What is Order Fulfillment?

Picture this: It’s December 20th — only 5 days before Christmas — and you just bought a gift for your significant other online. (In this hypothetical scenario, you’re a major procrastinator.) Will the gift arrive in time for the big holiday? The answer largely depends on the company’s order fulfillment process.

The stakes are high when it comes to order fulfillment: Speedy delivery and a transparent tracking can build customer loyalty, but slow shipment or errors with customer orders can lead to dissatisfaction and reputational damage. Especially during critical moments like a major holiday.

From the moment a shopper makes a purchase until the product is delivered to their doorstep, the fulfillment process, backed by an effective order fulfillment software, plays a vital role in shaping the overall customer experience. Here’s everything you need to know about how order fulfillment works and how to improve it.

• What is order fulfillment and why is it important?
• The 5 steps of the order fulfillment process
• Different methods of order fulfillment
• Order fulfillment challenges and how tackle them
• Key strategies to optimize order fulfillment
• Best practices for effective order fulfillment
• Order fulfillment FAQ

Order fulfillment refers to all the systems and processes a business deploys to get a product from its warehouse or distribution center to the customer's doorstep. It includes many steps, from picking the items from inventory, to packing them appropriately, and shipping them through a reliable carrier.

At a high level, this may seem like a straightforward process, but efficient order fulfillment involves careful coordination and management to ensure timely and accurate delivery. Each step in the fulfillment chain, from inventory management to shipping, has the potential to impact customer satisfaction and loyalty — and in turn, your bottom line.

Customers expect their orders to be delivered quickly and efficiently. While this base level expectation may mean they won’t necessarily celebrate when order fulfillment runs smoothly, they will most definitely notice (and likely voice dissatisfaction) if something goes awry. That’s what makes order fulfillment a critical factor of customer satisfaction and business success.

A positive order fulfillment experience can lead to increased sales and profits, since satisfied customers are more likely to make repeat purchases and become brand advocates. On the other hand, a negative experience, such as a delayed delivery, incorrect order, or damaged item, can damage your company's reputation and revenue. Considering that 74% of shoppers will abandon a brand after just three bad experiences, it’s crucial to get order fulfillment right. Businesses need to implement efficient systems, leverage the right technology for automation and optimization, and work with reliable partners to make sure the entire order fulfillment process runs smoothly.

While there are many intricacies involved in order fulfillment, they can all be filed under five key steps. By breaking the entire process down into manageable steps or phases, you can home in on the most important considerations during each part of the order fulfillment journey.

This is the first step of order fulfillment; it involves receiving inventory from your suppliers, inspecting it for quality, and storing it in your warehouse or distribution center. This step is critical to ensure that you have the products you need to fulfill customer orders. It’s also crucial to have a strategy in place for how your products are stored. For example, items that are frequently purchased should be very easy to access, extra thought should be put into how you will restock larger items that take up the most space, and climate control should be considered when it comes to certain products (like electronics or food products).

This step refers to everything involved in receiving customer orders. From verifying payment information to fraud detection to inventory management. This step is crucial to ensure that orders are processed accurately, efficiently, and securely.

Once a customer’s order is processed and approved, you’ll need to select the products from the shelves of your warehouse or distribution center, and pack them for shipment. This step is important to ensure that orders are picked and packed in a way that minimizes damage and ensures safe delivery.

This is a major step in the process. In fact, it is often used synonymously with order fulfillment. However, shipping and delivery involves more than just the act of delivering a package. It also involves selecting a shipping carrier, scheduling pickup from your warehouse or distribution center, and tracking the shipment until it’s delivered. It also involves making this entire process transparent for customers so they can follow along with an item’s shipment progress.

White returns are obviously never a company’s favorite part of the order fulfillment process, it’s critical to get returns operations right. In fact, about a quarter of customers (24%) say that a poor returns experience is one of the worst things that could happen during the customer journey. This part of the order fulfillment process involves receiving returned products from customers: You can include pre-printed return labels with every order, offer in-store returns, and more. It also involves inspecting returned items for damage, and issuing refunds or replacements.

The method you choose for your order fulfillment process will depend on the type, scale, and operational capacity of your business. Here are some common types of fulfillment methods.

The best order fulfillment method for your business will depend on a number of factors, including the size of your business, the type of products you sell, and your budget.

When a business handles the entire order fulfillment process itself, from receiving and storing inventory to shipping and delivering orders, this is known as in-house fulfillment. This method gives businesses the most control over the process, but it can also be the most expensive and time-consuming.

This is when a business outsources the order fulfillment process to a third-party company. A method like this can be a good option for businesses that do not have the resources or expertise to handle fulfillment in-house.

Some businesses don’t hold or carry any inventory. Instead, they partner with suppliers that ship products directly to customers once items are ordered. This is known as dropshipping. The dropshipping method for order fulfillment can be a good option for businesses that want to start selling products without investing in inventory or warehouse and storage facilities.

When a business uses a network of independent contractors to deliver orders, this is known as crowdsourced fulfillment. This is a good option for businesses that need to fulfill orders quickly and efficiently.

If a business uses a combination of these different fulfillment methods, it’s known as a hybrid fulfillment model. For example, a business might use in-house fulfillment for high-volume orders and dropshipping for low-volume orders.

Order fulfillment involves a lot of moving parts: You need to update inventory as you sell, orchestrate efficient shipping and delivery, and make sure the entire process is transparent for your customers. And each part of the process has its own unique challenges.

You need to have the right amount of inventory on hand to meet customer demand, but you also need to avoid overstocking. It’s also critical to update inventory levels in real-time so your internal teams and your customers have an accurate view of what’s available and what’s not. How do businesses tackle this challenge? With inventory management. The right inventory management software will automate processes and offer insights that help with demand forecasting, reorder optimization, and inventory tracking.

Timing is everything — and the clock starts ticking from the moment a customer clicks the Buy button. The speed with which you pick, pack, and ship orders is directly correlated with customer happiness. To help streamline the fulfillment process and get packages to customers quickly, businesses can use order management software and automation.

We’ve all been there: You place an order online, then incessantly check its location as it makes its way through the delivery system. Customers expect to be able to track their orders from the moment a package leaves your facility. Transparent shipping updates improve customer satisfaction and prevent an onslaught of customer inquiries flowing to your call centers and service teams. You can give customers a complete view of their orders with software that provides real-time updates. You can also enhance the experience by giving your service agents order on behalf of capabilities for moments when a customer needs to make changes to an order after a purchase.

So you’ve optimized order fulfillment to customers — but what about returns from customers? Returns and exchanges are a common part of the customer journey, and handling them efficiently can help minimize their impact on your business. To do this, establish a clear, easy-to-understand return policy. Offer convenient return methods like pre-shipped return labels included with every purchase, or free in-store returns. Optimize your reverse supply chain with returns management software and automation strategies.

As your business grows, your order fulfillment needs will change. Breaking into new markets and geographies, increasing your inventory to meet growing demand, and expanding your product offerings to include new types of merchandise can all add complexity. To meet scalability needs businesses can implement sophisticated order fulfillment solutions, such as 3PL providers or cloud-based order management software. They can also invest in flexible automation technology that can be easily throttled up or down as needed.

If you want to optimize your order fulfillment process, the first step is to collect data so you can deeply understand areas of improvement. For example, you can track order accuracy, order cycle time, order fill rate, and inventory turnover to measure your order fulfillment efficiency and quality. You can also collect feedback from customers, employees, and suppliers to identify pain points and opportunities. By assessing your current situation, you can set realistic goals and prioritize actions to optimize order fulfillment.

One crucial strategy is to automate as many processes as possible. This can be achieved by implementing advanced technology solutions, such as warehouse management systems (WMS) and inventory management systems. These systems can streamline tasks such as order picking, packing, and shipping, reducing the likelihood of errors and increasing efficiency. By automating these processes, businesses can also free up their employees to focus on more value-added activities, such as providing excellent customer service.

Who can consistently provide high-quality products and meet demand in a timely manner. Establishing strong relationships with suppliers can ensure a steady flow of inventory and minimize the risk of stockouts, which can lead to customer dissatisfaction and lost sales. Additionally, businesses should implement a robust inventory management system to track inventory levels, manage stock replenishment, and optimize warehouse space utilization. This can help prevent overstocking, which ties up capital, and stockouts, which can result in lost sales and disappointed customers.

By consolidating inventory and fulfillment activities in a central location, businesses can streamline operations, reduce costs, and gain more control over the entire process. How can businesses do this? Implement an integrated order management system that connects cross-functional departments like sales, inventory, merchandising, warehousing, and shipping. An integrated order management system also enables sharing and synchronization of data across different functions in real-time. This means that details related to orders, inventory levels, customer information, and shipping status is readily accessible and updated across your entire organization, all at once.

Prioritize order accuracy at every stage of the fulfillment process. This can be accomplished by implementing stringent quality control measures, employing advanced technology, and fostering a culture of continuous improvement.

One crucial aspect of effective order fulfillment lies in optimizing inventory management. This involves maintaining optimal stock levels to prevent stockouts while avoiding overstocking. Implementing robust inventory control systems and collaborating closely with suppliers to ensure timely product replenishment are also essential in this regard.

Technology plays a pivotal role in enhancing order fulfillment efficiency and accuracy. Utilizing warehouse management systems, inventory management software, and automated packaging systems can significantly streamline operations and minimize manual errors. These tools provide real-time inventory visibility, optimize picking and packing processes, and expedite shipping procedures, ultimately leading to faster and more accurate order fulfillment.

Establishing open lines of communication with customers is another key factor in successful order fulfillment. Providing customers with real-time order tracking information, promptly addressing inquiries, and efficiently resolving any issues that may arise are crucial for fostering customer satisfaction and building trust. Proactive communication can also help manage customer expectations and mitigate potential frustrations.

To continuously improve their order fulfillment operations, businesses must regularly monitor and analyze key performance indicators (KPIs) such as order fulfillment cycle time, shipping accuracy, and customer satisfaction ratings. These metrics serve as valuable benchmarks to identify areas for improvement and implement targeted strategies for enhancement. By embracing a data-driven approach and fostering a culture of continuous learning, businesses can optimize their order fulfillment processes and deliver an exceptional customer experience.