  • No need to have in-house expertise: The fulfillment provider handles every part of the process, which means businesses don’t need to hire staff to manage inventory, pack and ship orders, and more. All of that is outsourced to order fulfillment services.
  • More cost-effective: Companies that offer fulfillment solutions are usually able to negotiate cheaper shipping costs because they’re shipping in bulk for a variety of customers. Additionally, since businesses don’t need to worry about storing or warehousing their own inventory, they can order in larger quantities and get a discount.

Cons of 3PL: 

  • Lack of control: When you delegate your fulfillment operations, you give up a great deal of control. That lack of hands-on direction and management can be overwhelming to a lot of business owners.
  • Upfront cost: While 3PL will save you money on inventory and shipping, there is a cost associated with working with this sort of provider. The cost will vary based on the type of fulfillment service and whether they charge a flat rate, per square footage, or a project rate. However, as ecommerce continues to increase in popularity, fulfillment provider costs have been steadily rising too.

Common challenges of order fulfillment

Efficient order fulfillment is crucial, and it isn’t without its hiccups. Many businesses—whether they’re new or established, big or small—can run into order fulfillment challenges, including:

  • Incorrect orders: One common reason why customers return their online purchases is because they received the wrong item. For effective order fulfillment to happen, businesses need to have streamlined systems, processes, and tracking in place to ensure orders aren’t just filled but filled correctly.
  • Improper inventory management: To fulfill orders, you need to ensure you have the right inventory. Without inventory management software and efficient workflows in place, you run the risk of selling out-of-stock items or needing to inform customers of backorders. That can be costly in terms of your reputation and your bottom line.
  • International shipping: Order fulfillment can feel complicated enough when all of your customers are based in your same country. Add international shipping (and the added costs and requirements associated with it) into the mix, and it makes for a common order fulfillment hurdle.

Those are some standard challenges. But, the COVID-19 pandemic threw even more wrenches at online retailers. Global supply chains were interrupted, yet more people were shopping online than ever.

All of that combined has presented major roadblocks for ecommerce stores in the form of shipping delays, staffing shortages, and constantly-shifting government regulations.

As a result, some businesses have added BOPIS (buy online, pickup in-store) or click-and-collect order fulfillment options for customers. With this model, customers pick up their purchases at a local store location rather than having their purchase shipped directly to their home.

This reduces the costs of last-mile delivery (a term for when purchases make their last move to their final destination, which is often the most costly part of fulfillment) and gives customers another way to get their orders quickly.

How to speed up order fulfillment: Three best practices

Customers don’t want excessively long wait times to get their purchases in their hands and ensuring that speed requires a thoughtful order fulfillment strategy. Here are three things you should turn your attention to.

1. Find the right fulfillment center 

When it comes to shipping, customers want two things: They want it to be affordable, and they want it to be fast.

Satisfying those expectations can be tough, but urban fulfillment centers can help—and they can generally get products to customers more efficiently than centers based in rural areas.

Fortunately, these types of centers are cropping up in major cities. As just one example, Deloitte reports that a real estate firm is converting a parking garage underneath Millennium Park in Chicago into a last-mile logistics facility.

2. Leverage technology

Clunky software will only slow you down, whereas technology will help you with automation, accurate recordkeeping, and more. Your ecommerce platform, inventory management software, and accounting software should all integrate seamlessly to make the process as streamlined as possible.

Your business management software should make it easy to track the entire order fulfillment process, including selecting items, packaging them with labels and invoices, and shipping to customers with a tracking number.

3. Source locally when you can

Getting products locally whenever you can helps you shorten fulfillment times, especially as the pandemic continues to institute shipping and warehouse restrictions, significantly slowing down the supply chain and overseas manufacturing.

Just think: the closer your products are to home, the easier time you’ll have getting them to your customers as efficiently as possible.

Efficient order fulfillment means more happy customers

In business, a lot of emphasis gets placed on making sales. But, what happens after those orders are placed matters too.

That’s where order fulfillment comes into play. It needs to be handled efficiently and effectively in order to deliver a high-quality customer experience, streamline your internal operations, and ultimately boost your bottom line.

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