What Is Order Fulfillment? A Beginner’s Guide

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There are two hard and fast rules when it comes to online businesses.

The first? All businesses have to begin somewhere – and it’s usually at the bottom. Do a little digging, and you’ll find that even the most accomplished ecommerce entrepreneurs probably started out with a pair of scissors and a roll of parcel tape in hand, filling orders from their living room.

The second? As your small business grows, you’ll need to start offloading some of your workload. You’re already taking on new staff, and outsourcing everything from payroll and HR to website design – so why not put down those cardboard boxes, and hand over the keys to your order fulfillment, too?

With an order fulfillment service, you can wave goodbye to the hassle of managing your own warehouse team. You can be confident that the picking, packing, and delivery of items is (quite literally) in safe hands, and be able to dedicate your own day to growing your business.

But what is order fulfillment, exactly? What are its four stages and key considerations – and the pros and cons your online business needs to know about?

Let’s find out.

What Is Order Fulfillment?

Order fulfillment is the process of getting the stock you sell online to your customers. In other words, it’s fulfilling the obligation you made to them when they ordered from your ecommerce store.

Fulfillment refers to the sorting, selection, packaging, and delivery of goods to your customer. Order fulfillment is the whole process: getting the products you sell from your warehouse or living room to your customer’s doorstep – all without a hitch.

You can manage order fulfillment in-house – and, if your ecommerce business is still in its infancy, you’re probably better off doing just that.

But as your operations and stock levels grow, you’ll need to start thinking bigger – and exploring how outsourcing your order fulfillment provider to a third-party logistics provider (3PL) can help you scale.

Stages of Order Fulfillment

From the outside, the order fulfillment process can seem like a mystery – particularly if you’re outsourcing it to a 3PL.

But it doesn’t have to be. In fact, order fulfillment can be boiled down to four simple stages – which we’ll unpack below.

Stage 1: Receiving

The first step of order fulfillment? Receiving the goods you’re going to be selling.

After all, unless you’re dropshipping – a business model in which the stock you sell is shipped straight from your supplier to your customer – you’ll need somewhere to hold your stock.

This place usually takes the form of a big warehouse – or, in industry terms, a “fulfillment center”. A central storage hub for all your stock, this building is full of pallets, shelves, and storage bins – and this is where all your order fulfillment efforts will be based out of.

But first, of course, you’ll need to receive that stock – to get the inventory you’re going to be selling from your supplier to your own warehouse. This is the first step of your order fulfillment journey.

Where this fulfillment center is actually located will differ, depending on the 3PL company you choose. Typically, though, there will be several of them: located in strategic points throughout the country, in order to make delivery as quick as possible.

Stage 2: Picking

Picking is the process of selecting the right items from the shelves of the fulfillment center. After all, it won’t just be your inventory stored on the many shelves of the 3PL provider’s warehouse – one center can cater to the order fulfillment needs of many ecommerce businesses.

Similar products being sold by various sellers may also be housed in the same area of the building – so the picking of the correct goods by your 3PL team is a crucial part of the process.

Thankfully, it’s done for you when you outsource your order fulfillment, so you won’t have to worry about it too much!

Stage 3: Packing

Once the chosen items have been picked, they’re then “packed”.

This part of the process involves fulfillment center staff (in a method pre-arranged with you in advance) packaging up your goods ahead of shipment. That could be with bags, boxes, or bubble wrap – and, if you’d like, the 3PL company will ensure this packaging reflects the colors and style of your brand before it’s sent out.

Ultimately, the packing stage is about ensuring that your goods look nice, are protected against the perils of a potentially bumpy journey, and arrive on your customer’s doorstep in perfect condition.

Stage 4: Shipping

The final step? Shipping your products off to your customer.

Fortunately, this is something a 3PL provider will take care of for you when you outsource your online business’ order fulfillment process.

Most 3PL companies have deals with shipping carriers, and will arrange for your goods to be sent via their international and domestic partners. Generally, these carriers will pick up directly from the fulfillment center – saving you time and hassle, and meaning you don’t have to get caught in the inevitable red tape and bureaucracy bound up in the shipping process. Genius!

Oh, and rest assured that, once your order’s been shipped, the 3PL will keep you in the loop about its progress. 3PL companies supply you with real-time order tracking information, so you’ll not only know exactly what’s happening with your order – you’ll be able to share it with your customer, too.

Pros and Cons of Order Fulfillment

By now, you’ll have a good sense of the order fulfillment process – and how outsourcing it can make your life a lot easier.

But of course, hiring a 3PL provider comes with both soaring pros and less-than-ideal cons. So before we push on, let’s break down the pros and cons of using order fulfillment for your ecommerce store – and what the other options entail.

Outsourcing Order Fulfillment

Pros: Cons:
Saves you time, effort, and – in the long run – money. All of which you can plunge into growing your business! It’ll take a toll on your budget – good 3PL providers certainly don’t come cheap!
Flexibility. 3PL providers are experienced at adapting to seasonal fluctuations in volume – whether that’s up or down. Mistakes happen – packages can get sent to the wrong address, or slip through the cracks. And it’ll be your brand it reflects badly on!
Most fulfillment providers handle the processing of returns and refunds – taking a key aspect of customer service and admin off your hands. Often, there’s little scope for personalization – for customizing the branding on your packages, or ensuring they reflect the unique look and feel of your own ecommerce business.

Of course, outsourcing your order fulfillment to a third-party provider won’t be for everyone. And, considering the time, effort, storage space, labor, and know-how required to fulfill orders in-house, we’re guessing that won’t fit the bill, either.

So what’s the main alternative?

Dropshipping

Dropshipping is a business model where you don’t hold – or fulfill – any inventory. When your customer places an order through your online store, it’s passed automatically onto your supplier. They pick, pack, and send the order straight to your customer – there’s no need for you to receive, store, prepare, or ship any stock whatsoever.

explanation of how dropshipping works

But dropshipping isn’t everyone’s cup of tea. Here are the key pros and cons:

Pros: Cons:
The obvious – you won’t have to purchase any inventory outright, or hold it in a safe location. Successful dropshipping businesses rely on high volume – not high margins. So it isn’t the most lucrative of models.
You’ll save money on the storage space and labor required to self-fulfill – and the cash you’ll need to put up to hire a reputable 3PL provider. It’s super competitive – you’re not the first one to think of starting a dropshipping business!

Still not sure which approach is the best fit for your ecommerce business? Dip into our guide to dropshipping vs order fulfillment for a more detailed comparison.

Order Fulfillment: Considerations

There are a lot of 3PL companies out there to choose from. So what are the key considerations you should factor in before you sign on the dotted line?

Cost

3PL providers charge a wide array of costs – kitting fees, storage fees, picking fees, packing fees, account management fees – and these all differ between providers.

So be sure to compare and contrast multiple companies, and be confident that you’re getting the best deal for your ecommerce business.

Shipping Options

Third-party providers have their own relationships with shipping carriers – and these, of course, vary between suppliers.

Before you commit to a certain 3PL provider, you’ll want a good idea of what kind of partnerships it has – particularly as this can affect key variables such as shipping times, locations, and the insurance on offer.

Location

Does your chosen 3PL provider have locations dotted across the country, or in a single location alone? Does it ship strictly domestically, or across the world?

You’ll need a 3PL provider with the ambition and logistical capabilities to match those of your own business – so asking these big questions early is key to picking the right supplier.

Speed

How quickly can a 3PL provider fulfill your orders? Can they offer same-day delivery, or at least next-day turnaround? How soon will they log in any items that are returned, and get them ready for resale?

Shrinkage

Shrinkage is a diplomatic way of referring to lost, broken, or stolen items.

There’ll be an “allowance” for this in any contract you sign with a 3PL – usually between 2% and 10% of your inventory. You’ll want this figure to be as low as possible – so remember to negotiate!

Inventory Management

How adept is the 3PL provider at managing your stock, and keeping you updated about deliveries and inventory levels?

Most 3PL suppliers utilize real-time software to do this, to varying degrees of success – so you’ll be wise to find out how intelligent and intuitive your prospective 3PL’s software is ahead of signing up with them.

Tracking Abilities

These days, being able to track an order as it unfolds isn’t a customer “nice to have” – it’s a must have.

And, if your potential 3PL provider’s tracking abilities aren’t up to scratch, that means your tracking abilities will also be found wanting. Ensure the supplier has the tech infrastructure in place to make your life easier – and that of your customer!

What is Order Fulfillment? A Summary

Order fulfillment refers to what happens in between your customer placing an order online, and it reaching their doorstep. For the business, that process involves receiving – and storing – the goods, followed by selecting, packaging, and shipping them to the customer.

You can handle fulfillment yourself, but – as your business grows – you’ll soon want to outsource it to a 3PL company. Taking this approach will suit time-poor, cash-rich ecommerce businesses well. Ambitious ones, too – outsourcing your order fulfillment is a highly scalable path to growth.

When picking a 3PL provider, remember to keep in mind several top considerations:

  • Shipping options
  • Speed
  • Shrinkage
  • Tracking abilities
  • Cost
  • Inventory management
  • Location

Good luck, and let us know how you get on in the comments!

FAQs

Receiving, picking, packing, and shipping.

The process begins with the goods being delivered from your supplier to you (or your 3PL company). Then, once the customer has placed the order, the stock is selected and packaged up, before being shipped to the recipient’s doorstep.

When you outsource your order fulfillment, there will likely be several costs involved:

  • One-off setup fee: around $100 to $1,000
  • Receiving fee: around $250 per shipment
  • Storage fee: around $12 to $15 per cubic meter, per month
  • Picking and packing: $2 to $8 per item
  • Shipping fees (these will depend on your carrier and products)
  • Kitting, return, and account management fees (also dependent on your products and provider)

As we mentioned earlier, these costs vary widely across 3PL companies. Be sure to shop around to score your ecommerce business the best deal!

This typically means that an order is in the picking or packing stage, and that it has not yet reached the customer. When it does, the order is considered “fulfilled.”
Also known as the order fill rate, the order fulfillment rate is the number of orders processed divided by the total number of orders. It’s a KPI (Key Performance Indicator) used in the industry to determine how efficient an order fulfillment process or service is.

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