What Is Order Fulfillment

What Is Order Fulfillment?

By Team TranZact | Published on Jun 12, 2023

What is order fulfillment can be answered as the complete process that starts from receiving the orders from the customer till successfully delivering them to their doorstep.

While order fulfillment in supply chain management can be divided into several parts, most businesses operate it under one roof, such as in godowns or warehouses. However, some small businesses handle purchase and sales orders themselves in a traditional way. Large enterprises, on the other hand, have more complex operations and require third-party logistics to assist them with delivering orders to their customers.

TranZact - Best Inventory Management Software

To achieve efficiency in the fulfillment management process, a company requires a good strategy to improve supply chain visibility, and optimize inventory control and order management.

Let's see the detailed definition of order fulfillment, how an order fulfillment system works, and how to manage it expertly.

What Is Order Fulfillment?

The process by which an order is delivered to the customer is called order fulfillment. This process includes receiving, packing, shipping, and delivering a product.

Order fulfillment and order management process have an important role in the e-commerce industry because, without this process, these companies will not be able to fulfill their customer's orders. Besides, many businesses also include inventory management, customer support, supply change management, and quality control in the order fulfillment process.

Once you have understood what is order fulfillment, you need to know the various order fulfillment models; here are a few names.

  • In-House Order Fulfillment
  • Outsourcing Order Fulfillment
  • Drop-shipping
  • Hybrid Fulfillment

Read Also - Make-to-Order (MTO): Definition and Example

Order Fulfillment Process

Before reaching the receiver, an order goes through several steps, and these steps together complete the process of order fulfillment. Continue reading to get an overview of the order fulfillment process steps:

1. Receiving Inventory

The first step of customer order fulfillment is receiving the product in the inventory, where it is checked with all the details. The barcodes or stock-keeping units (SKUs) on the products are used for receiving them in the inventory.

Having sufficient inventory in warehouses and distribution centers is crucial for a company as it enables timely product delivery and ensures that customer orders are fulfilled without delays.

2. Inventory Storage

Once the product is received in the inventory, it has to be shipped immediately or stored for a long or short period, depending on the nature of the product and its demand. The product is checked for quality issues and stored with all the details derived from its barcode.

This makes it easy to retrieve the product later on when it has to move to the next step within the order fulfillment system.

3. Order Processing

The next step in the order fulfillment process is processing the order when the customer purchases the product online. After the confirmation of payment, the nearest warehouse is required to process the order so that it can be picked up and packed for shipping.

This process can be made more efficient if order management software is combined with the shopping cart of the e-commerce website.

4. Picking Order

After the order is processed by the warehouse, it moves on to the next step of the order fulfillment process, which is picking. In this step, the product is picked by employees or automated machines from the location where it was stored.

When picking up the order, a packing slip's instructions assist the staff in packing. This slip includes some specific information about the product, such as the shape, size, color, number of units, and location of the product.

5. Packing

In the fulfillment management process, the next step is packing the parcel, where the packaging team selects appropriate materials, such as bubble wraps and foams for fragile products. This is to ensure the package is lightweight and has the lowest dimension weight. The lowest dimension weight is calculated by multiplying the length, width, and height of the parcel.

6. Shipping

Once the order is packed, the companies send it to transportation channels or shipping nodes. Some order fulfillment providers have partnerships with certain carriers and operate with them only. On the other hand, some companies compare the costs of various carriers and choose the most affordable one for shipping. This helps them in achieving the most ideal pricing on shipping.

An advantage of outsourcing order fulfillment is that many external carriers offer the convenience of picking up packages directly from fulfillment centers or warehouses.

7. Delivery

Delivery is the last step in the process of order fulfillment in supply chain management if the customer does not request for return or cancellation. Some fulfillment providers use more than one carrier to deliver the parcel, and they have a valid reason for it.

For example, carrier A picks up the parcel directly from the fulfillment center but does not have access to remote areas. This is where carrier B comes in as it has a vast network than carrier A and can reach remote locations easily.

8. Handling Returns and Cancellations

If the customer is not satisfied with the product and cancels the order or returns it, this can be the last order fulfillment process step. It depends on the scale of the company if it can arrange for employees from the company itself to collect the parcel from the customer.

And if they can't arrange an employee, they ask the customer to ship the parcel through a carrier. When a parcel is returned, it must be carefully inspected so that it can be restocked or included back in the inventory depending upon the product's condition (whether it is damaged or not). This is a crucial part of the fulfillment process steps.

Read Also - Material Handling: Importance and Principles

Why Is Order Fulfillment Important?

Customer order fulfillment plays a significant role in the sale and purchase segments of the e-commerce industry because the reputation of the company depends on it. For instance, if there is any delay in delivery or the product is damaged while shipping, it leaves a negative impression in the customer's mind.

A streamlined order fulfillment system makes sure that the customer is satisfied with the service of the company. Additionally, there are many benefits of order fulfillment for businesses, and some of them are as follows:

  • Reduces shipping costs.
  • Manages the right amount of products in stock.
  • Avoids overselling and underselling.
  • Decreases operational costs.
  • Brings new customers.
  • Improves customer experience and reviews.
  • Gives more time to focus on growing the business.

Read Also - Best MRP Software for Small Business in 2023

Order Fulfillment Challenges

A company's success is dependent on how fast it delivers the product to the customer while combatting various challenges in the process of order and delivery.

Some general difficulties that occur during order fulfillment in supply chain management are discussed below:

1. Inventory Management

Running out of stock often or overloading the inventory with extra stock is a sign of poor inventory management. In case of stock shortage, the loss may be limited to a small proportion of sales, but in case of extra stocks, the company is left with dead stock.

This dead stock is then sold at discount prices to get rid of, and this risks the profitability of the order fulfillment process.

2. Demand Planning

It is necessary to understand customers' behavior and their demand because the fulfillment provider needs to stock products in the inventory according to demand. Failure to align the fulfillment process with demand can lead to stockouts during peak product seasons.

The opposite scenario can also occur where your inventory becomes overloaded with stock during the off-season of the product. Therefore, a proper balance is needed to meet the demand of the customers for an efficient fulfillment management process.

3. Logistics Planning

A challenge in the order fulfillment process arises when the order is not delivered in the right condition, potentially leading to customer dissatisfaction. It is crucial to leverage effective logistics plans to ensure that orders reach customers without any damage during shipping.

Receiving damaged orders can discourage customers from placing future orders, and it may require the company to provide refunds or replacements, resulting in negative reviews.

4. Supply Chain Management

In today's time, customers' expectations are rightfully growing, as they seek delivery at the earliest possible. For this, an order fulfillment provider needs a swift supply chain that can meet the customer's expectations. However, companies face problems in the supply chain when there is a shortage of labor or an imbalance in the manufacturing environment.

5. Inaccurate Order Information

Sometimes wrong order information can get the business confused about the order, and this causes delivery delays. This generally happens during the picking and packing of the order leaving an upset customer or vendor. Therefore, it is important to get the right details before handling the order to avoid any confusion and delay in the customer order fulfillment process.

Read Also - What Is Overstocking?: The Ultimate Guide

Order Fulfillment Best Practices

Having good fulfillment practices can bring good reviews to your company, helping your business expand and grow faster than your competitors. Moreover, effective order fulfillment practices implemented consistently can make your business profitable.

Some best order fulfillment practices that can give you an edge over your competitors are here:

  • Choose the best order fulfillment structure for all your requirements.
  • Plan your warehouse for an efficient outcome.
  • Ensure data transparency with your customers and vendors.
  • Keep an eye on inventory to control accuracy.
  • Use data to design marketing strategies.
  • Optimize shipping slots to avoid delays and inconvenience.
  • Minimize the distance between the operational area and the warehouse.
  • Manage your internal team and vendors very well for smooth operations.
  • Try to fulfill customers' demands on time with good quality to avoid order cancellation or returns.
  • Focus on providing the best customer support to deal with order issues.

Read Also - What Is Production Planning Software?

How Do You Choose an Order Fulfillment Strategy?

Choosing the right order fulfillment strategy is crucial for the success of your business. It involves considering factors such as your business model, product characteristics, and customer expectations.

You must also account for aspects such as scalability, cost-effectiveness, fulfillment speed, flexibility, system integration, returns management, and the reputation of the service providers for your order fulfillment process. Scalability within order fulfillment in supply chain management ensures your fulfillment strategy can accommodate future growth.

Understanding your business model helps determine the unique fulfillment requirements for your e-commerce, manufacturing, or retail operations. Similarly, analyzing product characteristics helps identify any special handling or storage needs.

Assessing costs and comparing in-house fulfillment versus outsourcing helps make a cost-effective choice. You must also meet customer expectations for shipping speed, delivery options, and returns processes for customer satisfaction.

These factors enable you to devise an effective order fulfillment strategy for the success of your supply chain operations.

Read Also - What Is Purchase Order Management Software?

Types of Order Fulfillment

Different-scale businesses have different needs and unique operations. Therefore, companies may adopt diverse types of order fulfillment models as follows:

1. In-House Order Fulfillment

This order fulfillment model is generally preferred by small-scale businesses due to their low order quantities, and it is considered the most cost-effective option compared to other models.

With this order fulfillment system, the company retains full control over all operations involved in fulfilling orders, from start to finish.

2. Outsourced Order Fulfillment

When companies receive bulk orders, they often opt for third-party logistics to alleviate the burden. This order fulfillment model, known as outsourced order fulfillment, is beneficial for companies that lack sufficient inventory space. It also adds value by providing assistance with inventory management.

3. Dropshipping

Dropshipping is similar to the outsourced order fulfillment model; the only catch in this type is that inventory is not managed by a third party. In this model, the seller doesn't stock the product. Instead, when the order is received, the seller purchases it directly from the manufacturer or producer, and they handle all the processes from shipping to delivery of the order.

4. Hybrid Order Fulfillment

Hybrid order fulfillment is the method in which a business uses a mixture of all the other three order fulfillment models to fulfill orders. For example, a company may take the help of an in-house model for products that need to be assembled or customized before shipping. At the same time, the company may also use dropshipping for non-custom products and items bought infrequently. Read Also - The Ultimate Guide to Purchase Requisition

How to Improve Order Fulfillment Process?

Companies need to work with a balance in every stage of order fulfillment for better performance and to make the business profitable.

Here are some useful tips to improve the fulfillment management process:

1. Ensure good customer service and return facilities

Even with the best efforts to satisfy customers with excellent service, mistakes such as delays, faults, and defects can still occur. It is important to address these mistakes rather than ignoring them, in order to rectify the situation and provide the customer with a better experience.

2. Optimize inventory management

Inventory is one of the most crucial parts of the order fulfillment process; without this, it gets difficult to provide speedy service to the customer. Having a far too short inventory can put you at risk of getting out of stock, whereas having extra inventory without the sales need can leave you with dead stocks.

Therefore, optimized inventory management is important for fulfillment providers, and this can be done through a good quality ERP system.

3. Communicate with your team

Communication is a crucial part of every business because having good communication with your employees can make your business more profitable by streamlining the process. Besides, it makes sure that in the warehouse, every staff member is working according to their task and your guidelines.

On the other hand, seamless communication with vendors and suppliers can make your supply chain efficient, and help you get better deals.

4. Use the best order fulfillment ERP system

Utilizing a reliable order fulfillment ERP system offers the benefits of comprehensive order tracking, efficient inventory management, and credit limit monitoring. Only a select few companies offer top-notch ERP systems that optimize all aspects of order fulfillment.

TranZact is a cloud-based software specifically designed for SME manufacturing businesses, providing a robust solution for streamlined fulfillment operations.

5. Improve supply chain visibility

Transparency in the order fulfillment process, from picking to delivery, can be enhanced by providing real-time inventory updates to both suppliers and retailers. This advantage becomes evident as suppliers gain visibility into all stocks and SKUs, enabling them to supply items accordingly.

Takeaways to Enhance Your Order Fulfillment Process

We covered detailed information on what is order fulfillment, the order fulfillment process, and the steps. We also described how it is important in the e-commerce and manufacturing industry, and the various types of order fulfillment models used by the companies.

By implementing the above order fulfillment steps and the best practices, your business will be able to make its fulfillment management process fluent and satisfy your customers consistently.

TranZact provides dedicated solutions for quotations, sales and purchase orders, inventory, and production management to enable your business to digitize operations faster.

FAQs on Order Fulfillment

1. What does order fulfillment mean?

Order fulfillment refers to the process of receiving customer orders, entering them within the system, processing orders, and delivering the same as per customer expectations. It involves managing inventory, picking and packing items, and arranging for their shipment to the customer's designated location.

2. What is the purpose of order fulfillment?

The primary purpose of order fulfillment is to ensure that customer orders are processed and delivered accurately and efficiently. It integrates inventory, production, and logistics operations to ensure timely order delivery and provide a seamless and satisfactory customer experience.

3. What are the 3 approaches to order fulfillment?

The three approaches to order fulfillment are in-house fulfillment, outsourced fulfillment, and dropshipping. In-house fulfillment involves handling all aspects of order fulfillment internally, while outsourced fulfillment involves partnering with third-party logistics providers. Dropshipping involves relying on suppliers to directly ship products to customers.

4. What are the steps of order fulfillment?

The key steps of order fulfillment typically include order receiving, order processing, inventory picking and packing, shipping, and lastly the delivery or pickup of the product by the customer.

5. What are the benefits of efficient order fulfillment?

Efficient order fulfillment processes ensure timely delivery of orders, improve customer satisfaction and reduce order errors. This contributes to minimizing operational costs, increasing order accuracy, and enhancing overall business productivity.

6. What is order processing?

Order processing involves verifying and validating customer orders. This is followed by checking product availability, updating inventory records, preparing orders for fulfillment, and generating invoices.

7. What is order fulfillment in E-commerce?

Order fulfillment in e-commerce refers to the complete process of receiving, processing, and delivering customer orders placed online. It involves activities such as inventory management, picking and packing products, and shipping them to customers in a timely manner.

8. What is the order fulfillment cycle?

The order fulfillment cycle refers to the end-to-end process of recording the order receipt, processing it, and finally delivering it to the customer. It involves all the activities that a business relies on to fulfill customer orders, from start to finish.

9. What is the order fulfillment rate?

The order fulfillment rate refers to the percentage of orders that a business can ship out from its available inventory without experiencing any loss in sales or backstocks. Customer order fulfillment is a measure of how effectively and efficiently orders are processed and fulfilled.

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TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.