While order fulfillment is, by definition, the method by which a company processes a sales order to the customer’s specifications, that understates its importance. Customers hold more power than ever, are more informed and have higher expectations. Efficient order fulfillment is key to your brand’s reputation, your company’s profits and your ability to retain clients.
Without sales there is no business. Without order fulfillment, there are no sales.
Video: What Is Order Fulfillment?
Key Takeaways
- Order fulfillment is a critical business task for many product-based businesses.
- An efficient order fulfillment operation requires coordinating with multiple departments and outside partners.
- An ERP often plays an essential role in managing the order fulfillment process.
Order Fulfillment Explained
A new sale is almost always something worth celebrating, but the work isn’t done until the order is fulfilled, and the customer has the order in hand. Order fulfillment is the critical task of assembling the order and shipping it off to the customer, plus the supporting processes that support those tasks.
The complete order fulfillment lifecycle is made up of five primary steps starting with strategic sourcing and ending with shipping. Many businesses include inventory management, supply chain management, order processing, quality control, and customer support in the umbrella of order fulfillment.
Much of the order fulfillment process can take place under one roof in a well-organized warehouse, depending on the size of your business. Many small businesses handle order fulfillment themselves in-house through a simple process. Large enterprises require a more complex, multi-layer distribution center strategy. But in either case, the main goal is efficiently getting the customer what they ordered as quickly, reliably, and inexpensively as possible.
Order Fulfillment Process: How Does It Work
The order fulfillment process takes place in one or more distribution centers and typically involves inventory management, supply chain management, order processing, quality control and support for customers that need to report problems or make product exchanges or returns.
1. Receiving Inventory
Goods may come from a third party, another company department or a company warehouse; a pipeline (as with oil, fuel, water or some other fluid product); as digital data from a database; or in a variety of forms from other external or internal sources.
In any case, the incoming inventory must be counted, inspected and inventoried to ensure the proper amount was received and the quality is acceptable. SKUs or bar codes on the arriving products are used in the receiving and storage processes, and to retrieve goods from internal storage later
2. Inventory Storage
Once goods are received in the fulfillment center, they are inventoried and either immediately disbursed or sent to short- or longer-term storage. Items are ideally stored just long enough to help organize the orderly distribution of goods for existing sales, rather than to hold product for future sales.
3. Order Processing
An order processing management system dictates the product picking and packing activities per each newly received customer order. In the online marketplace, order management software can be integrated with the shopping cart on an ecommerce website to automatically initiate order processing
4. Picking
A picking team or automated warehouse robots select items from the warehouse according to a packing slip’s instructions. The packing slip contains specific information, such as a list of item SKUs, product colors, sizes, number of units and location in the distribution center’s warehouse.
5. Packing
Packing materials are selected by a packing team or automated fulfillment robots to achieve the lowest practical dimensional weight, which is calculated by multiplying package length times width times height. Since space on delivery trucks is at a premium, optimizing dimensional weight (or DIM weight) is important to speed transport while also potentially lowering shipment costs.
Further, packing teams often include return shipping materials and labels in case the customer wishes to exchange or return the item for a refund later.
6. Shipping
The order is sent to a transportation channel or shipping node to be shipped to the customer. Shippers and carriers — be they freight lines or airlines, FedEx, UPS, the U.S. Postal Service (USPS) or other carriers — determine freight billable costs by whichever is greater: actual package weight or its dimensional weight.
Even if the actual weight is low, such as with a t-shirt, packing it in the lowest DIM is often worth it to keep the packaging from adding significantly to the overall package weight. Also, most carriers have packaging rules to optimize their own profits from the shipping space they have available. Failing to meet those requirements can delay shipments if carriers refuse to accept the order.
7. Delivery
It is common for shipping routes to include more than one carrier. For example, FedEx may pick up a package at the fulfillment center that will later be delivered by the USPS to the customer’s home. There are many reasons for these hybrid shipping methods. One common example is that the USPS delivers even to remote areas where most other commercial carriers do not. It’s simply more practical to use the USPS for the last mile of delivery in those cases.
8. Returns Processing
Returns processing begins with including shipping materials and a return label with the original customer’s order. When a customer does return a product for exchange or a refund, the process must be executed carefully to ensure it’s appropriate to restock it. Obviously if the product malfunctions, it can’t be restocked. Nor can a soiled item. Returns processing involves quality control checks and sorting returned products accordingly. Return products are then restocked, returned to a vendor or manufacturer for a distributor refund or credit, or sent to a recycling center.