One of the most vital pieces of a successful business is a functioning and efficient order fulfillment strategy. If you own a retail store, this isn’t much of an issue; customers can come in and pull what they need right off of the shelf. However, if you rely on shipping to get products to customers, the whole order fulfillment process can get much trickier. Luckily, a streamlined and optimized strategy paired with a warehouse management system can make things easier. Let’s look at order fulfillment more closely.

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The accurate and on-time delivery of products is essential to growing (and simply maintaining) a company. With this in mind, businesses should always strive for a perfect order fulfillment strategy. Before we take a look at some common strategies that can help optimize the fulfillment process, how does fulfillment work?

What This Guide Covers

• Defining Order Fulfillment
• Four Models
• Determining a Winning Strategy
• Optimizing Best Practices

What is Order Fulfillment?

Order fulfillment is the process of receiving, packing, shipping and delivering an order to a customer. There is no all-encompassing strategy that works for every business due to the many unique nuances of each organization. Some companies take care of all of their fulfillment practices in-house, while some are so large that a third-party logistics (3PL) provider is needed to shoulder some of the burdens.

However, the steps that a product moves through before completing the fulfillment process are similar regardless of company size:

• Receiving: In-house operations receive and store goods first-hand, while larger organizations can outsource this task to 3PL providers.
• Storage: Maintaining organized and easy-to-access storage is critical to a smooth fulfillment process. A chaotic warehouse will consistently cause delays and inaccurate orders.
• Processing: This involves receiving a customer order and beginning the steps necessary to fulfill it.
• Picking: Whether by human or robot, the product needs to be picked up from its storage location and prepared for shipping.
• Packing: Products are grouped up into individual shipments and prepared for transit.
• Shipping: The package leaves the storage facility and is shipped to the customer via one of many transportation methods.
• Returns: Fulfillment doesn’t end with shipping; customers may send packages back as returns. Successful order fulfillment strategies must handle returns with the same care as shipping out the original product.

As long as your order fulfillment strategies accurately hit all of these high notes, you are on the right track. However, discovering the right strategy that compliments your organization’s fulfillment practices can make all the difference.

Discovering a strategy that meshes with your daily fulfillment needs is all well and good, but jumping in without reflecting on the unique requirements of your business is a recipe for disaster.

Let’s first take a closer look at the types of order fulfillment models before we talk about different strategies.

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Four Models

Different businesses have different needs. To ensure you’re choosing what’s best for the business, you need to analyze your product, its fulfillment options and costs. Having a set of models to choose from might help manage order fulfillment operations.

1. In-House

An in-house order fulfillment model involves businesses using their employees to manage the order fulfillment process without a third party’s help. Internal employees handle storing and shipping products in and outside the company’s controlled location.

This process is often ideal for home-based startups and businesses that handle end-to-end control over the entire operation. Choosing this model gives you complete control over package handling, on-time delivery, shipping accuracy and in-house returns management.

2. Third-Party

The third-party fulfillment process takes place when you no longer have the bandwidth or space to handle in-house fulfillment. Partnering with a third-party logistics (3PL) or external provider can help disperse the workload. It saves time and allows you to focus on improving customer service and business development.

3PLs have the expertise to handle inbound and outbound logistics. You don’t need to worry about inventory management, packing and shipping orders, or returns management with this fulfillment model in place. According to a market report by StrategyR, the global 3PL market is estimated to reach a value of $1.3 trillion by 2026 from $974.6 billion in 2022.

Third-party logistics offer a wide range of services, including warehousing distribution, transportation management, inventory management and more. Choosing 3PL services can reduce the cost of leasing storage space while maintaining multiple operations.

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3. Dropshipping

Dropshipping is similar to outsourcing and is more of a hands-off approach for order fulfillment and manufacturing. The retailer does not keep the items in stock but instead forwards them directly from the wholesaler or third-party supplier. The manufacturer directly manages everything.

After placing an order, the details are forwarded to the manufacturer to handle the shipping process. This approach removes the middleman and minimizes overhead costs. Small businesses and newer eCommerce operations can especially benefit from dropshipping’s lower overheads.

The downside to this model is that merchants will have no control over the fulfillment process, so shipping and overall operations might take longer.

4. Hybrid

A hybrid model includes combining any two or three models from above. For example, a company can manage the order fulfillment process in-house and also choose to outsource via third-party service providers during the holiday season.

If you intend to handle your own order fulfillment process, you need to plan ahead and find the right strategy.

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Needs Analysis

Sure, we could skip directly to some best practices for maintaining a healthy order fulfillment process — but without knowing what works best with your business, knowing how to proceed would be a little murky. Before adopting a new strategy and renovating your fulfillment process, take some time to consider these important factors:

Size of Business and Order Volume

It may seem obvious, but before jumping on a fulfillment strategy bandwagon, you need to know your monthly order volume as well as how much product you sell. These indicators are important for deciding a cost-effective strategy that keeps your business competitive.

For example, a small retailer that does not have a massive inventory would save large amounts of money by handling fulfillment in house. There is no need to outsource to a 3PL provider as there isn’t much inventory to track. A small inventory would also negate the need for a comprehensive warehouse management system, further cutting back on costs.

One thing to keep in mind is growth. As small businesses begin to expand, they will likely find themselves growing out of their current fulfillment strategies. Don’t get too comfortable and let things stagnate; always be on the lookout to improve fulfillment practices as you grow.

How Sales Are Made and the Technology Involved

Where products are being sold has everything to do with your order fulfillment strategy’s success. If your business is involved in selling online, your strategy needs to include technology that integrates seamlessly into your online marketplace or e-commerce platform.

Institutions that are selling through multiple channels often require an additional tech to immediately push online orders to the proper fulfillment departments. Less complexity should always be the goal, and multi-channel sales can be tough to manage without the proper technology.

Systems that help connect purchasing and manufacturing to sales and demand can give users the ability to look ahead and make important fulfillment decisions. Leveraging inventory management systems can also help nail down order fulfillment strategies. These platforms provide valuable visibility into inventory levels to keep users informed and aware of fluctuations in demand and the products that are available.

Geography

Location is another vital piece of the puzzle when putting together an order fulfillment strategy. A firm that operates on a global scale with clients from multiple different countries faces drastically different problems than a small-town retailer. A company that is located in a rural area could suffer if they are constantly shipping outside of their area and may even consider moving locations to cut down on shipping costs.

It’s easy to see how being near your customer base can help cut costs across the board. Not only are shipments traveling a shorter distance, but you won’t have to involve more expensive methods of long-distance transport like planes or ships.

Now that we’ve covered some issues to consider before choosing an order fulfillment strategy, let’s take a look at five strategies that can optimize your order fulfillment.

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Process & Strategy Best Practices

Like we said earlier, there is no one miraculous fulfillment strategy that works with every business. You’ve got to try on a few shoes before you can settle on a pair that is a good fit. In the meantime, here are some process steps that can help optimize your order fulfillment process best practices.

1. Maintain Inventory Accuracy

Ever ordered a product online only to find out that it’s out of stock, and you won’t get it for several weeks or even months? It’s frustrating, isn’t it? If you don’t improve your inventory accuracy you guarantee that customer satisfaction will suffer. That’s why inventory management is so crucial to streamlining the order fulfillment process.

Inventory accuracy is critical to the health of any warehousing operation. Real-time cycle counts ensure that customers can’t order out-of-stock or unavailable products. Setting up notifications that protect customers from these types of purchases can boost satisfaction, trust and set you up as a client and customer-savvy business.

Real-time inventory management keeps fulfillment warehouses organized, which helps keep internal systems accurate and streamlined for use. Being able to consistently check in with inventory levels allows managing staff to make important choices.

Real-time visibility shows how likely the need for ramped-up or decreased production is for a certain product. Excess inventory can be problematic; however, a successful inventory management solution should always be working on cutting down unnecessary stock.

Lastly, if your online store doesn’t allow your customers to purchase out-of-stock products, it’ll help keep your order fulfillment software a little less cluttered. In other words, you don’t have to manage future orders of products; you only have to worry about fulfilling customer orders where every product can be shipped right away.

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2. Implement Slotting Optimization

This strategy can be difficult to implement, but can also be one of the most useful. Slotting is all about managing the picking processes in your distribution centers. According to NetSuite, slotting is defined as “the process of managing and determining available slots from where the items can be picked and packed.”

Slotting optimization, then, is the process of efficiently storing your products to expedite the picking process. A popular and effective way to handle this is by placing popular items near shipping areas to speed up the fulfillment process. In addition, storing these popular items in locations that don’t require excessive bending or reaching can also speed things up nicely.

Items can be stored and picked based on size, weight and general fragility. As you can probably guess, the most fragile products need to be picked last so that they’re packed last and won’t get crushed by heavier items. Therefore, more fragile items need to be stored in an area where they’ll be picked last.

3. Integrate With Your Suppliers

Very few online retailers actually manufacture the products they sell. This means there’s at least one other company — and probably more — that you rely on to fill all of your customer orders. However, one of the main issues with third-party logistics providers is the inability to see how every process is running daily.

For example, you might not always know when your manufacturer experiences a holdup or delay. A short shipment delay may seem like a small issue, but late deliveries lead to unhappy customers.

So how do you fix this issue? The best way to do so is to integrate with your suppliers. This requires software that can share data between you and your suppliers so that you can keep tabs on the day-to-day operations related to your products and shipments.

Additionally, integration helps reduce and/or eliminate miscommunications, such as billing errors. As CommerceHub describes: “A best-in-class platform integrates your suppliers’ [order management system] with your own so that missed orders, endless supplier coordination, invoicing errors and other such aggravations become things of the past.”

4. Add a Smart Warehouse System

Smart warehouse systems are becoming increasingly commonplace in today’s warehousing market. These systems utilize several interconnected technologies to boost efficiency, accuracy and remove humans from tedious, time-intensive tasks. Leveraging human problem solving for higher-level tasks is much more productive than sending employees out to hunt down a product and bring it to shipping.

These systems include several technological components that automate the warehousing process, in turn making your order fulfillment more efficient. Some of these technologies include robotics, radio-frequency identification (RFID, a digital version of a barcode that uses radio waves), AI, the Internet of Things and warehouse management systems.

How do these technologies work together to streamline order fulfillment? Let’s look at the slotting and picking processes as examples. When fulfillment centers receive a shipment of products, RFID scanners scan the tags of each item, automatically updating the inventory levels. Robots take over from there, storing those goods so they can be picked. Later, different robots help pick those items and bring them to a packing area so they can be shipped.

The use of this technology reduces the number of human errors (especially related to counting items) and the time it takes to store and pick products. Plus, this reduces the need for human workers to perform all of these duties, which reduces your order fulfillment costs and shipping costs in the long term.

5. Improve Supply Chain Visibility

The last strategy that can help streamline your order processing is improving the visibility of your supply chain management. Supply chain visibility involves tracking production, product orders, and shipments to gain insights throughout all of your supply chain operations. In simpler terms, it’s the ability to collect data throughout your entire supply chain.

When you improve supply chain visibility, you can find powerful insights into what may be hurting your order fulfillment processes. For example, you may find that consistently late workers slow down production at a certain facility. Or you could discover that your shipping vendor uses sub-optimal routes, slowing down your fulfillment services.

There’s no telling what you can find out about your order fulfillment until you improve your supply chain visibility. But once you do find something, you can take adequate steps to fix it. This way, your order fulfillment process will run smoothly, saving you time, money and a whole lot of customer service headaches.

Final Thoughts

Keeping the order fulfillment process running smoothly is critical to the health of supply chains and businesses as a whole. Think about what your company needs in order to flourish and then nail down a strategy that works for you.

How has your order fulfillment strategy kept your business competitive? Let us know with a comment below.