Order fulfillment is the backbone of any e-commerce or online business. It doesn’t matter how good your marketing is if you can’t get the product to the consumer in a timely, cost-effective manner. The ordering process has five major functions that must be fulfilled in order to deliver merchandise accurately and on-time, and there are a number of companies out there who provide solutions to help you fulfill your company’s specific fulfillment strategy needs.
The Five Major Functions
The order fulfillment process encompasses all of the supply chain functions involved in receiving, processing, and delivering customer orders to their final destinations. These functions are completed at a fulfillment center (learn more by reading our article on what is a fulfillment center) closest to the shipping destination to ensure the shortest shipping time possible. The five key functions of the order fulfillment process are:
- Receiving: Merchants first receive inventory from manufacturers or suppliers
- Inventory Storage: Once inventory is received, it is indexed and stored away for later resale, generally in a warehouse
- Order Processing: During this phase, customer orders are placed online or over the phone, and a clerk is dispatched to retrieve the order and prepare it for shipping
- Shipping: Once an order has been picked from storage and appropriately packed, it is sent to shipping where the most efficient method of transport will be determined and the order is sent out
- Returns Processing: When items are returned, the appropriate refund must be assessed and items must be placed back into inventory
Together, these steps make up the part of the order fulfillment process that takes goods and resources from those who produce them and places them in the hands of those who want them. In some cases, this means taking goods produced by a manufacturer and delivering them directly to an individual consumer. These are known as “direct to consumer” or “D2C” orders. In other cases, goods or commodities are taken from a producer and delivered to another business, either for resale or to use in the manufacturing of their own products. This is known as “business to business” or “B2B”.
The Receiving Process
During the receiving process, items delivered to the fulfillment provider warehouse are offloaded and accounted for in five different steps: Counting; inspection for accuracy; inspection for damage; SKU indexing; and SKU application.
When a shipment is received, a receiving clerk will go through and count the number of units delivered to ensure that the appropriate number has been received. If the number of units received does not match the number on the invoice, the items will first be entered into inventory and the discrepancy will be addressed with the supplier in one of three ways.
- If the number of units received is less than the number ordered, an additional shipment may be requested or a discount may be applied to a future order.
- If the number of units received is more than the number ordered, the fulfillment center may be required to pay for the additional items or simply place a smaller order the next time around.
Inspect for Accuracy
After every unit has been counted, they will then be inspected to ensure that they are the actual items that were requested. If the wrong items were received, the fulfillment center will reach out to the supplier and request a swap. In such cases, a discount is often applied to make up for the inconvenience.
Inspect for Damage
Once every unit has been accounted for, they will then be inspected for damage.
If it is found that units have been damaged en route to the fulfillment center, a replacement order or discount request may be submitted to the supplier.
Add Items To Inventory
After inspection, an SKU code is assigned to each unit and entered into the fulfillment center’s inventory software. A SKU (stock keeping unit) code is used to identify specific characteristics of a unit, such as its manufacturer and price, and track it through the fulfillment process.
Once items have been entered into the warehouse management software, a physical SKU label or barcode is applied to each unit, and the unit is ready for storage.
The Inventory Storage Process
The storage process involves the strategic placement of each unit within the storage facility so that they may be retrieved as quickly and accurately as possible. Typically, individual SKU’s are placed in designated storage bins so that employees don’t have to spend extra time sifting through different items to retrieve the one they need. When there is too much inventory to fit in designated bins, overflow is sent to a separate storage area. Bins are replenished from overflow storage as inventory moves out.
The items that sell the most frequently, known as “Hot SKU’s” are typically placed closest to the packaging stations so they can be retrieved quickly. Occasionally, bins will need to be reorganized as certain SKU’s gain in popularity. Fulfillment centers rely on tracking software to tell them when certain SKU’s get “hot” so they can reorganize for maximum efficiency.
The Order Processing Phase
Order processing involves every step from the time an online order is received to the time it becomes ready to ship. The most efficient way to go about this process is to integrate fulfillment software with the business’ shopping cart. By doing so, orders are automatically received by the fulfillment center as soon as they are placed, and the process of picking and packing the order can begin.
“Picking” is the part of the order fulfillment process where employees fulfill the orders by physically retrieving the items from bins and transporting them to the packaging area. The methods and technologies involved in picking items from storage will vary widely depending on the size of the operation. Smaller operations will simply require an employee to walk over to the appropriate bin and pick out the unit they need. Industrial-scale operations with vast warehouses might require a trained equipment operator and support staff to retrieve large units stacked meters high. It is important to maintain warehouse efficiency so pickers can find and transport the necessary items to the packaging area as quickly as possible.
The next step after order picking is packing. This part of the order fulfillment process involves preparing the unit to be shipped to its final destination. Packing employees will need to account for things like:
- Fragility: fragile items must be packed with insulating materials like bubble wrap and foam packing peanuts to keep them safe during transport.
- Weight: Heavy units might need to be cushioned or placed on pallets to avoid damage to the transport vehicle, other units in the same shipment, or the units themselves.
- Dimensions: units that lack a flat bottom surface or have awkward dimensions will need to be packed in such a way that they may be transported without sliding or tipping over. Often, this means packing items in boxes and/or stacking them on pallets that can be stowed efficiently during transit.
- Health Hazards: Items that pose a potential risk of injury due to excessive size, weight, or chemical makeup must be restrained and marked to warn anyone handling them of potential danger.
- Cost: In shipping, space is the most precious commodity. Items that take up more space cost more to ship. It is important to package items such that they take up the least amount of space possible to keep costs low.
Once items have been picked and appropriately packed, they are then sent to the shipping center to be delivered.
The Shipping Phase
In the shipping center, shipping managers will determine the most efficient method for transporting each unit to its end destination. For smaller online sellers, this may be a simple matter of determining the correct amount of postage and placing it in outgoing mail.
However, businesses who need to ship oversized units, large quantities, or items that have special handling requirements may need to enlist freight services or specialized couriers to transport their goods. It is up to shipping specialists to determine the most efficient and cost-effective method to get it done.
The shipping center is also responsible for updating customers and the fulfillment software once items have been shipped out for delivery. At this point, an order is considered to be fulfilled unless, of course, a unit must be returned.
While sometimes overlooked as a part of the fulfillment process, returned items are very much under the oversight of the fulfillment team. The internal side of returns processing looks much like the fulfillment process outlined above. Units returned to the warehouse must be:
- Inspected for accuracy
- Inspected for damage
- Re-entered into the fulfillment software
- Replaced into storage
It is also very important for online merchants to manage customer expectations by establishing an external returns policy and listing it clearly on their website for reference. Customers should be made aware of where to send returns and how to go about it. Other terms such as refund and replacement policies should also be outlined here.
But Wait, There’s More
The five processes listed above make up the entirety of the order fulfillment process, but there are numerous ways to handle the fulfillment of shipments depending on the specific needs of your company. Small, uncomplicated e-commerce businesses may be able to simply track, store, pick, and pack inventory from their home’s garage and ship them out via postal service. Larger, more complicated businesses, or those who simply lack the expertise, may choose to outsource these functions to professional order fulfillment services who specialize in the fulfillment process.
Third Party Logistics (3PL)
Third-party logistics companies are built to service the needs of those who are otherwise incapable, or unwilling to handle extensive or complex order fulfillment needs. In addition to handling receiving, storage, processing, shipping, and returns, the various types of 3PL’s are optimized to provide ancillary services like on-demand transportation and data analysis to help organize merchandise and anticipate lead times.
Transportation-based 3PL’s arose out of the need to ship goods beyond a business’ immediate geographical region. For businesses who fulfill various orders nationwide or internationally, it is far more efficient and cost-effective to utilize the extensive transportation networks provided by a third-party logistics provider than it would be to hire in-house haulers or private couriers to travel between regions. By partnering with a transportation-based 3PL businesses you harness the advantages of:
- A more extensive transportation network
- More diverse fulfillment and shipping capabilities
- Managing internalization by outsourcing documentation, dealing with customs, duties etc.
- Limiting Overhead
You are probably already familiar with some of the largest transportation-based 3PL’s like FedEx, UPS, and DHL. While these companies can be extremely helpful in the fulfillment process, there are other types of 3PL’s built to handle other logistic concerns.
Distribution and warehouse based 3PL’s are built to streamline the internal functions of the fulfillment process. They specialize in handling storage, shipment, and returns while leveraging data analysis to more effectively manage storage and anticipate lead times.
By storing merchandise with a 3PL, businesses relinquish all duties involved to a company who specializes in managing them efficiently. They are optimized to store, pick, and pack goods more efficiently than the average business can. They also tend to have large networks of warehouses to operate from, so that your product can be stored closer to its intended destination. The closer your merchandise is to its destination, the quicker it can be delivered.
Anticipating Lead Times
Anticipating lead times effectively is crucial to avoid out stocking. When a customer places an order for an item that is out of stock, deliveries get delayed and businesses risk losing the customer out of frustration. 3PL’s are professionals in this area, and hiring one will rid a business of the need to stock and keep up with fluctuations in demand for their goods.
Information-based 3PL’s are built to a business’ entire logistics network by providing insight on trends in an entire industry. They cover every facet of the fulfillment process and provide analytics on:
- Freight auditing
- Cost accounting
- Monitoring tools
- Inventory management
For smaller e-commerce companies, many of these functions are handled in-house, and the additional percentage in terms of cost is negligible and unavoidable due to lack of alternatives on small scale. However, for large scale businesses, where a single percentage point of additional cost could mean losing hundreds of thousands of dollars out of the bottom line, streamlining these operations is crucial to the overall success of the business.
The Best Option For You
Streamlining the order fulfillment process is an effective way to save time, improve customer satisfaction, and increase the profitability of a business. It is important to learn about the various functions and how each one can be optimized for efficiency and enhance the overall order fulfillment strategy. Small business owners may be able to afford the luxury of keeping these operations in-house and retain control of their order fulfillment systems as a whole. Larger operations may need to relinquish some control of their order fulfillment solutions and take on additional risk in order to fulfill their orders efficiently. In any case, thorough research and intimate knowledge of your business’ unique requirements will help you choose the best option for your fulfillment needs.