Customers expect almost instant gratification when they place an order. About two-thirds of shoppers across different categories anticipate their delivery in 24 hours.
Order fulfillment is one of the most important parts of the sales process. Failing to fulfill orders in the shortest possible time can lead to customer dissatisfaction, which could ultimately ruin a business’s or logistics provider’s P&L and reputation.
Let’s explore what order fulfillment is and best practices to ensure your business consistently delivers orders on time.
What is Order Fulfillment?
Order fulfillment is the whole process in which a warehouse delivers an order to a customer. It involves different stages, such as receiving and storing inventory, processing an order, picking, packing, and shipping the order to the customer. It also involves processing any returns and refunds to customers.
Order Fulfillment Models
The goal of order fulfillment is to ensure that goods are accurately shipped to customers on time and in great condition. Business owners use various order fulfillment models to achieve this goal, depending on their business’s specific needs.
Here are the main types of order fulfillment models:
In-House Fulfillment (Self-Fulfillment)
In this model, businesses handle all aspects of order fulfillment themselves, from storing inventory to packing and shipping orders. It provides complete control over operations, quality, and customer experience but requires warehousing space, staff, and logistics management. It’s best for small businesses or brands that prioritize a hands-on approach.
Example: A small handmade jewelry brand that packs and ships orders from its studio.
Third-Party Logistics (3PL) Fulfillment
Here, businesses outsource fulfillment to a third-party logistics provider, which manages warehousing, picking, packing, and shipping. The 3PL model is booming because it helps businesses scale without the burden of logistics, but it comes with additional costs and less direct control. It’s great for rapidly growing e-commerce brands looking to focus on sales and marketing.
Example: A growing e-commerce brand that uses a fulfillment center like Amazon FBA.
Dropshipping
In dropshipping, retailers don’t keep inventory but instead transfer customer orders directly to a supplier, who handles storage and shipping. Dropshipping has low upfront costs and reduces the risks associated with keeping inventory, but it results in lower profit margins and less control over fulfillment speed. It works well for businesses testing new products or starting with limited capital.
Example: An online clothing store sourcing products from suppliers on AliExpress.
Hybrid Fulfillment
This is a combination of multiple fulfillment models to help businesses optimize efficiency and reduce costs. Companies may handle high-demand products in-house while outsourcing slower-moving inventory to a 3PL or using drop shipping. It provides flexibility but requires careful inventory management.
Example: A company selling its bestsellers in-house while dropshipping less popular items.
Crowdsourced Fulfillment
This model relies on gig workers or local delivery networks to fulfill orders quickly, often in real-time. It’s common in industries like food, grocery, and alcohol delivery, where delivery speed is important. While it enables fast delivery, businesses must coordinate with third-party platforms, which can limit control over the process.
Example: A local alcohol delivery service using third-party drivers to fulfill orders in under an hour.
The Order Fulfillment Process
A typical order fulfillment process begins when the business or warehouse receives inventory and ends when the customer receives the order. Although the process may look different among businesses, it typically involves multiple stages, such as inventory management, order processing, quality control, refund management, customer support, etc.
Let’s dive deeper into each stage.
Business receives inventory
The business receives inventory from a supplier or manufacturer. These goods are inspected for quality control and to confirm the amount received. The items are then stored in a warehouse or stockroom according to the requirements of the inventory management system used for easy access and retrieval.
Customer places order
Customers browse your online store and place an order. Ideally, the shipping costs and estimated delivery time would be communicated to the customer at checkout, and this information would be shared with your back office to prepare for fulfillment.
Order is prepared
Using the existing inventory management system, the order fulfillment team can proceed to pick the right orders and pack them appropriately to prevent damage in transit. The workers will also attach a shipping label and return form on the package. Many companies use visually appealing packaging to trigger an unboxing experience for the customer.
Order is shipped
Once the order is packed, it is handed over to a shipping carrier to be sent to the end consumer, who could be an individual customer or a retailer in the case of wholesale orders. The tracking information would have been sent to the consumer to monitor the package as it moves to the final location. This allows the customer to be available for delivery or make necessary pick-up arrangements.
Returns management
Most e-commerce businesses have return policies that customers can follow to return an item. Once a return request is received and the item is shipped back, the order fulfillment team will assess it for damage to check whether it qualifies for return. Depending on the state of the item, it may be re-added to existing inventory or disposed of.
Why is Order Fulfillment Important?
Order fulfillment is the core of any business that sells products, whether B2B or DTC. No sale is complete until the order gets into the customer’s hands, and this is how companies make a profit. A seamless order fulfillment process ensures that customers receive their orders on time and in good condition, leading to positive experiences and repeat purchases at a cost that allows the business to succeed.
Good order fulfillment operations can also give businesses a competitive edge, as customers will always choose the brand that guarantees fast and reliable shipping options over the competition.
Common Challenges in Order Fulfillment
Order fulfillment challenges range from inventory management issues and picking and packing errors to supply shortages.
Inventory management issues
If inventory isn’t tracked properly, products can go out of stock, leading to delayed orders and unhappy customers. On the other hand, too much stock can result in wasted resources, especially for perishable goods.
Shipping and logistics problems
Shipping costs, delivery delays, and unreliable carriers can create serious issues. If a package arrives late or gets lost in transit, customers may lose trust in the brand. International shipping adds even more room for issues due to customs, duties, and regulations.
Order accuracy errors
Sending the wrong item or missing products from an order can frustrate customers and lead to returns or refund requests. Mistakes in picking and packing increase costs and create extra work for customer service teams.
Managing multiple sales channels
Businesses that sell on multiple channels, such as their websites, marketplaces like Amazon, and physical stores, need a smooth system to track all orders. Without proper coordination, customers might order an item that appears available online but is actually sold out in-store.
Lack of control on outsourced fulfillment
For businesses using third-party logistics (3PL) or dropshipping, there is often a lack of control over product quality and delivery speed. If a fulfillment partner is slow or makes mistakes, customers blame the business, even though it doesn’t handle shipping directly.
Best Practices to Optimize Order Fulfillment
A great order fulfillment process boils down to how well you can organize the different stages for maximum efficiency.
Improve inventory management
Process incoming inventory quickly and return damaged items to the manufacturer immediately. Store inventory in warehouses near your customers and distribute it across your business’s different sales channels. This ensures workers always have access to inventory and speeds up order fulfillment.
Check products before shipping
Shipping the wrong products to customers can result in wasted time, money, and resources and can also result in very angry customers.
“Even if you have the best customer service and can remedy the situation quickly, it’s still a waste of time and money between resolving the customer’s issue and shipping the new order,” – Bernie Schott, the CEO of REECH, a yoga products company
For shipping accuracy, ensure your order picking and packing strategy includes technology like RFID and barcode scanners connected to your WMS to reduce the chances of errors.
Maintain good relationships with shippers
No matter how great your in-house order fulfillment processes are, a bad shipper will ruin all your efforts. Build good relationships with your carriers and ensure they have all they need to deliver packages efficiently. Effective communication is also important, such as notifying them ahead of time when you’re expecting a surge in demand so they can prepare.
Make data-driven decisions
Data is a powerful tool that can help you make key decisions to improve your order fulfillment process. From inventory management to picking, packing, and shipping, it’s crucial to leverage existing data to make good decisions. For example, Don White, Senior Director of Solutions Engineering for Da Vinci, uses data to improve picking strategy and save on labor costs.
If I can see how long it took him to walk between locations, for instance, I can change the slotting of items to decrease that walk time. If I save 2 minutes picking 20 orders in operation, if 10 people are picking 500 orders a day and I’m saving them two minutes every 20 orders and I’m doing that over 365 days a year, now I don’t need as many people to pick.” – Don White
Better picking processes lead to faster shipping and, ultimately, faster order fulfillment.
Automate wherever possible
By reducing manual tasks, businesses can speed up processing times, minimize errors, and lower labor costs. Automating key areas of the order fulfillment process, such as inventory management, order processing, and shipping, creates a smoother workflow.
For example,
- Using warehouse management systems (WMS) with barcode scanning or RFID technology helps track inventory in real-time, reducing the chances of stockouts or overstocking.
- Automated order processing systems can instantly verify order details, assign inventory, and generate shipping labels, cutting down processing time.
- Robotic picking and packing solutions in warehouses can also increase efficiency by handling repetitive tasks with precision.
Achieve Faster, More Accurate Order Fulfillment with Da Vinci WMS
With Da Vinci WMS, you can take your order fulfillment to the next level. Our advanced warehouse management system optimizes inventory tracking, automates order processing, and ensures seamless shipping integration.
Ready to optimize your order fulfillment strategy? Request a demo and see how you can transform your operations.