Your complete guide to order fulfillment in the modern era
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The European e-commerce market is expected to grow at a compound annual growth rate of 8.5% through 2023, reaching more than €432 billion. That’s a lot of money on the table and a lot of packages being shipping to customer homes.
It’s also a significant opportunity to gain or lose customers depending on if your packages ultimately make it at the right time with the right products inside. Accurate order fulfilment is the secret to that significant growth rate because customers now feel they can trust stores like yours to get things right.
But, if your shipments are wrong, slow, or damaged, you face returns, angry customers, and significant losses. To prevent this harm, you need to brush up on order fulfilment and how it works in this modern, e-commerce-driven era. This guide will help you understand the ins and outs, the seven essential steps, and a few models to consider for your order fulfilment.
What is order fulfilment?
Order fulfillment is everything it takes from someone hitting a “buy” button or otherwise purchasing from you and getting that order to their home or place of business. Consider it to be the entire process of taking that order and delivering quality customer service through delivery.
This is a more expansive definition than you would have found even five years ago thanks to the massive growth in e-commerce for B2B, as well as the established B2C presence. The change in the way we buy has made fulfilment a core part of your customer service and support efforts too. Shoppers are judging you and your business based on how a product arrives and how painless is the process to return something — no matter the reason.
To highlight this importance, we view order fulfilment as playing a role in keeping your commitment to a customer so that a sale you make today stays one tomorrow.
When specifically considering the outsourcing piece of order fulfilment, you’ll also see that it has moved beyond the picking, packing, and shipping functions that were once the only concern of third-party logistics providers (3PLs).
7 steps in order fulfilment
Order fulfilment is an ongoing, involved set of processes. It’s a living organism, much like the rest of your business, with ebb and flow, times of hurry, and problems that can bring it all to a screeching halt. Here are the seven core steps of order fulfilment where all that life takes place and problems can emerge.
Receiving your goods
The first step in fulfilling an order is having your inventory ready and knowing what you have in stock. Modern warehouse management systems (WMS) enable you to track your inventory closely and can take in orders from all of your sales channels to match them to inventory when you make a sale.
When your team receives goods via a shipment, they’ll need to prep them in your warehouse. This includes putting SKUs away on the correct shelves or locations and entering total counts into your WMS or another platform.
The fulfilment action really starts when you receive an order. Your WMS should take the purchase and create a packing slip order that contains all of the products included in the purchase and send this to a designated picker. At the same time, the system should auto-populate forms and shipping labels, making them ready proactively, so your team can hit “print” during the packing process and get the right order.
Picking an order
The order is turned into a list of products and sent to an individual in your warehouse. This person takes the checklist and moves through the warehouse to pick up everything on the list on a cart, forklift, or basket. The picker should doublecheck all items or scan them as they’re picking, and then drop this all off at your packing station.
Picking techniques can become very complicated based on your products, warehouse size, layout, and equipment requirements. Turn to experts or a WMS to help you choose the right guide to pick and pack methods.
Packing the box
Your employee working at a packing station will then verify that they have every item on the packing slip. Once confirmed, they will put all of these products in boxes for shipping, starting by building boxes and wrapping products protectively. As the employee puts each item in the box or boxes, they’ll add filler materials such as shredded cardboard or bubble wrap in the empty space to protect the items in transit.
The box is sealed, and shipping label affixed, then it is placed in your loading zone or designated area.
The shipping process can vary based on the size of your company. Small organizations may use a single carrier partner for all packages, so the company pays for postage on each item and either schedules a pickup or uses their vehicle to transport containers to the nearest carrier office.
Larger companies or outsourcing partners will generally use software to determine the best way to ship each package so that it arrives on-time at the lowest cost. They also are more likely to have enough volume that a carrier will provide on-site pickup
Remember, the cost to ship goods depends on your location, the customer’s location, the size and weight of the package, and how soon it needs to arrive. Many carriers use their own calculations for variable rates as well as offer flat rates. It can be a lot of work to do all this by hand, so most companies have turned to WMS solutions that integrate with carrier systems to automatically choose the right shipping partner when the order is generated within the system.
Notifying the customer and partners
When a product is picked up or shipped from a carrier store location, the carrier generates its own order information. In automated systems, this order creation may occur when you pay for the shipping label.
The carrier provides information on guarantees, insurance, and tracking numbers with arrival date estimates. As soon as you get these details, you should be sending them out to your customer. If you’re using an outsourcing partner to manage your warehouse, they should automatically provide you with this information as well.
Tracking these elements is vital because it allows you to look for slowdowns or issues in delivery that may impact customer service.
Another benefit of modern software is that it can automate much of this information delivered via email. It can also monitor tracking details and automatically update your internal systems with package status. Programming rules and alerts will notify your team as soon as a delay or other issue is expected. You can then choose to share this with the customer or take other actions that may prevent any annoyance in a package being late.
Resupplies and returns handling
Our last step leads right into our first because a warehouse is always cyclical.
As orders go out the door, either your team or software should be keeping count of your inventory. When you reach a certain threshold, it’s time to reorder, so you avoid stockouts. It’s good to keep this in mind for your fulfilment process because it’ll often use the same software, and your fulfilment team has the best eyes for noticing when counts are looking low.
Those resupplies will be coming to your door, so your team will need to prepare shifts to handle that influx. Returns are a similar influx that most companies can expect. A customer may return your product or refuse to accept it due to shipping and other errors. When this occurs, your fulfilment team needs a process to check returns and decide if they can be resold. If so, they’ll also need guidance on how to re-enter this new inventory back into your system.
At the same time, they’ll need to update your system with the return status — so that customers only get credit if they’re returning something that isn’t damaged or broken, for example.
In-house order fulfilment
The primary method for most small and substantial businesses is to do all this fulfilment themselves. The company will run a location, ranging from a small garage to a series of mega-warehouses across the continent, where every step above is performed.
Owning the entire process and performing it in-house allows a company significant control. It’s especially useful for small companies who can’t afford to outsource or don’t need a lot of additional staff and space to keep up with orders. As companies grow, they tend to consider outsourcing only when fulfilment becomes a burden of running their business.
After companies grow significantly in size, many bring fulfilment back in-house. This is because the control allows them to manage every aspect of the product and its shipment. Many like owning this and using fulfilment as a competitive advantage by delivering high-quality customer service. They can also use the warehouse space as needed to quickly adapt to changing trends.
Large marketplaces, especially e-commerce options, are also running their own fulfilment in order to offer it as a service to small sellers on their platform. This gives the marketplace owner more control over how shipping and returns are handled, enforcing strict quality controls while also generating a revenue stream from their small partners.
Outsourced fulfilment and providers
Companies need more warehouse space as they grow. There’s often a point they reach where the cost of buying a new warehouse location or expanding physical infrastructure is a burden. Or, they might not be ready to hire more talent, so packing and shipping orders get in the way of running the business and generating sales.
When either of these events happens, they typically will look to a third-party fulfilment model. This outsources fulfilment to a special third-party logistics company (3PL) that specializes in warehouse and shipping activities. Your store would simply ship bulk inventory to the 3PL, integrate your online order systems with their warehouse software, and sync inventory data across both platforms.
After this, every time you generate an order the 3PL gets the details too. They turn order into a package slip and perform all the functions listed above. Your 3PL will also be your main partner for handling returns and tracking inventory levels to avoid stockouts.
One core benefit here is that most 3PLs operate large warehouses and receive discounts from carriers because of their large volume. You’re paying minimal fees associated with storage and shipment, allowing you generally to save money on the cost to store and ship goods while also reducing labour costs.
3PLs also have a variety of partnerships that make shipping more flexible.
The risk is that you’re not in control here. So, it’s always a smart idea to find a partner with a good reputation who specializes in your product type or market. Red Stag Fulfillment, for example, focuses on large and heavy item shipments in the U.S. If that’s a good fit for you, we’re happy to talk, and if not, we’re just as happy to recommend other 3PLs that might serve you better. We believe your partners should be there to help your business grow, and that means only working together when it makes sense.
There are also some unique, specialty fulfilment practices out there that might be necessary for your business model. Some focus on hazardous and dangerous items or those with significant restrictions and product-level requirements. If this is your business, you likely know it already.
However, for resellers, there is one option that’s growing in popularity: dropshipping.
Dropshipping is a new model where you never have access to the products you sell. You’re just a digital storefront, and you have relationships with the companies that directly manufacture and/or store the goods you’re selling.
So, when you make a sale, it gets sent to the manufacturer of the product(s), and the manufacturer ships them directly to the customer. It’s especially common for new startups and those companies who have a product made overseas.
Dropshipping is common both for new companies just starting to sell their own product and online stores that sell a wide range of products created by others. Overhead is very low and there’s generally a wide selection of products you can sell, allowing you to focus on marketing and deals to grow your business.
Handing over your fulfilment practice
The biggest question in fulfillment tends to be: when should we outsource our operations?
Generally, this time happens when you’re starting to lose sales because of fulfilment. You might not be able to keep up with demand so that orders are delayed. Repeat stockouts could prevent customers from becoming recurring buyers. Or you’re shifting talent away from sales and other activities to do the manual labour involved in the warehouse.
When the warehouse gets in the way of running your business, it’s time to start looking at a 3PL.
Trust us when we say that every business feels this way and knows how frustrating it is. Red Stag Fulfillment was literally created because a successful e-commerce company couldn’t handle its own fulfilment — but they also couldn’t find a partner they trusted to meet expectations.
So, when you decide to start considering outsourcing, make a list of the demands you have for a warehouse. Gather as much data as you can about your sales, typical order, customer locations, and what makes you unique. Turn your characteristics and demands into questions to give to multiple 3PLs to see who can help.
Seek out a fulfilment company that knows your industry and comparable products plus is aligned with your company’s values and beliefs at a high level. The logistics industry is growing significantly across the globe, so the right partner is out there for most.