Find out everything you need to know about order fulfillment. This guide covers its history, integral sales processes, various types, logistics, global-to-local strategies, key performance metrics, and emerging trends
Order fulfillment is the process through which businesses manage and fulfill customer orders, from receiving an order to delivering the product to the end customer. The order fulfillment pipeline bridges crucial touchpoints like — inventory management, picking, packing, shipping, and even potential returns.
Starting at the factory, goods are produced and then stored in warehouses. Upon receiving an order, these goods are retrieved from the warehouse, prepared for shipment, and then sent to distribution centers or directly to retail locations. In some cases, especially in e-commerce, the items are shipped directly to the end consumer. Each step is crucial in ensuring that the right product reaches the right recipient promptly and efficiently.
The decision on managing order fulfillment processes— in-house or outsourced—varies by company and their specific needs. In-house order fulfillment definition means a company handles all aspects of the order fulfillment process using its resources, offering direct control over operations, inventory, and quality. In contrast, outsourced order fulfillment meaning involves partnering with third-party logistics providers (3PLs) specializing in these operations.
The evolution of order fulfillment over the years has been closely connected to changing consumer behaviors. As shopping methods shifted from physical stores to online platforms and now a blend of both, businesses had to adapt swiftly to keep pace.
With the convenience provided by online giants like Amazon, consumer expectations have skyrocketed. The demand for same-day or next-day delivery has now become standard, forcing businesses to address supply chain complexities and shipping delays. For example, a study by Deloitte reveals that 59% of responding manufacturing companies have faced shipping delays due to truck driver shortages and congested ports in the past 12–18 months.
As we move forward, consumers are increasingly valuing personalization and sustainability. This means delivering products quickly and ensuring packaging is personalized and eco-friendly. It’s not just about speed anymore but about the entire experience, from placing an order to the unboxing experience itself.
The order fulfillment cycle encompasses several key stages, each crucial to ensuring that products reach customers efficiently and accurately. While these stages form the backbone of fulfillment across various sales channels and business models, their implementation can differ significantly based on the specific operational demands of each channel.
Role in Order FulfillmentThe receiving stage involves receiving inventory from suppliers, inspecting goods, sorting, and storing them properly. For brick-and-mortar stores, this often involves preparing floor stocks. In contrast, e-commerce requires items to be ready for individual picking and packing, while omnichannel businesses must cater to both.
Physical stores might do periodic stock checks, whereas e-commerce and omnichannel businesses typically rely on real-time inventory tracking systems to maintain accurate inventory levels and prevent stockouts and overstocking.
In e-commerce and omnichannel retailing, this involves warehouse workers picking the product from storage, packing it for shipment, and then moving it to the shipping station.
E-commerce and omnichannel retailers must select the appropriate courier and service level, print shipping labels, and manage the order fulfillment logistics of getting the package to the end customer. Physical retailers, on the other hand, don't ship directly to customers, but they might transfer stock between store locations.
E-commerce often sees higher return rates than physical stores and involves receiving returned items, checking them, restocking, or disposing. Omnichannel retailing adds complexity, as returns might come in from any channel, making it more challenging to handle returns efficiently and accurately.
Throughout the fulfillment cycle, businesses need to provide customer support. While physical stores handle this in person, e-commerce support handles inquiries, complaints, and returns, often across multiple digital channels.
Each of these processes requires integration based on the sales channel and business model in question. They're interconnected, and efficiency in one process often means efficiency across the whole fulfillment cycle. Each sales channel has unique requirements, customer expectations, and operational frameworks, and the way orders are fulfilled must align with these specifics to ensure customer satisfaction and maintain operational efficiency.
The order fulfillment cycle varies depending on the sales channels.
In traditional retail, encompassing physical stores, pop-up shops, and trade shows, order fulfillment processes predominantly revolve around ensuring that products are available on shelves for direct customer purchase. The process is less about individual order shipping and more about efficient inventory management, restocking, and in-store customer service.
There are three primary categories:
Across all these traditional retail categories, the common goal is to avoid stockouts while minimizing overstock. The scale of operations, resources, technological integration, and supplier relationships are the key differentiators in how these retailers approach order fulfillment. According to a survey by DHL, 40% of respondents are insourcing order fulfillment while 48% are pursuing a hybrid approach.
Online marketplaces such as Amazon, eBay, Walmart, and various regional alternatives have significantly reshaped the retail landscape, offering consumers a one-stop-shop experience with a wide variety of products from multiple sellers. Consumers tend to migrate towards these marketplaces due to several triggers:
Order fulfillment meaning in these marketplaces can take various forms, significantly impacting both the seller's operations and the customer's shopping experience.
Fulfillment by Amazon (FBA) and Walmart Fulfillment Services (WFS): These order fulfillment services, offered by Amazon and Walmart respectively, allow merchants to leverage the marketplace's vast logistic networks. Sellers send their products to Amazon's or Walmart's fulfillment centers, and the rest (storage, packing, shipping, customer service, and returns) are handled by the marketplace. Amazon’s FBA or WFS allow sellers to scale their business, access prime customers, and offer faster shipping, thereby enhancing customer satisfaction.
Fulfilled by Merchant (FBM): In this model, sellers list their products on the marketplace but handle the fulfillment process themselves. Fulfillment by merchants gives sellers more control over their inventory, order fulfillment logistics, and shipping costs, which can be advantageous for niche products, fragile items, or when the merchants have an efficient fulfillment system in place. According to a survey by Shippo, two-thirds of respondents said they wouldn’t consider purchasing from a retailer that didn’t offer free shipping.
The changing consumer behavior towards online marketplaces highlights the need for sellers to adapt their order fulfillment strategies accordingly. Whether opting for FBA, WFS, or FBM, sellers must consider factors like cost, control, scalability, and customer expectations.
For ecommerce platforms like Shopify, Magento, WooCommerce, and BigCommerce, order fulfillment takes on a direct-to-consumer (DTC) approach that requires a seamless blend of efficiency, speed, and adaptability. Unlike traditional retail, where the focus is on shelf availability, DTC fulfillment emphasizes the accurate, swift, and reliable delivery of products straight to customers' doorsteps.
The process involves:
DTC fulfillment demands an integrated approach that ties production, inventory, and distribution into a single, responsive ecosystem. Leveraging the capabilities of e-commerce platforms, businesses can automate many aspects of the fulfillment process, synchronizing inventory data, tracking orders in real time, and analyzing sales patterns to forecast demand.
B2B sales, traditionally dominated by wholesale, direct sales, and enterprise procurement, involve sales between businesses, such as a manufacturer to wholesaler or wholesaler to retailer. These transactions are typically characterized by larger order volumes, recurring orders, and long-standing relationships between businesses.
However, the landscape is changing with the emergence of B2B e-commerce, where business buyers expect a shopping experience akin to B2C, driven by convenience, efficiency, and transparency. This shift is leading to a transformation in B2B order fulfillment:
Across these channels, B2B order fulfillment must deal with unique challenges, such as:
The evolution of B2B e-commerce is pushing businesses to modernize their systems, adopt advanced supply chain technologies, and enhance their order fulfillment strategies to meet heightened customer expectations. This transformation, while challenging, presents an opportunity for businesses to improve efficiency and order fulfillment rates, forge stronger relationships with partners, and tap into new markets.
The omnichannel approach has emerged as a critical strategy for brands aiming to provide a seamless customer experience across multiple sales channels. This approach recognizes that customers interact with brands in a variety of ways — online through e-commerce platforms, social media, mobile apps, and offline in physical stores or pop-up shops — and expects consistency, convenience, and personalized engagement across all these touchpoints. According to a study by Insider Intelligence, an estimated 50% of US Gen Z and millennial social users make purchases on social media, compared to 38% of US adults overall.
Channels are indeed converging, and customers no longer see a distinction between a brand's online presence and its physical store—they view it as one entity and expect the experience to be continuous. For instance, they might want to browse products online, try them in-store, and later purchase via an app with home delivery. Alternatively, they might buy online and pick up in-store (BOPIS), a trend that surged especially during the COVID-19 pandemic.
However, omnichannel fulfillment also brings complexities to order fulfillment:
Implementing an effective omnichannel strategy requires significant investment in technology, logistics, and personnel training. It involves integrating disparate systems for inventory management, order processing, customer relationship management, and more.
However, the payoff is substantial—brands that successfully execute an omnichannel approach see improved customer loyalty, order fulfillment rates, higher average order values, and increased revenue, as they can engage customers at multiple points along their shopping journey, thereby maximizing opportunities for conversion. In a landscape where customer expectations continue to rise, an omnichannel approach is becoming less of an option and more of a necessity for brands looking to thrive in the long term.
There are various types of order fulfillment approaches that businesses can implement depending on a business's size, resources, expertise, and strategic goals. Here's a breakdown of several common types:
For self-fulfillment or insourced order management, the business manages every step of the order fulfillment process in-house, rather than outsourcing to third-party logistics (3PL) providers or using dropshipping methods
Pros: Complete control over the fulfillment process, direct handling of inventory, packaging, and shipping, and closer customer relationship management.
Cons: Requires substantial investment in storage space, staff, technology, and logistics, and can be challenging to scale during peak periods.
It is Ideal for startups, small businesses, or those with unique products that require special handling or branding experiences.
3PLs handle the order fulfillment logistics of storage, picking, packing, and shipping, allowing businesses to focus on core competencies like product development and marketing.
Pros: Offers expertise in logistics and order fulfillment management, provides scalability, and reduces the need for physical storage space and staffing.
Cons: Less control over the fulfillment process, the potential for miscommunication, and reliance on the 3PL's system reliability and performance.
Third-party partnerships can provide access to advanced technology, wider distribution networks, and volume shipping discounts but require careful management, clear communication, and trust.
Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party — usually a wholesaler or manufacturer — and has it shipped directly to the customer.
Pros: Eliminates the need for inventory management and upfront investment in products, and offers virtually unlimited inventory.
Cons: Less control over inventory, longer delivery times, reliance on supplier’s stock and performance, and potential for inventory issues.
Products are quickly transferred between transport vehicles without long-term warehousing (cross-docking) or are manufactured/received as needed (JIT), reducing storage, product handling, and overall order fulfillment costs.
Pros: Reduces inventory holding costs, less space requirement, and quicker delivery to customers.
Cons: Requires precise coordination, reliable suppliers, and accurate forecasting to prevent stockouts or delays.
BOPIS, or "Buy Online, Pick-up In-Store," is a hybrid retail model that blends online shopping with traditional brick-and-mortar experiences. For example, Walmart leverages its physical stores as distribution points where customers can pick up online orders. This order fulfillment strategy merges the digital and physical shopping experiences, offering customers convenience, no shipping fees, and immediate gratification while driving additional in-store purchases.
Pros: Increases customer convenience, reduces shipping costs and time, and leverages existing physical infrastructure.
Cons: Requires accurate inventory tracking, dedicated storage space for pick-up items, and additional staff training.
Businesses often use a mix of self-fulfillment, 3PL, dropshipping, and other methods based on their product types, sales volume, geographic reach, and growth strategies. This approach offers greater flexibility, optimizes order fulfillment costs, and ensures better risk management.
For instance, a business might handle fulfillment in-house in its primary market to maintain control and customer experience but use 3PLs in new or distant markets to reduce shipping times and navigate the challenges of local order fulfillment logistics.
The choice of a hybrid model can be influenced by various factors, such as the desire to test new markets, the need for specialized handling or storage, seasonality, international shipping complexities, or expansion plans.
Ultimately, the choice among these order fulfillment strategies depends on the business’s size, resources, market demand, product nature, and long-term goals. Each method comes with its own set of requirements and order fulfillment challenges, and businesses must evaluate their capabilities, conduct cost-benefit analyses, and possibly consult with supply chain experts to determine the most suitable approach.
At its core, all order fulfillment logistics require a combination of warehouse organization, picking and packing products, and reverse logistics.
Warehouses and fulfillment centers are the backbone of the supply chain, and their organization significantly impacts order processing efficiency, accuracy, and customer satisfaction. Warehouse organization is structured around stock keeping units (SKUs), which are unique identifiers for each distinct product. The arrangement of SKUs, shelving, and the overall use of space are often tailored to the type of fulfillment, sales channels, and products involved.
For instance, a warehouse serving a traditional retail channel might have pallets of the same product (ideal for bulk shipping), whereas a direct-to-consumer e-commerce warehouse would need individual bins for a broad array of SKUs (facilitating single-item orders). Similarly, facilities handling perishable goods or large, heavy items would require specialized storage, handling, and order fulfillment solutions.
Space optimization, often facilitated by warehouse management systems (WMS), involves strategic shelving (like high-density storage for fast-moving items), and layout designs to minimize picking time and accommodate varying inventory levels, thereby enhancing throughput and efficiency.
The picking and packing process is central to order fulfillment, directly affecting the speed and accuracy of customer order deliveries. You can choose from various approaches depending on warehouse size, order types, and volume to overcome picking challenges:
Each method impacts fulfillment speed, accuracy, and workforce requirements differently. For example, while batch and wave picking can increase efficiency, they may also require more complex coordination and a robust WMS to handle order grouping and routing.
Returns are an inevitable aspect of the sales process, more so with the rise of e-commerce, where return rates are significantly higher than in traditional retail. Reverse logistics, or the flow of returned items back into the inventory poses challenges in sorting, assessing, restoring, and repackaging products.
In the digital age, consumers expect smooth return processes; thus, an efficient returns management system needs to be in place. This involves designated areas within the warehouse for returns, skilled staff to assess and refurbish products, and technology to update inventory levels in real time. Additionally, a proactive approach, including data analysis, can help businesses understand return reasons and patterns, potentially leading to reduced return rates over time.
Ultimately, a strategic approach to warehouse organization, picking methodologies, and returns processing can greatly improve order fulfillment efficiency, accuracy, and customer satisfaction, directly contributing to a company's bottom line.
Domestic fulfillment is subject to local regulations, consumer preferences, and logistical infrastructures. In the U.S., for instance, domestic fulfillment involves navigating a vast geographic area with diverse regional demands, requiring a strong distribution network for timely deliveries. Meanwhile, businesses must also comply with local tax laws, environmental regulations, and consumer product safety laws which can vary from one state or region to another.
Cross-border fulfillment involves selling products internationally, which involves navigating various legal frameworks, shipping protocols, and cultural nuances. According to Shopify, consumers are increasingly looking beyond their home country as 57% of respondents say they’ve recently made an international online purchase.
A common challenge includes navigating the complexities of international shipping logistics, such as longer shipping times and the need for multi-language support. Additionally, consumer expectations regarding shipping costs and times can vary widely, necessitating a clear communication strategy. A survey by Voxware reveals that 69% of respondents are unlikely to shop with a retailer if their delivery is delayed by more than two days.
Successful global fulfillment requires adept handling of duties and customs. Incorrect paperwork, underestimating duties, or not adhering to international trade agreements can lead to delays, additional order fulfillment costs, and negative customer experiences. For instance, the North American Free Trade Agreement (NAFTA), now replaced by the United States-Mexico-Canada Agreement (USMCA), has significantly influenced trade and fulfillment operations among these countries, affecting tariffs, regulations, and supply chain strategies.
The trade tensions between the U.S. and China, highlighted by increased tariffs, have prompted many businesses to consider near-shoring — shifting their supply chains to closer countries like Mexico. This change allows companies to reduce order fulfillment costs, have more control over the manufacturing process, and provide faster fulfillment due to proximity.
Brexit is another prime example, causing disruptions in trade between the United Kingdom and the European Union. Post-Brexit, many EU-based businesses are now compelled to establish a presence in the UK to avoid increased shipping times and costs, and to navigate new tax and duty requirements efficiently.
Using international third-party logistics (3PLs) providers or localized fulfillment centers can be advantageous for global operations. Ecommerce 3PLs often have a deeper understanding of local markets, regulations, and consumer behavior, providing businesses with strategic storage locations, reduced shipping times, and costs, and helping to manage complex international logistics.
By utilizing a network of international fulfillment centers, businesses can store products closer to their customers, significantly reducing shipping times and logistics costs while increasing customer satisfaction.
Technology plays a key role in optimizing and streamlining order fulfillment processes, directly improving efficiency, accuracy, and customer satisfaction.
1. Order Fulfillment Software and Multichannel Order Fulfillment Management
Businesses can leverage the right technology to manage orders from multiple sales channels (e-commerce platforms, marketplaces, and physical stores) through a single interface. This software enhances visibility, accuracy, and efficiency by automating tasks like inventory tracking, order routing, and shipment tracking. In addition, multichannel order management systems allow businesses to synchronize inventory and sales data across various platforms, ensuring consistent information and smoother operations.
2. Distributed Order Routing
Distributed order management systems determine the most cost-effective and efficient way to fulfill orders by analyzing variables such as inventory levels across locations, shipment times, and costs. These systems help businesses optimize their supply chains and improve customer satisfaction through quicker deliveries.
3. Warehouse Management System (WMS) Essentials
Modern Warehouse management systems (WMS) solutions offer far more than traditional inventory tracking. They provide real-time tracking of products within the warehouse and en route to customers, sophisticated forecasting tools to anticipate inventory needs and analytics to monitor KPIs and optimize operations. These systems are critical for businesses looking to scale, offering insights into potential bottlenecks or inefficiencies.
4. Integrations
Integrating a WMS with other systems like e-commerce platforms, Enterprise Resource Planning (ERP), and Customer Relationship Management (CRM) software allow for seamless data exchange and streamlined operations. For instance, integrating the WMS with an ecommerce platform ensures that stock levels are updated in real-time, preventing stockouts or overselling, while connection to a CRM can provide customer service reps with up-to-date order status information.
5. The Rise of AI and Robotics in Order Fulfillment Processes
Adoption of Artificial Intelligence (AI) and robotics is on the rise in modern fulfillment centers, helping automate various processes:
These technologies not only speed up the order fulfillment process but also enhance accuracy, improve worker safety by automating more dangerous tasks, and ultimately lead to greater customer satisfaction through faster and more reliable order processing.
The future of order fulfillment is one where humans and technology collaborate, with AI and robotics handling repetitive tasks, and humans managing more complex or creative responsibilities. This synergy promises a more efficient, accurate, and scalable order fulfillment process, prepared to meet the evolving demands of the modern consumer.
To optimize order fulfillment, businesses must track specific metrics and performance indicators. These numbers offer valuable insights into the efficiency of your operations and warehouse KPIs, highlighting areas for improvement and measuring the impact of changes.
Each of these metrics plays a vital role in assessing the effectiveness and efficiency of an order fulfillment system. They provide actionable insights that companies can use to streamline operations, reduce order fulfillment costs, and enhance customer service.
As we look ahead, several trends are poised to shape the future of order fulfillment, driven by technological advancements, evolving consumer preferences, and the overarching necessity for sustainable practices.
Increasing environmental concerns are pushing companies to adopt sustainable practices in their order fulfillment processes. This means increased use of eco-friendly packaging, optimization of delivery routes to reduce carbon emissions, and warehousing operations powered by renewable energy. Consumers are progressively favoring brands that demonstrate environmental responsibility, making sustainability a competitive differentiator
Drone deliveries are gaining popularity as a viable option for order fulfillment, especially for last-mile delivery. They reduce the overall time from the warehouse shelf to the customer's doorstep and significantly cut down on carbon emissions compared to traditional delivery vehicles.
Similarly, autonomous delivery vehicles are no longer just a concept but are entering real-world testing phases. These technologies promise faster, more cost-effective, and environmentally friendly delivery options.
The warehouses of the future will be highly automated to increase efficiency and reduce reliance on human labor. Advancements in robotics, AI, and machine learning will lead to smart warehouses that can predict, adapt, and respond to changes in order fulfillment demands in real time.
Beyond just getting orders right, the future will see an emphasis on bespoke customer experiences. From personalized packaging to products tailored to the individual's preferences and needs, order fulfillment will become a significant part of the brand experience and customer satisfaction.
With the retail landscape evolving rapidly, companies must be ready to pivot quickly, adopting new technologies and methodologies to meet changing consumer demands. This requires an investment in continuous learning, data-driven decision-making, and agile business models.
The future of order fulfillment will offer new avenues for companies to differentiate themselves with a steadfast commitment to innovation and sustainability. With Hopstack’s smart Warehouse Management System, businesses can leverage data-driven insights to streamline fulfillment processes and ensure maximum efficiency.
If you’re looking to improve your existing order fulfillment pipeline and increase investment into your supply chain operations, schedule a call with our product specialist today.
