Order fulfillment refers to the logistics required to store, package, and deliver an ecommerce product. It’s an overarching term about the process that includes: storage in a facility; storage containers like bins and pallets; workers to pick products from storage; workers, machines, and materials to pack items; the shipping and delivery; and even return and inventory management.
When is the term used?
- When handling ecommerce transactions
- Mainly for physical products, but digital items have their own digital fulfillment tools as well
Why is Order Fulfillment Important?
- It’s crucial to the success of any online business
- It allows stores to stay competitive
- Merchants can choose different types of fulfillment, like dropshipping, self-fulfillment, and third-party logistics
- The right fulfillment choice can make for lower costs, faster delivery, improved packaging, and fewer mistakes when it comes to order accuracy
Order Fulfillment Options
Third-party Logistics (3PL)
Perhaps the most popular method of order fulfillment, third-party logistics involves paying a separate company to handle order fulfillment for your business.
Many 3PL providers set monthly fees to cover:
- Storage bins
- Picking and packing
- Packing materials
Although it depends on the provider, and your sales volume, growing brands opt for 3PL due to its affordability and ease of use, considering you’re passing off the requirements of fulfillment to professionals who specialize in logistics.
Furthermore, you’re able to maintain a relationship with the 3PL provider, and tap into their software for order, inventory, and warehouse management. The entire process opens up free time and money for businesses to put resources elsewhere, like into marketing, product design, or hiring.
- Simplified, recurring fees for all-in-one fulfillment
- Potential for lower costs (no warehouse rent, workers, packing materials, etc.)
- It opens up resources to grow your business elsewhere
- Everything from storage to packing and shipping gets handled
- You can get benefits like shipping discounts, return management, and extremely high order accuracy
- Experts handle your fulfillment, instead of people at your business who may be learning
- Powerful software to manage everything from your inventory to the warehouse selection
- Potential for less quality control
- Potential for communication issues
- It could get expensive depending on your operation
- Some 3PL providers don’t support fulfillment for certain products, like perishable or fragile items
Self-fulfillment is where an online store manages all fulfillment processes in house.
For smaller companies, this may involve storing, packaging and shipping products from a garage, home, or rented office building.
However, self-fulfillment can also be expanded to large warehouses and logistical operations, where the company maintains complete control over its facilities, instead of hiring a 3PL provider. This requires your own warehouses, storage containers, moving equipment, sorting equipment, warehouse workers, shipping partnerships, and perhaps, a fleet of trucks.
- Grants you the highest level of quality control
- You mustn’t worry about communicating or working with another party
- Privacy, if necesarry, remains as strong as possible
- You may save money as a smaller business
- Some 3PL services have sales volume minimums, so self-fulfillment is sometimes the best option for smaller businesses
- There’s often no need to rent another facility if you can swing self-fulfillment in a home or current office
- You have control over the packaging materials and what goes into each package
- Shipping speeds are still pretty fast, especially when compared to dropshipping
- You’re not outsourcing a very complicated process to experts, creating the potential for order inaccuracies, shipping delays, and a more expensive operation
- Shipping speeds often suffer when compared to the efficiency of 3PL
- It’s costly to run your own warehouse or rent more office space
- There are plenty of other costs involved, such as warehouse workers, packing materials, storage bins, and order management software
- You’re less likely to get shipping discounts
- You also have to manage returns on your own
Dropshipping allows merchants to eliminate the need for wholesale buying and fulfillment by completely outsourcing to special suppliers who also store and ship your products.
With 3PL, your business purchases wholesale items, then sends them to the fulfillment company for storage (and inevitable shipping). With dropshipping, you don’t purchase anything wholesale. Instead, the supplier holds its supply of goods until you make a sale on your website. Only then will the supplier package and ship the product, directly to your customer.
Dropshipping is wonderful for startup brands interested in keeping costs extremely low (especially upfront costs you’d spend on wholesale products). Yet, it has downsides like decreased margins, limited quality control, and riskiness with returns.
- Extremely low upfront and ongoing costs, since there’s no wholesale purchasing, nor fulfillment on your end
- You can put all resources toward marketing, website building, and product research
- Although difficult, it’s possible to find dropshippers near your customers—allowing for faster shipping
- You don’t have to worry about storage, picking, packing, or shipping
- Although it’s possible to find nearby dropshippers, shipping speeds often suffer (since many dropshippers must send from China or India)
- Profit margins become considerably lower, since you’re not handling any of the fulfillment or risk that would come with wholesale buying
- There’s almost no quality control (at least quality control from your business—the dropshippers have their own)
- You’re limited on communication options with dropshipping suppliers
- Shipping is often costly, cutting deeper into margins
- Returns are complicated: some dropshippers don’t accept returns, so you must handle customer support and take returns to your own building—essentially leaving you with products you must ship yourself or discard
- A chargeback means you lose all the sale revenue, and the inventory—plus, you often need to pay a chargeback fee
The Order Fulfillment Process (Step by step)
Self-fulfillment and dropshipping have their own unique steps but, overall, the processes remain similar to third-party logistics. Below, we’ll outline the steps that occur throughout the 3PL process.
Step 1: Receiving of Products
You must first purchase or build your products. Thereafter, you need to ship those products to the 3PL for storage and fulfillment. This step is called “Receiving,” since the fulfillment company receives large batches of products and places them in bins, on pallets, and onto shelves that get labeled for efficient picking.
Each 3PL has its own guidelines and process for receiving inventory.
A general outline goes like this:
- Fill out a receiving form with details on the shipment
- The fulfillment company organizes the hauling of said shipment
- Once received, items are unpacked, stored in bins, and on pallets, then placed on shelves and scanned into the inventory system
3PL companies often charge extra fees for each receiving job, and occasionally, it’s by man-hour. However, you may find some fulfillment companies with receiving included into your monthly fee.
Step 2: Storage of Products
Storage is a more passive step, but it’s an important part of fulfillment (especially considering your company gets to save on renting its own warehouse and storage bins).
Here’s what to know about storage:
- You choose how much space is needed, often getting charged based on that space
- Bins and pallets are the common storage containers
- Some 3PLs charge based on the number of bins and pallets used
- Many 3PLs don’t charge for storage until a product sits on the shelves for too long
- Storage involves digital labeling for efficient scanning and picking
Step 3: Picking of Products
In theory, the actual fulfillment of an item starts when it gets picked from a shelf.
For this to occur, a customer must place an order, and the merchant must mark the order as “in fulfillment.”
Depending on the 3PL, picking fees may be added into monthly fulfillment costs. Some 3PLs advertise free picking, while others charge extra if there are multiple picks per order.
Here’s more information on the picking process:
- Picking is a physical action completed by human workers or robots; sometimes a mix of both
- Picking sometimes involves conveyor belts or warehouse vehicles to move the products to the packaging area
- Barcodes and scanners assist in the efficient finding and picking of inventory
Step 4: Packing of Products
Once picked, products are sent to be packed. 3PLs typically offer basic packaging materials for free, with custom branded packaging and inserts being sold for an extra charge.
The packing stage uses machines, robots, human workers, and packing materials to secure products for shipping.
Packaging materials often include:
- Packing tape
- Bubble wrap
- Packing paper or peanuts
- Air filler
- Package inserts (like receipts and promotional materials)
- Poly bags
- Bubble mailers
If using custom packaging, some 3PLs will store those materials in their warehouse for an added cost.
Step 5: Shipping and Delivery
A completely packed product then gets sent for shipping.
With 3PL services, they usually have the following on hand:
- Shipping labels
- Quick pickups or deliveries to the carriers
- Automated order tracking tools
It’s also worth mentioning that 3PLs partner with shipping carriers (like UPS, USPS, and FedEx) to provide steep shipping discounts to merchants.
This is the final step in the fulfillment process. After a package gets shipped, the 3PL software generates a tracking code for merchants to send to customers.
Optional Steps: Return Management and Warehouse Management
Return management is a fulfillment step that only occurs if the customer decides to return or exchange their order. Therefore, it doesn’t occur in the traditional fulfillment process. However, returns and exchanges are, if initiated, part of fulfillment, so you must prepare for the possibility.
For return management:
- Figure out if your 3PL offers this service (many do)
- You often receive special return management software from the 3PL company
- You can handle returns on your own, but that requires the accepting, inspecting, and storage of those products
Warehouse management is a type of inventory management that only occurs if your 3PL partner offers multiple storage facilities. Warehouse management is done by using software or artificial intelligence to distribute products throughout a warehouse network. The idea is to store items in the most efficient way possible, so that shipping times and fees decrease (since you’re storing products closer to customers).
Order Fulfillment Services To Choose From
For self-fulfillment, you set up your own logistics. Dropshipping requires you to partner with suppliers that offer dropshipping as a service.
With third-party logistics, however, merchants can shop around to find the best fulfillment services based on locations, price, efficiency, and accuracy.
ShipBob is a top recommendation for third-party logistics, mainly due to its track record, expansive warehouse network, and options for fast and accurate fulfillment. Pricing starts at $5 per month, but that only includes the storage of your items.
ShipBob warehouse locations include:
- New Jersey
- United Kingdom
- Many more
ShipBob offers excellent rates, integrations with top ecommerce platforms, and a wide range of software for you to handle everything from inventory to warehouse management.
For Shopify ecommerce platform users, the Shopify Fulfillment Network works wonders, with its steep discounts on shipping, transparent pricing, and seamless integration with Shopify.
Warehouse locations include:
- Many more
Merchants get billed for storage space, but there are several plans to choose from. All of the inventory and warehouse management software is consolidated into the Shopify dashboard, making it easy to use and understand. Not to mention, you receive fast and same-day shipping if needed.
ShipMonk handles ecommerce fulfillment for small and large stores, with warehouses throughout the US and impressive shipping times to pick from. You get to decide where products get stored, and there’s a complete returns management software as well. Shipmonk integrates with top ecommerce platforms and has some of the most transparent pricing in the business.
Red Stag is a smaller operation, but that means you can maintain close communications with your 3PL. They’re known for excellent customer support, along with speedy shipping throughout the United States and internationally.
Red Stag integrates its inventory and fulfillment software with platforms like Shopify and Bigcommerce. You also gain access to shipment tracking, return management, and discounted shipping labels.
Fulfillment center locations include:
Inventory Management Services and Apps
Inventory management ties into order fulfillment, but it’s more about managing how inventory moves throughout the supply chain. Merchants manage inventory with special software that’s linked to their online stores, and it’s particularly important for understanding what’s in-stock, where everything is stored, and where orders come from on multichannel stores.
Inventory management software often comes in the form of enterprise resource planning (ERP) software, which includes elements for managing production, scheduling, and in-house operations. An ERP tends to work best for self-fulfillment.
Below are the best inventory management services and apps to consider.
Along with its order fulfillment services, ShipBob provides a complete inventory management software for:
- Choosing where to store products based on customer locations and shopping tendencies
- Predicting future trends and viewing customer behavior
- Keeping track of the cost of goods sold
- Setting reorder points
- Maintaining relationships with suppliers
- Tracking inventory
- Adding products
- Much more
Katana falls under the ERP category of inventory management, meaning that it’s suitable for self-fulfillment operations, where you manage everything in-house, from manufacturing to shipping.
Katana excels with:
- Real-time master planning for scheduling and production
- Traceability for expiry dates, materials, and batches
- Tracking for floor-level operations
- Order management for omni-channel stores
- Live inventory management
- Custom API integrations
- Accurate costing
The QuickBooks Commerce app drives enterprise resource planning and inventory management for ecommerce shops of all sizes. It features a sleek software suite, automation tools, and integrations with ecommerce platforms like Shopify, WooCommerce, and Squarespace—not to mention, Amazon and eBay.
Some main features from QuickBooks Commerce include:
- Inventory management
- Ecommerce accounting
- Multi-channel sales
- Product list management
- Wholesale shopping and purchasing
- Inventory reports
- Order management
- Instant insights with custom reports
- Tracking and fulfillment for orders
FAQs on Order Fulfillment
Read these common questions about order fulfillment to gain a stronger understanding of the topic. That way, you can make an easier decision on which fulfillment method/service to choose.
What is the order fulfillment process?
The process of order fulfillment involves every step taken to store, package, and deliver a product to a customer. The process also include returns, but that doesn’t happen every time.
What does “order fulfillment rate” mean?
The order fulfillment rate takes the total number of orders processed for fulfillment and divides that number by the total number of actual orders. So, this calculation is trying to figure out the rate in which a store fulfills products in relation to the number of orders.
This rate can prove helpful when researching 3PLs, as you want a close to 100% fulfillment rate, considering anything less may indicate that mistakes were made, so the customers cancelled the orders.
What’s the meaning behind logistics fulfillment?
This is simply another term for order fulfillment. Both of them mean the same thing: the multi-step process of sending a product from checkout on an ecommerce store to its delivery on the customer’s doorstep.
When they say “order is in fulfillment,” what does that mean?
Seeing “Order is in fulfillment” in your 3PL software means that the order is being processed, somewhere along the logistical line. So, it’s a general term that says an order is either being picked, packed, or shipped.
This indicator should change in your software once the order is delivered to the customer.
If an order is “fulfilled,” what step of the process is that?
A “fulfilled” tag in your order fulfillment software means that it has been delivered to the customer. That doesn’t necessarily mean that the customer has retrieved and opened the package, but that the mail carrier has dropped it on their doorstep or in the mailbox.
Besides returns and exchanges, this is the final step in the fulfillment process.
Which fulfillment company should I go with?
That depends entirely on your company, its growth, and the products you sell.
Here are some questions to ask to narrow your search:
- What are your order fulfillment needs in terms of storage space, packaging requirements, and shipping speed?
- Will you be offering 1-day, 2-day, or expedited shipping?
- Does the 3PL have options for returns and exchanges?
- Are you charged a monthly fee or based on things like storage space and packaging materials?
- Does the 3PL provide software for enterprise management, warehouse management, and inventory management?
- Is the warehouse network close enough to your customers?
- How does receiving work, and how much does it cost?
- Do you receive options for free standard packing materials? And is custom packaging available?
- Is there a minimum monthly order requirement, and can your online store meet that?
- Is it more cost-efficient, fast, and accurate to opt for a 3PL over your own self-fulfillment process?