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What Is Order Fulfillment? (+6 Major Steps and How to Improve)

September 30, 2019

Imagine this: a shopper comes across the perfect holiday gift on an online store, but the holidays are only a week away.

This person sees 2-day shipping as an option, so she goes ahead and makes the purchase, feeling confident it will arrive on time. A few days later, the box shows up at her front door, properly packaged and in great shape.

It’s a task this busy customer can cross off her shopping to-do list. To show her appreciation, she writes a positive, five-star review.

Anyone who shops online has experienced the joy of receiving a package at their front door shortly after they order it, but we rarely think about the process of an online order that makes fast shipping possible.

When you’re in the customer’s shoes, it almost feels like magic, but there’s a lot that goes on behind the scenes. The ability to ship an order fast and affordably is a well-designed, streamlined process with several steps, and every step is just as important as the next.

One wrong move and it can cause major delivery issues and an unhappy customer. This entire process is known as order fulfillment.

What is order fulfillment?

Order fulfillment is the complete process of receiving, packing, and shipping online orders to customers. Merchants have the option to either take care of order fulfillment in-house or outsource to a third-party logistics (3PL) company that provides storage, technology, and the people to efficiently and quickly fulfill orders.

cart checkout

The stages of order fulfillment

There’s a lot of moving parts throughout the entire order fulfillment process, and you’ll need a proper strategy to ensure it functions effectively. It entails everything from inventory receiving to returns processing. Here’s a high-level overview of the order fulfillment process:

1. Receiving

Receiving refers to accepting incoming inventory from the manufacturer or supplier. Every merchant has a slightly different receiving process, but a few key tasks include: 

Counting and inspecting items to ensure accuracy
Checking for any possible damages
Adding each new SKU to an inventory or warehouse management software
Recording the number of each SKUs

2. Inventory storage

Once inventory has been received, you’ll need to properly store your inventory for easy picking (see Step 2). Organizing your inventory is crucial for order fulfillment speed and accuracy. It will also provide full visibility into what is available to ship and where exactly to find it.

Your inventory should always be organized by SKU in separate bins so that the right item can be picked and packed as quickly as possible. If you’re not properly organizing inventory or you can’t keep up with it, then you’re at a higher risk to make mistakes with wasted time spent searching for the right item.

3. Picking

At the moment an order is placed online, it begins being processed. The first step of preparing an order for proper shipping is picking. If you’re using inventory management software, this should be done electronically. If manually, you may use a paper picking list that includes where each item is located and the quantity ordered, which will ensure that the right item(s) is being accurately picked quickly.

4. Packing

Packing involves wrapping all items to ensure they are protected in transit and the right packing materials are used based on the type of item(s) ordered. These materials can include boxes, bubble mailers, poly bags, packing tape, bubble wrap, and air fill.

If self-fulfilling, it’s up to the merchant to have these materials on hand. If you don’t stock up on the right packing materials, more time will be spent at the post office or UPS store.

5. Shipping

There are several different ways to ship a package, but of course, most customers are looking for fast, free shipping. You’ll want to do research on different shipping carriers and the options they provide to compare shipping costs.

Different shipping options should be considered before you start selling products online. That way, customers can choose the shipping option they prefer based on how much they’re willing to pay for shipping and how long they’re willing to wait.

If you’re fulfilling in-house, you’ll have to run to your local post office or UPS store each day to ship your recent orders to get them out in a timely manner. If you outsource fulfillment, shipping carriers will pick up from the fulfillment center.

Once the order is shipped, you’ll want to send tracking information to your customer for insight on delivery status.

6. Returns processing

Sixty-seven percent of shoppers will view your online store’s return policy before they make a purchase. If you offer returns, they are also a part of the overall order fulfillment process. Before returns start coming in, you’ll want to consider how you’ll process returns quickly and efficiently, so customers are not discouraged from purchasing from your store again and you can stay on top of your available inventory.

Factors to consider

Many times when merchants are first starting out, they will have products shipped directly to their house, or rent warehouse space and hire a few people to help with order fulfillment. This strategy is doable when you’re first building a business, but it can soon derail order fulfillment (and your sanity) if orders start to triple.

If you’re doing everything right and your business continues to grow, your order fulfillment process will need to change. 

boxes and computer


Here are three major factors to consider that impact your overall fulfillment strategy, especially as your business grows.

1. Order volume

If you’re shipping orders at low volume, shipping packages on your own will suffice. However, once you reach 200 orders or more a month, the self-fulfillment process becomes less efficient and you no longer have time to focus on other areas of your business that require your attention.

Once you’re fulfilling at a high volume, there’s a lot more to keep track of: inventory on hand, SKU velocity, inventory replenishment, what’s currently being shipped, where orders are being shipped, and which items are being returned. This is the best time to consider other options, such as outsourcing fulfillment.

2. Technology

Technology plays a significant role in order fulfillment. It’s not just having the right amount of headcount to get the job done, but also the right data and information to manage it all.

By connecting an order fulfillment software with your online store, you’re able to streamline the entire process. Some 3PL companies are technology-driven, which means they’re equipped with a technology stack that automates and streamlines orders for faster, more accurate fulfillment.

Tech-driven 3PLs can provide the analytics and technology to help you forecast demand and understand which of their warehouses you should store your inventory to reduce shipping costs.

3. Location

Sixty-one percent of shoppers will abandon their cart if shipping, taxes, and other fees are too high.

Where your inventory is stored and understanding where orders are being shipped can be strategic differentiators for your business. Location matters because it impacts the distance and time it takes your packages to travel. By eliminating shipping to the highest, most expensive shipping zones (or the predetermined areas carriers use to charge shipping costs), you can reduce your costs and pass those savings on to your customers.

A key tip here is to consider storing inventory in or close to a major city or central location, so it has the ability to reach a higher volume of customers. If you work with a 3PL that has multiple warehouse locations to store inventory can also expand your reach and drive down shipping costs and transit times.

How to speed up order fulfillment

The easiest ways to speed up order fulfillment are by automating processes, leveraging data, and outsourcing fulfillment.

1. Automate processes

There are a lot of things you don’t have to do manually, including checking for new orders. Leveraging technology, such as an inventory management software, can help automate parts of the process, including setting inventory reorder points, generating picking lists, and managing returns.

Outsourcing fulfillment to a tech-enabled 3PL is another way to automate fulfillment, so they automatically pack and ship orders for you as soon as an order is placed, assigning it to their fulfillment center that has your inventory and is closest to your end customer.

2. Leverage data

Data is power. By using data to build and improve your overall order fulfillment strategy, you’re able to make better business decisions. For instance, historical order data provides insight into future order demand to help prevent potential stockouts. Utilizing technology helps provide real-time data so you know how much inventory is on hand at any given time, and you’re not relying on static snapshots of one point in time.

3. Outsource fulfillment

As mentioned, the fastest way to speed up the order fulfillment process is allowing someone else to take the wheel. Once merchants reach the next level of growth, oftentimes they partner with a fulfillment provider rather than continuing to fulfill orders on their own. 

While self-fulfillment may seem like the most cost-effective way to manage orders (while keeping control over the process), it can slow fulfillment time down and raise shipping costs in the long run. By outsourcing fulfillment, you’re given access to warehouse space, technology, and fulfillment experts who can take care of it all for you.

When do I know it’s time to outsource fulfillment?

The biggest question many e-commerce business owners ask is: when is it time to outsource fulfillment?

inventory guy


The two major reasons merchants choose to outsource fulfillment relate to time and money are spending too much time and spending too much money. 

Spending too much time on order fulfillment

Many times, merchants find themselves spending too much time on order fulfillment that they struggle to find time on other important business duties like product development and marketing. If you’re spending too much time on order fulfillment, to the point where you can’t take a day off or leave the house without your label printer, it may be time to consider a 3PL.

Spending too much money on shipping costs

Many times 3PLs have partnerships with major shipping carriers to provide merchants with discount shipping costs. They also have more optimal locations to store your inventory and ship from, helping you save you money in the long run. Some 3PLs also provide multiple fulfillment center locations where you can easily split inventory across locations to expand your customer reach and offer them faster, more affordable shipping.

Conclusion

Customers want fast shipping, and there’s absolutely no shortcuts to delivering it. While some merchants have found success fulfilling orders themselves, many have found that outsourcing fulfillment is the best decision they’ve ever made. Outsourcing order fulfillment to a third-party logistics partner is easier than you think. Identify what your top priorities are. If spending time on order fulfillment didn’t make the list, then make the switch. 

If you're looking for inventory management software to help automate the above processes, look no further. Find the top-rated solutions and the right one for your needs only on G2. 

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