What Is the Order Fulfillment Process?
One of the most important jobs of a warehouse or distribution center is delivering the perfect customer experience while maximizing profits and reducing costs. This is accomplished by optimizing the order fulfillment process. Here’s an overview of order fulfillment, the steps involved in the process, and how to select the right strategy for your specific operation.
What is order fulfillment?
Order fulfillment is the process of receiving an order and delivering it to a customer in the expected time, or faster. It involves meeting or exceeding customer expectations for delivery, producing the highest value for the customer at the lowest cost to the company.
Reduced shipping time, low shipping costs, and inventory optimizations are all signs of an effective order fulfillment strategy. This can be accomplished either in-house, and/or utilizing third-party fulfillment companies (3PLs).
Importance of Order Fulfillment
Order fulfillment is critical for customer satisfaction. If customer’s aren’t satisfied with shipping times, they’re more likely to take their business elsewhere. This has become the reality of modern ecommerce—delivery time expectations are increasing. In fact, the majority of customers expect their items to be delivered in a few days at most with a benchmark of the next day or sooner.
Approximately 38% of online shoppers refuse to order an item if the shipping time exceeds one week, whereas only 8% abandon their orders if the item is estimated to arrive between 2-3 days. For this reason, it’s essential that your facility’s order fulfillment services operate smoothly, efficiently, and quickly.
5 Steps in the Order Fulfillment Process
The order fulfillment process consists of five primary steps:
- Receiving inventory
- Storing inventory
- Order processing
- Returns processing
1. Receiving Inventory
The first step of the order fulfillment process is receiving inventory. To fulfill orders, you need to have enough inventory. Some companies intentionally overstock inventory to ensure they’re able to fulfill orders quickly. The problem with this strategy is that it can result in inventory costs exceeding sales. As of April 2022, retailers in the United States are sitting on around $1.26 in inventory for every $1 of sales. Therefore, it’s important to strike the balance between overstocking and understocking.
2. Storing Inventory
Once inventory has been received, warehouses need to have an effective means of storing it. Organizing inventory in a warehouse or distribution center is known as warehouse slotting. An effective slotting system maximizes the use of available space and reduces handling costs. Optimizing the handling costs are created by increasing the efficiency of inventory storage and picking by locating active SKUs closer to the picking activity, keeping SKUs with commonality together and readily available.
3. Order Processing
Once a customer places an order, it’s critical to process and prepare it for shipping as quickly as possible. For this, you need to focus on improving your total order cycle time. This metric reflects the average amount of time between when a customer places an order and when the order is shipped. To improve your order cycle time, you need to optimize your company’s picking and packing.
- Picking: Retrieving an item from inventory to fulfill an order and delivering it to shipping or the next work zone
- Packing: Placing orders in the right containers and preparing them for shipping
To optimize your picking and packing processes, it’s important to ensure that your warehouse layout is optimized. Try to reduce travel time as much as possible, and keep your floorspace clear. Make sure you choose the right packaging for an item. The packing materials should be sturdy enough to withstand the delivery process and protect fragile items, but compact enough to avoid taking up valuable inventory space.
After the order has been processed, the next step is to deliver it to the customer. This needs to be done in a timely manner, since nearly half of online shoppers are only willing to wait two days for “fast shipping.” It’s also important to reduce shipping costs as much as possible, as free delivery is a top consideration of 62% of customers when making a purchase.
Because shipping has the potential to be one of the most expensive and time-consuming components of an order fulfillment operation, many facilities opt for automated shipping. Effective use of automation can reduce labor costs and shipping costs, as well as improve the operation’s efficiency.
5. Returns Processing
As nice as it would be for every customer to be 100% satisfied with their order, the reality is that returns are often inevitable. Whether the item arrives damaged, or the customer is dissatisfied with it, many customers choose to return items that don’t meet their expectations.
Return costs are generally high, especially considering the cost of restocking items, paying for return shipping, costs associated with loss of damaged merchandise, and more. While returns might be free for consumers, they’re certainly not free for businesses. Therefore, it’s important to optimize your returns handling—also known as reverse logistics.
Order Fulfillment Challenges
There are many challenges associated with order fulfillment that distribution centers need to be aware and work to resolve to ensure a seamless process. Some of the top challenges of in-house fulfillment include:
- Maintaining sufficient labor
- Using floor space efficiently
- Ensuring order accuracy
- Hitting cutoff times
- Reducing customer costs
To address these concerns, optimize your facility based on your specific needs. Whether it’s increased use of automation, optimizing your existing technologies, solving labor consuming applications, or implementing the right software, it’s critical to find the RightFIT strategy for your warehouse or distribution center.
For example, Conveyco’s RightFIT methodology is a 7-step process that helps facilities optimize their warehouse operations, including order fulfillment. Whatever strategy you use, however, make sure it fits your specific business needs.
Choosing an Order Fulfillment Strategy
Before selecting an order fulfillment strategy, it’s important to obtain a thorough understanding of your operations and customer base. Take some time to gather insight and data on your customers’ behavior, typical order structure at your facility, and your current infrastructure. These factors play a large role in determining which strategy you should choose.
There are several order fulfillment strategies to choose from depending on your business and industry, including:
- Direct-to-consumer: Receiving an order and shipping it directly to the customer
- Using stores as distribution nodes: Using existing stores or retail locations as a network of “miniature warehouses,” shipping orders from the stores rather than a centralized distribution center
- Omni-channel order fulfillment: Delivering orders through a variety of channels, such as direct delivery, third-party distributors, or buy online, pick up in store (BOPIS)
Each of these strategies has benefits and drawbacks, but selecting the right strategy for your business is all about maximizing possible benefits while overcoming the drawbacks.
Some considerations that you’ll need to account for when selecting an order fulfillment strategy include:
- Location: The location of your retail stores or distribution centers plays a large role in which strategy you implement. Choosing distribution center locations based on reaching the largest percentage of customers that require the fastest and cheapest delivery rates is often the desired strategy.
- The size and scope of your business: The larger the business, the easier it is to justify multiple distribution locations, promises of faster delivery, as well as the additional costs.
- Your industry: Your industry plays a large role in the approach you should take. For example, if your business is an ecommerce company that operates solely online, you’re not going to be able to use stores as distribution nodes since physical storefronts don’t exist.
Once again, it’s important to ensure that the strategy you choose is the RightFIT for your organization. You can determine this by planning through the lens of your business operations to determine the maximum level of automation versus labor.
Importance of WES Software
Software is a critical component of order fulfillment. However, many order fulfillment operations are limited by their reliance on warehouse management system (WMS) software. Many WMS systems are huge platforms with minimum ability to customize and modify your business, as well as let your processes mature. Likewise, other “Legacy” WMS systems were custom built for operations by engineers who aren’t with the company any more. These are challenging issues for businesses that continue to grow and change. The process can often be risky, costly, time consuming, and inefficient.
WES software overcomes these limitations, reducing costs and optimizing efficiencies. An effective WES software optimizes labor and equipment for your organization by ensuring that every system in the facility is operating at peak performance. It orchestrates labor utilization, inventory management, order management, automation management, shipping automation, and more.
It’s also important to select a modular WES software, so it can grow with your business as it evolves. A truly modular WES operates with one central “core” of basic functions, with others you can plug in depending on the business’s needs. Likewise, a WES package provides integrated emulators that test your systems performance prior to install, how modifications will impact your performance, and your ability to handle growth.
Effective use of automation can help streamline the order fulfillment process, improve your order accuracy, and reduce labor costs. Proper implementation of automation can help increase the efficiency of your picking, packing, shipping, and more.
Once again, automation is only efficient if it’s tailored to your specific needs. It’s easy to over-automate, which can actually reduce the efficiency of your operations. Try to find the RightFIT automation for your facility so you’re able to maximize your return on investment (ROI) and improve your order fulfillment operations.
Determining Your Next Steps
If you’re trying to improve your order fulfillment operations, but aren’t sure where to begin, it can be valuable to turn to a systems integrator like Conveyco. Our team of experts can help you optimize your order fulfillment operations based on your facility’s specific needs through effective use and implementation of automation, software, and more. If you’re interested in learning more about how we can help you find the RightFIT for your operations, schedule a consultation with us to speak to a member of the Conveyco team.