Order fulfillment encompasses the entire process of storing goods, packing orders, and shipping products to customers. Essentially, it includes all activities that occur from the moment a customer places an order until they receive it. Businesses can manage fulfillment internally, outsource it to fulfillment partners, use dropshipping, or adopt a combination of these methods.
How Does Order Fulfillment Work?
Order fulfillment begins with receiving inbound wholesale shipments, organizing stock, and shelving inventory to enable efficient picking and packing.
When orders are placed, products are picked, inspected for quality and accuracy, packed, and labeled for shipment. Returns management, or reverse logistics, is often considered an integral part of the fulfillment process.
If you manage fulfillment in-house, all these steps will take place in your facility—be it a warehouse, storage unit, garage, or other space. If you outsource the fulfillment process or use dropshipping, your fulfillment company will handle these tasks.
We will explore these different fulfillment strategies in the following sections.
Order Fulfillment Strategies
There are four primary strategies for handling order fulfillment:
In-House
| PROS | CONS |
|---|---|
| Cost-effective | Hard to scale up or scale down |
| Offers complete control | Time-consuming |
| High upfront cost |
In-house order fulfillment is when businesses manage their warehouse and shipping operations, typically with their own facility, equipment, and staff.
This method is generally best for:
- Small businesses processing fewer than 10 orders per day
- Well-funded, established operations seeking end-to-end control
- Businesses experimenting with different product offerings, sources, and processes
- Full-time store owners
Third Party
| PROS | CONS |
|---|---|
| Fast delivery | Onboarding process |
| Save on shipping | Less control / personal oversight |
| Easy to scale up and down | Minimum order requirements |
| Easily adapt to seasonality |
Businesses can outsource fulfillment to order fulfillment companies or larger third-party logistics companies.
Fulfillment companies specialize in inventory management, order processing, and shipping—so they handle all of these tasks for you with advanced infrastructure and guaranteed accuracy.
This method is best for:
- Growing small businesses processing 10+ orders per day (this is when outsourced fulfillment starts to be cost-effective)
- Solopreneurs busy managing their marketing, product sourcing, and development
- Multipreneurs needing to dedicate time to other ventures
- Part-time store owners who work a separate job
Dropshipping
| PROS | CONS |
|---|---|
| No up-front inventory costs | Less control over product and fulfillment process |
| No warehouse or storage fees | Smaller profit margins |
| Saves time | Longer delivery times |
Dropshipping involves a third party but is different from using a fulfillment center. In the dropshipping business model, suppliers handle every step of the order fulfillment process. The seller doesn’t keep any inventory in stock. Instead, online stores that use dropshipping forward each order (along with payment) to the supplier as the orders come in. The supplier then packs and ships the merchandise to the customer.
Dropshipping is a good option for:
- Entrepreneurs looking to start a low-risk operation with a minimal investment
- Retailers wanting to test a new concept or product category
- Part-time sellers who can only manage an online store for a limited number of hours each week
- Established online stores seeking to expand their offerings
Interested in dropshipping? Read our guide to starting a dropshipping business.
Hybrid
| PROS | CONS |
|---|---|
| Flexibility; easily add products or change direction | Lots of moving parts |
| Cost-effective | Time-consuming |
A hybrid approach to order fulfillment combines some (or all) of the above order fulfillment methods. Hybrid fulfillment is a popular solution for growing businesses because it offers a lot of flexibility.
For example, you can use in-house fulfillment for custom products or items that need assembly—such as gift baskets. You can supplement it with outsourced fulfillment for non-custom items that are steady sellers or to help manage seasonal sales spikes without expanding your warehouse.
In addition, you can use dropshipping to test potential new additions to your store before investing in a bulk wholesale order.
The hybrid option is best for:
- Retailers experimenting with new processes, products, channels, and concepts
- Full-time sellers with the available resources to manage multiple fulfillment methods
- Brick-and-mortar stores expanding into online sales
In the News: Storefronts as Fulfillment Centers
In recent years, retailers such as Walmart and Target have started using their brick-and-mortar stores as fulfillment centers for online orders. If you run both physical stores and an online store, the decision to outsource fulfillment becomes more complex.
Maintaining an in-house fulfillment operation can simplify offering services like click-and-collect or buy online, pick up in-store (BOPIS).
How to Choose an Order Fulfillment Strategy
Key Considerations for Outsourcing Fulfillment
Measure Your Sales: If you’re consistently processing more than 10 orders daily, it might be time to consider outsourcing your fulfillment operations.
Anticipate Future Growth: Upon reaching the 10 orders per day threshold, evaluate your growth plans and consider whether your order volume or complexity will increase significantly in the near future. Outsourced fulfillment can be scaled more quickly than expanding a personal warehouse, software, and personnel.
Identify and Locate Your Customers: Whether you choose in-house or outsourced fulfillment, it’s ideal for your fulfillment center to be located near your customers to reduce shipping times and costs.
Continue learning about the different fulfillment strategies:
- In-house vs Outsourced Fulfillment
- Dropshipping vs Fulfillment Companies
- How Do Fulfillment Centers Work?
Why Is Order Fulfillment Important?
Beyond basic functionality, optimizing order fulfillment strategies is crucial for ensuring timely and cost-effective delivery. Delivery windows influence 68% of purchase decisions, and many consumers now expect free shipping.
Therefore, your order fulfillment strategies directly impact your bottom line, making it essential to focus on refining your internal processes.
In summary, order fulfillment is important because an effective strategy will:
- Enhance the customer experience with faster delivery times and multiple fulfillment options
- Reduce operational and shipping costs
- Provide the necessary infrastructure for business growth
Order Fulfillment Best Practices
Regardless of the fulfillment strategy you choose, there are several steps you can take to streamline your operations:
Optimize Your Inventory Management
To fulfill orders quickly and efficiently, it’s essential to have the right products in the right places at the right time.
Start by establishing a solid foundation for your inventory management process. Ensure you have accurate product and vendor information, a reliable system for tagging and labeling products, real-time stock updates, a regular process for inventory counts, and a method for handling damaged or returned goods.
With a robust foundation in place, leverage your product data to analyze key retail inventory metrics, such as turnover ratios and carrying costs.
Organize Your Warehouse Efficiently
If you outsource your fulfillment, your partner likely has warehouse optimization perfected. However, if you’re using an in-house or hybrid approach, optimizing your warehouse layout can greatly enhance the efficiency of picking, packing, and inventory management.
Ensure you allocate space not only for product storage but also for picking and packing orders, receiving shipments, and outbound shipping.
For more details, refer to our warehouse layout guide.
Anticipate Demand
To ensure you have the right products in the right locations for quick order fulfillment, thorough planning is essential. This becomes even more critical if you operate multiple fulfillment centers or locations.
Advanced inventory management software, as well as some retail point-of-sale (POS) systems like Shopify and Lightspeed, can assist in automating demand forecasting. This helps you maintain adequate stock levels at all times.
Maintain Strict Quality Control Practices
Whether you fulfill orders in-house or through a fulfillment company, it’s crucial to inspect all products upon receipt and before shipping to customers. These quality checks should be systematic and well-documented for future reference.
Additionally, ensure that your team or fulfillment partner verifies each order against the packing slip or online order before sealing it for shipping. Sending the wrong item is frustrating for customers, leads to a poor customer experience, and incurs extra costs and time to correct the mistake.
Finally, standardize your packing procedures to ensure items are shipped safely and securely. Receiving a damaged item is just as frustrating as receiving the wrong one.
For more details, refer to our guide on packing materials.
Order Fulfillment Challenges for Small Businesses
Fulfillment has some challenges you’ll need to navigate year after year, alongside unique obstacles brought about by specific events or environments. Here are some important factors to remember as you manage your fulfillment process.
Supply Chain
The COVID-19 pandemic led to a surge in e-commerce demand coupled with shortages in labor, equipment, materials, and space, resulting in a significant supply chain crunch that continues to impact retailers even after nearly three years.
Supply chain disruptions, whether widespread or local, are not uncommon and can arise from natural disasters, political instability, transportation failures, cyber-attacks, and market fluctuations.
To proactively address potential disruptions and maintain a resilient supply chain, consider these tips:
Build Inventory: Maintain a backstock of essential products that can sustain your business’s sales for several months during a disruption.
Identify Backup Suppliers: Ensure you have alternative suppliers ready in case your primary vendor cannot meet your needs. Build relationships with these secondary suppliers and regularly order a portion of your inventory from them.
Communicate with Your Customers: Transparency is crucial for retaining customers during supply chain challenges. Be honest with shoppers about delays and other issues, and offer solutions to enhance their experience.
Optimize Your Safety Stock: Determine the optimal amount of inventory to keep on hand to meet demand without causing surplus or stockouts.
By implementing these strategies, you can better navigate disruptions and ensure the resilience of your fulfillment operations.
Seasonal Fluctuations
The holiday season brings a significant surge in retail demand, resulting in fluctuating order volumes and potential shipping and sourcing delays. To navigate this chaotic period effectively, consider these strategies:
Stock Sufficiently: To prevent backorders and lost revenue, forecast holiday demand and order adequate stock well in advance.
Outsource: Managing seasonal demand can be challenging without additional staff and expanded warehouse space, which come with the need for training, payroll, management, and downsizing when business slows in January. Before the holiday rush begins, consider outsourcing some or all of your fulfillment to a third-party company with scalable infrastructure to accommodate varying demand.
Automate: For smaller businesses that prefer not to scale up or outsource, investing in software like Ordoro can help automate many of the labor-intensive tasks involved in fulfillment.
By implementing these tactics, you can better manage the increased retail demand during the holiday season.
International Fulfillment
While many independent online stores focus on domestic shipping, you may encounter shoppers from Canada, Great Britain, or other countries who are eager to purchase your products. Additionally, offering international shipping can help broaden your customer base.
To fulfill international orders, you have several options. One effective method is using USPS International Priority, which integrates seamlessly with Canada Post, Royal Mail, and numerous other international postal systems.
Order Fulfillment Frequently Asked Questions (FAQs)
Why Do Retailers Outsource Fulfillment?
Order fulfillment, while straightforward, can be both time-consuming and labor-intensive. Additionally, the infrastructure needed to manage fulfillment efficiently, such as industrial warehouses and sufficient staffing, can be prohibitively expensive for many small retailers.
New and growing companies often opt to outsource order fulfillment or use dropshipping. On the other hand, more established businesses may prefer to keep operations in-house for greater control and potential cost savings on fulfillment.
Where Can I Find an Order Fulfillment Warehouse?
You can find an order fulfillment warehouse in this list of the best order fulfillment companies for small businesses.
What Is Order Fulfillment Rate?
Order fulfillment rate, or fill rate, is a metric that demonstrates a business’s ability to fulfill orders from available stock. To calculate fill rate, divide the number of orders processed by the total number of orders received. The higher the number, the better.
What Does It Mean When an Order Is in Fulfillment?
When an order is in fulfillment, it is either being processed, packed, or shipped.
What Does Order Fulfillment Mean?
Order fulfillment is the process of storing goods, packing orders, and shipping products to buyers. It encompasses everything that happens after a customer places an order up to when they receive it.
Bottom Line
Accurate and timely order fulfillment is essential for a successful e-commerce operation. To stay competitive, you need to understand the entire fulfillment process, adopt efficient practices, and manage costs from start to finish.
There are various methods to deliver orders to your customers, and often, a combination of fulfillment solutions is ideal for a growing business. As you expand, seek flexible, on-demand fulfillment options that allow you to scale your capacity while keeping costs under control.
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