What Is Order Fulfillment? Improve Your Process & Strategy (2024) - Shopify (2024)

Order fulfillment is the stage between a customer making an order and the product landing at their door. It’s a crucial step in the sales process, and if not handled well, it can lead to lost business.

With online shopping the norm, customer expectations around fulfillment have shifted. Today’s consumers demand fast, free shipping and return up to 30% of orders.

To meet evolving demands, you need a strong order fulfillment process. The less time spent picking items, packing orders, and managing delays, the faster a purchase can be delivered.

What is order fulfillment?

Order fulfillment is the complete process from a customer placing an order through to its delivery. It includes the storage and processing of inventory, picking and packing of items, and delivery management. It may also involve accepting return transactions.

The goal of order fulfillment is to ensure accurate, timely delivery of products to customers by minimizing errors and costs. While some retailers fulfill orders manually, most use order fulfillment software or third-party logistics (3PL) services to automate and streamline the process.

The fulfillment process can vary by business size. For larger enterprises, it typically takes place in a warehouse or distribution center, where workers pick and package products for shipping. Brick-and-mortar stores with an online platform may fulfill orders from their stockroom using a self-service system.

Why is order fulfillment important?

Jessica Postiglione, founder of supplement brand Bonny, notes how the rise of ecommerce has caused more competition. Due to the delivery standards set by large retailers like Amazon and Walmart, the pressure is on to get orders into customers’ hands as quickly as possible.

“If you want to be taken seriously as a brand, you need to be able to fulfill orders within a business day, communicate the tracking number to the customer, and follow up with them when the package is delivered,” says Jessica.

Here are three benefits of a well-crafted order fulfillment strategy:

Reduced costs

Working with a service partner to pick, pack, and ship orders can reduce fulfillment costs.

By working at scale and negotiating lower shipping rates with carriers such as USPS, DHL, and UPS, fulfillment solutions like the Shopify Fulfillment Network offer enterprise pricing to small businesses.

Improved customer service

Having a solid order fulfillment strategy, whether it’s an in-house solution or a partner app, can make a big difference to a business’s customer service. It ensures orders are correct and delivered on time. When this happens, customers are happy. And when customers are happy, it’s good for business.

Scalability

A well-planned order fulfillment strategy saves time, making it easier to scale your business. When you have the right strategy or partner, you can handle more orders without needing extra space or employees. This means you can fulfill as many orders as your marketing team can bring in.

How the order fulfillment process works

Bernie Schott, CEO of yoga mat maker REECH, shares what the order fulfillment process looks like for his business.

“We check unfulfilled orders around 7 a.m., print shipping labels, and write on the back of each product that needs to be picked for the order,” he says. “This way, we know what products to pick from the warehouse and can double-check accuracy during packaging.”

“Before sealing packages, we double-check the order against what was packed. Once verified, we seal the shipment, apply the shipping label, and have a mail carrier pick them up later in the day.”

Order fulfillment processes vary among businesses. Here’s what the order fulfillment process looks like for an average ecommerce retailer:

1. Inventory is received from suppliers

The journey begins when inventory arrives from a manufacturer or supplier. Items are checked for quality when received before being stored according to an inventory management system in a warehouse, stockroom, or storage facility.

2. A customer places an order

After browsing an online store, customers choose products and place an order. Here, a user-friendly and secure checkout will help to smoothly convey orders to your back office. The checkout process should also communicate accurate shipping costs and a delivery timeline to the customer.

3. The fulfillment team receives the order

Once an order is placed, the details are communicated to the person or team responsible for fulfillment. This information includes the customer’s details, the products ordered, and the delivery address. A POS system can help to speed up this part of the process, integrating inventory management with shipping information.

4. The order is prepared

The fulfillment team then gets to work. They pick the ordered items using the inventory management system, pack them to prevent damage during transit, and attach a shipping label (and return form). Thoughtful packaging at this stage can enhance the unboxing experience for the customer.

5. The order is shipped

The packed order is handed over to a shipping carrier for delivery to the customer address. The end consumer may be the customer, or another retailer in the case of wholesale orders. Tracking information is usually provided to the customer, so they can monitor delivery progress.

6. Returns processing

If the store has a return policy, the customer may follow the guidelines and send the package back. The fulfillment team checks the returned products for any damage. If the product qualifies for return, they process the return. Depending on the product and quality, the item may be re-entered into inventory for resale, set aside, or disposed of.

6 tips to improve your order fulfillment process

Let’s look at how you can streamline the order fulfillment process to get products to your customers faster.

1. Optimize inventory management

With order fulfillment, speed is everything. The faster you can get a delivery in your customer’s hands, the happier they’ll be.

Optimize your process by localizing inventory. This may involve holding inventory in warehouses close to customers, or distributing inventory across multiple retail locations. Shopify makes it easy to manage and fulfill orders by integrating with retail locations to allow for faster fulfillment options.

2. Double-check products before shipping

How frustrated would you be if you received a parcel containing the wrong product? Not only would you be disappointed to have the incorrect item, but you’d have to ship the product back and wait for a replacement. Nobody has time for that.

Implementing an order-picking strategy with safeguards minimizes the risk of this happening to your customers.

“Always double-check that the products you’re shipping match what the customer ordered,” says REECH CEO Bernie Schott. “Even if you have the best customer service and can remedy the situation quickly, it’s still a waste of time and money between resolving the customer’s issue and shipping the new order.”

It’s not just picking products that matters. The way you package them matters, too.

“Ensuring the products are packed well and safely hopefully guarantees that nothing will break in transit and the customer has a great experience receiving their products, whether it’s for the first time or the 10th time,” says Laura Whitaker, founder of Wildcraft.

3. Improve relationships with your shippers

Shipping carriers play a large role in how fast you can get products to your customers. Build relationships with carriers to unlock lower shipping rates and priority treatment when dealing with issues.

Good practices when communicating with carriers include:

• Accurately estimate shipping volumes. Many carriers price their services on shipping volumes. If you expect a surge in orders, warn your carrier, so they can prepare.
• Be proactive with communication. Hold regular meetings with your carriers and ask if there’s anything you can do to make things easier on their end—like dropping off orders earlier in the day.
• Call out good service. Public praise and recommendations help build relationships.

4. Use data to drive decisions

Data can be a powerful tool in refining your order fulfillment process, ensuring you have accurate information about your stock. Shaunak Amin, co-founder of the snack marketplace SnackMagic, used inventory data to identify which products were selling more slowly.

“We can now better identify our inventory turnover rate, improve our demand forecasting, and refine our safety-stock quantities using this information,” Shaunak explains.

Shaunak’s team also found a shipping strategy that works for their busy warehouse. Fulfillment staff catalog newly arrived inventory at the start of their shift, giving a clear picture of what items are available. Receivers then wait until the end of their shift to replenish inventory levels.

5. Automate where you can

Mistakes can happen in any part of the fulfillment process, and they can affect the customer experience. Misreading a packing slip or prioritizing the wrong orders can lead to problems.

Elliott Davidson, an ecommerce consultant at Parcel Master, points out that manual processes increase the risk of errors.

“The best solution is to leverage ecommerce automation through integrations, so the data is automatically sent to your fulfillment provider without you having to touch it,” Elliott suggests.

Smart ways to automate your order fulfillment process include:

• Using fulfillment software to route orders to the fulfillment center closest to your customer.
• Using bar code scanners to find the location of inventory to be picked from a busy warehouse.
• Sending an order tracking link to your customer so they can access real-time information.

“Fulfillment takes a lot of time and it’s expensive to get wrong. Between replacement products, extra shipping labels, and wasted time, the costs can really add up,” says Laura Whitaker from Wildcraft.

6. Be transparent with customers

Even with the best processes in place, things can still go wrong with order fulfillment. Some of these issues might be out of your control, but that doesn’t mean you can avoid responsibility.

Customers appreciate transparency, especially about delivery times. That’s why Shopify offers the Shop Promise badge to verify products that are reliably delivered within five calendar days.

If there’s a delay, let your customers know as soon as possible. Apologize for the delay and explain why their package will be late.

For example, Fussy, a retailer that experienced a sudden increase in sales after appearing on a reality show, sent an email to customers to let them know their orders would be late.

The email was carefully worded, included an updated delivery estimate, and was accompanied by a sincere video message:

How to determine your ecommerce order fulfillment strategy

Make sure you’re choosing the right ecommerce order fulfillment strategy by doing these three things:

Size your sales

The number of products you sell can help determine whether to handle fulfillment in-house or outsource it.

Examine order volumes across each of your sales channels. If you find yourself rushing through more orders than you can comfortably manage, it might be time to consider outsourcing.

James Brands, director at LimaLima, shares his experience with order fulfillment.

“We process several hundred orders a day, offering same-day dispatch if ordered before 3 p.m.,” he says. “A solid order fulfillment process means we can meet this promise and ensure our customers receive the correct item.”

Know your strengths

If your team doesn’t have strong skills in fulfillment and logistics, it might be best to outsource these tasks. This allows you to focus on sales or production.

Jessica Postiglione takes this approach with Bonny’s order fulfillment process. The retailer uses a third-party service to fulfill orders, except for samples to editors, influencers, and other VIPs.

“I self-fulfill those packages, as they have handwritten notes and other personalized materials included,” says Jessica.

Locate your customers

The location of goods in relation to your customers can significantly impact shipping costs and delivery times.

Jason Wong, CEO and founder of Doe Lashes, explains his localization approach.

“We look at where our customers are placing their orders from,” he says. “We respond by placing our inventory near those cities to reduce the overall miles traveled by those packages.”

If a large portion of your customer base is far from your headquarters, it might be worth outsourcing fulfillment to a provider with a warehouse closer to them.

Elizabeth Grojean, founder of blanket brand Baloo Living, shares her experience.

“The Shopify Fulfillment team helped me understand the opportunity we had by opening a fulfillment center on the East Coast,” she says. “By shipping products from the East Coast, we’re able to cut our delivery times to customers down almost by half, and we’re saving an incredible amount on our shipping cost, not to mention lowering our carbon footprint.”

Order fulfillment options and which one is right for you

There are three types of order fulfillment strategies: merchant fulfillment, dropshipping, and third-party fulfillment.

Each is suited to different types of ecommerce store, different shipping volumes, customer location, and team strengths.

Merchant fulfillment

Best for: Small ecommerce businesses with low sales volumes.

Merchant fulfillment happens when you complete the order fulfillment process yourself. Also known as in-house fulfillment, it’s one of the most popular options: almost 90% of all retail orders had at least some store involvement in their fulfillment.

Pros:

• No fulfillment fees—just shipping costs.
• Total control over the unboxing experience, since your team will have packed the order. (Many third-party companies discourage custom packaging.)

Cons:

• It’s a time-intensive task that doesn’t necessarily need to be completed by skilled workers.
• Shipping can get expensive, since you can’t take advantage of discounted rates given to third-party providers.
• Human error is common, since it’s unlikely you’ll have warehousing technology to pick and pack customer orders.

Dropshipping

Best for: Entrepreneurs starting a business on a budget.

Dropshipping is an order fulfillment model where the entire process is taken off your plate. Businesses can pick, pack, and ship inventory to their customers without ever physically touching (or seeing) inventory in the flesh.

Pros:

• You can start with no budget. You don’t need to purchase inventory and pay storage fees for it to sit in a warehouse.
• Inventory management is taken off your plate, since items are only purchased when a customer pays.
• Free up time to work on other areas of the business, such as marketing.

Cons:

• No control over the unboxing experience.
• Shipping delays are common, since dropshipping fulfillment providers often complete thousands of orders each day.
• Good, reliable dropshipping providers are hard to find, since they’re often located on the other side of the world.

Third-party fulfillment

Best for: Growing ecommerce businesses with increasing sales volume.

A third-party fulfillment company, also known as a third-party logistics service, takes the entire order fulfillment process off your plate. It’s the service’s job to source inventory, print a packing slip, and ship an item to your customer’s home—all without your intervention.

Pros:

• Takes the job off your plate, so you can spend time on bigger-picture tasks.
• There’s no need to hire seasonal logistics staff during busy periods.
• Faster fulfillment speeds, since many order fulfillment companies use automation and warehousing technology to pick, pack, and ship faster.
• Localize your inventory by stocking goods in the warehouse closest to your customers.

Cons:

• The added cost. The average pick-and-pack fee for a single item is at least $3.13.
• Many third-party companies discourage custom packaging, which makes it harder to customize the unboxing experience.
• Customer service issues. If the fulfillment center makes a mistake, who deals with the backlash?

Order fulfillment challenges

Being aware of common order fulfillment challenges can help you prepare and address issues before they escalate.

Incorrect order information

Keeping accurate records of your product deliveries is crucial. Erin Mastopietro, co-founder of Dope Dog, warns that without a good record-keeping system, confusion can quickly set in.

“This can create more confusion for customers, making the entire experience negative for them,” says Erin.

Supply chain disruptions

From labor shortages to political instability, various factors can disrupt supply chains. In fact, 43% of brands have reported changing their shipping strategies to mitigate the impact of global delays.

Despite supply chain issues, customer expectations for fast delivery are increasing, driven largely by major ecommerce brands like Amazon.

When supply chains are off-balance, meeting these expectations can be challenging. Localizing inventory can help shorten delivery times, but it’s important to be transparent with customers when fulfillment promises can’t be met.

Seasonal and events fluctuations

Certain products spike in popularity at specific times of the year, leading to inconsistencies in shipping volumes that can make order fulfillment challenging.

For instance, if you usually process 100 SKUs per day, but that number jumps to 350 in the lead-up to Black Friday, you might not have enough staff to fulfill orders on time. Outsourcing fulfillment can be a solution here.

International shipping

Ecommerce allows customers to order from anywhere. But international shipping doesn’t change expectations for quick delivery. It’s your responsibility to ensure orders are picked, packed, and fulfilled internationally as quickly as possible.

“Fulfillment should ideally support all the energy the customer is bringing to their purchase and not get in the way of their enjoyment,” says Noah Chaimberg, founder of Heatonist.

Localizing your inventory can help address this issue. By storing inventory in an international warehouse and automatically routing orders there, goods will have already cleared customs, speeding up delivery times.

How to choose the right order fulfillment service

Outsourcing fulfillment has clear advantages. Yet with so many fulfillment providers to choose from, it can be difficult to know which one is best for your business.

Factors that go into deciding which order fulfillment service to use include:

• Experience. “Look for a third-party fulfillment partner that has experience working with ecommerce brands and cares about the packages they are sending out,” says Jessica Postiglione of Bonny.
• Cost. You need to make a profit on the orders you outsource. Bake fulfillment costs and shipping fees into your pricing.
• Technology. Save yourself a headache down the road by opting for an order fulfillment service with the tech and practices to scale with you.
• Location. Store inventory at multiple warehouses and automatically route new orders to be fulfilled at the one closest to your customer.
• Speed. Ask providers for an estimated delivery time and the cut-off for next-day delivery.
• Customer service. It’s inevitable that things will go wrong in the order fulfillment process. What matters is that your fulfillment provider can rectify the problem.
• Ethics. A supply-chain-related concern is ensuring manufacturing partners employ ethical and fair labor practices. Check for health and safety measures and fair working practices.

Deliver first-class order fulfillment

Order fulfillment should be an area of focus for any ecommerce brand. Whether you’re managing fulfillment in-house or outsourcing it, your process needs to be reliable. If you don’t meet customers’ expectations for quick delivery, you risk losing their loyalty.