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What is Order Fulfillment? Best Strategies for 2022

Order fulfillment is a fancy way to explain how people get the product they paid for. It’s one of the final and yet most important stages of the sales process, and a poorly planned fulfillment strategy could lose you a customer. In the past, an ecommerce brand offering free shipping was enough to have an edge on fulfillment strategy. But expectations from customers are much higher, and that’s no longer enough. 

Two of the top qualities customers consider when they shop online are cost and estimated time of delivery—the latter of which influences 68% of customers’ decision to purchase. 

A robust order fulfillment process makes it easier to meet those expectations. The less time you spend picking and packing orders and dealing with delays, the quicker you can get a customer’s order out of your warehouse. This guide shares how to do it. 

  • What is order fulfillment?
  • Why is order fulfillment important?
  • How the order fulfillment process works
  • 6 tips to improve your order fulfillment process
  • How to determine your ecommerce order fulfillment strategy
  • Order fulfillment options and which is right for you
  • Challenges of order fulfillment
  • How to choose the right order fulfillment service

What is order fulfillment?

Order fulfillment is the process of receiving, packing, and shipping orders. When someone purchases an item from your ecommerce store, the order fulfillment process picks the order off the shelf, packages it, and ships it to their home. 

Why is order fulfillment important?

It’s important for any ecommerce brand to master order fulfillment. With a refined strategy in place, you’ll benefit from:

  • Lower costs. Working with an external fulfillment service provider to pick, pack, and ship orders can often reduce your shipping and operational costs. The Shopify Fulfillment Network, for example, processes a high volume of orders. Carriers like USPS, DHL, and UPS offer discounted shipping rates—a deal passed onto ecommerce stores using the service.
  • Improved customer service. As Bernie Schott, owner and CEO of REECH explains, “[You have to ensure] your customers’ orders are fulfilled accurately, with the products ordered and within a consistent time frame. Failing on either of these fronts will lead to poor customer experience and ultimately negatively impact your business.”
  • The ability to scale. Having a streamlined process will save time while allowing you to focus more on business growth and expansion, especially if you outsource or automate order fulfillment. 
  • Jessica Postiglione, founder and CEO of Bonny, says, “Consumers are more comfortable buying online than ever before, but that means there is more competition and the expectation that goods will arrive immediately, due to large retailers like Amazon and Walmart.

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

    How the order fulfillment process works

    Order fulfillment processes differ depending on the type of fulfillment strategy you use. But to get a rough idea, here’s what the order fulfillment process looks like for an ecommerce retailer:

    1. You receive inventory from your suppliers and store it in a warehouse, stockroom, or storage facility.
    2. A customer makes an online order via your ecommerce store.
    3. Your fulfillment team receives the order details.
    4. They pick and pack the order, complete with a shipping label and returns form. 
    5. The parcel is shipped to the customer’s address.
    6. If a return is initiated, the customer uses the returns label to post the parcel back to the warehouse. At this point, the fulfillment team inspect the product and process a return (if it qualifies for one).

    Bernie Schott shares what this looks like for REECH: “We check unfulfilled orders around 7 a.m. This would be any order placed overnight or the prior day. We print the shipping labels and write on the back of each one of the products that need to be picked for the order. This way we know what products to pick from the warehouse and are able to double check accuracy during packaging. 

    “Once shipping labels are printed, we pick the products from our warehouse and prepare them for shipping. 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.”

    6 tips to improve your order fulfillment process

    Now that we know how the order fulfillment process works, let’s take a look at how you can streamline yours and 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. Shopify makes it easy to manage and fulfill orders through our platform by offering an easy to use order management system. It integrates with retail locations to allow for faster fulfillment options.

    2. Double check the 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. 

    An order picking strategy minimizes the risk of that happening to your customers. It’s a foolproof way of matching inventory with customer orders so the wrong item is never shipped to the wrong customer. 

    “Always double check that the products you’re shipping matches what the customer ordered. 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 issues and shipping the new order out.” —Bernie Schott, owner and CEO of REECH

    It’s not just picking products that matters. The way you package them matters, too. Laura Whitaker, founder of Wildcraft, says, “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.”

    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 yours to unlock preferential pricing and a higher spot on their priority list when dealing with customer service issues. 

    That could mean:

    • Accurately estimating shipping volumes. Many carriers price their services on shipping volumes. If you expect a surge in orders, prewarn your carrier so they can prepare. 
    • Being 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. 
    • Letting them know when things are going well. Those praises go a long way in building relationships. 

    4. Use data to drive decisions

    Automation is the biggest fulfillment priority for a third of businesses. And for good reason: McKinsey reports that early adopters of artificial intelligence-enabled supply chain management can improve logistics costs by 15%, inventory levels by 35%, and service levels by 65%, compared with slower-moving competitors.

    Take it from Shaunak Amin, co-founder and CEO of SnackMagic, who figured out which inventory moves more slowly than others: “Because we took the time to do so, we can now better identify our inventory turnover rate, improve our demand forecasting, and refine our safety-stock quantities using this information.”

    According to Shaunak, “A top-off strategy works best for our busy warehouse. Our receiving team checks in newly arrived inventory at the beginning of their shift so that we have a clearer picture of what items are available to restock. 

    “But because there is a great deal of activity in the warehouse with people filling and packaging orders, the receivers wait to replenish inventory levels at the end of their shift. By topping off inventory at specific points in the day, we can maintain higher inventory levels for the order pickers.” 

    “Our clients count on us to fulfill their product subscriptions, which we can only do with an efficient, integrated order fulfillment system.” says Ankur Goyal, Head of Growth at Coterie.

    5. Automate where you can

    Human error can wreak havoc with any part of the fulfillment process. From misreading a packing slip to prioritizing the wrong orders, customer experiences are at risk when order fulfillment accuracy is low.

    “Far too many times have I seen smaller businesses manually sending over an order list each day, which not only increases the risk of getting something wrong, but also requires so much more time and manpower,” says Elliott Davidson, ecommerce consultant at Parcel Master.

    “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.”

    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 stay informed of its location and estimated delivery time 

    As Wildcraft’s Laura Whitaker summarizes, “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.”

    6. Be transparent with customers

    Unfortunately, things still go wrong in the order fulfillment process—not all of them will be inside of your control. That doesn’t mean you can pass up responsibility altogether. 

    According to our survey, 45% of shoppers are actively looking to shop from businesses that clearly show anticipated delivery times. But 69.7% of customers would be less likely to shop with a retailer if their packages are delayed without a heads up. 

    It’s why almost half of brands are investing in not just their delivery practices, but transparency with their delivery promises.

    Let’s put that into practice and say you’ve promised two-day delivery to US shoppers, but a delay in receiving inventory impacts your order fulfillment process. You’ll fall short on customer expectations by delivering in four days instead of two. 

    Minimize the impact on customer satisfaction by informing the customer of the delay as soon as you realize it, apologizing for the delay, and giving a short explanation on why their parcel will be late.

    Take it from Fussy, a retailer that saw a huge increase in sales after an appearance on British reality show Dragons’ Den. Just a few days after ordering, I received this email to let me know that my shipment was late due to delays at the warehouse: 

    Bonus tip: The Shop App keeps shoppers updated on their package’s stage in the order fulfillment process. You’ll provide customers with the information they need, and minimize customer service reps being asked, “Where is my order?

    How to determine your ecommerce order fulfillment strategy

    Before we look into the different fulfillment solutions you can use for your ecommerce business, make sure you’re choosing the right strategy by doing these three things: 

    Size your sales

    How many products you sell will dictate if you should keep fulfillment in house or outsource. 

    Look at each sales channel and the order volumes across each. Order accuracy will begin to slip if you’re rushing through more orders than you can sensibly handle internally. 

    “We process several hundred orders a day, offering same-day dispatch if ordered before 3 p.m.,” says James Brands, Director at LimaLima. “A solid order fulfillment process means we are able to meet this promise and also ensures our customers receive the correct item they have ordered.” 

    Know your strengths

    If fulfillment and logistic skills are not something your company has in house, it’s probably best to outsource the fulfillment process so you can focus on the sales or production part—or both.

    Jessica Postiglione takes this approach with Bonny’s order fulfillment process. The retailer uses a third-party service to fulfill orders, but “for samples to editors, influencers, and other VIPs, I, as the brand owner, self-fulfill those packages, as they have handwritten notes and other personalized materials included.”

    Locate your customers

    Location of your customers is an important factor, since it can easily drive up shipping costs and lengthen delivery times. A parcel being shipped from New York to San Francisco would be much cheaper and quicker if it was sent from Los Angeles instead.

    • “We look at where our customers are placing their orders from. The way we respond is to place our inventory near those cities to reduce the overall miles traveled by those packages.” —Jason Wong, CEO and Founder of Doe Lashes

    If you have a large customer base far away from your headquarters, consider outsourcing fulfillment to a provider with a warehouse location closer to them. 

    “It was the Shopify Fulfillment team that helped me understand the opportunity we had by opening a fulfillment center on the East Coast,” says Elizabeth Grojean, founder of Baloo Living. “The team even ran the reports and historical analysis that helped us see how much of our customer base was located there. 

    “By shipping 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 you can choose from: merchant fulfillment, dropshipping, and third-party fulfillment. Each is better suited to different types of ecommerce store, depending on their 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.

    • “If you do fulfillment in-house, it's a great opportunity to create a more personalized experience for your customers. Add in a hand-written note or a sample of a product you think they may like! The more of a human connection you can create, the better the experience.” —Laura Whitaker, founder of Wildcraft

    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 disencourage 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 purchased when a customer pays for it.
    • 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 are often completing 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. 

    Valery Ackley, owner of Brennan Candle Co., says, “Working with a fulfillment service has been truly life changing for me. Not only does it free up more time for me to work on other aspects of my business, it also allows me to take time off without having to worry about order delays or closing my shop.” 

    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 $3.13, though more than half of businesses say their fulfillment costs have changed in the past year. 
    • Many third-party companies discourage custom packaging, which makes it harder to customize the unboxing experience. (The Shopify Fulfillment Network is an exception to this rule.)
    • Customer service issues. If the fulfillment center makes a mistake, who deals with the backlash? 

    “Don't be afraid to spend the money on order fulfillment—it will more than pay itself back to you. Many small businesses, like myself, aren't quite ready to hire a full-time employee, so bringing on an order fulfillment service is the perfect way to outsource.” —Valery Ackley, owner of Brennan Candle Co.

    Challenges of order fulfillment

    Inaccurate order information

    For more than a third of businesses, the biggest logistical challenge the pandemic caused was pressure to fulfill more orders, faster, and at lower cost.

    It’s why Erin Mastopietro, co-founder of Dope Dog, recommends ensuring “you have a decent record of your product deliveries and other aspects. If you do not have one, you may juggle between the databases and get things confused real quick. This can add more confusion to your consumers, making the entire experience negative for them.”

    Supply chain issues 

    It’s no secret that the global supply chain is in disarray. From labor shortages to political instability, 43% of brands are changing shipping strategies to reduce the impact of global shipping delays.

    The sad truth is that customers’ expectations are increasing in the opposite direction. Giant ecommerce brands like Amazon paved the way for one- or same-day shipping. But when you’re dealing with an off-balance supply chain, it’s almost impossible to follow through on that promise.

    Localizing inventory can go a long way in making already-late delivery times shorter. Just make sure to always be transparent when you don’t meet your fulfillment promises. 

    Seasonal and events fluctuations

    Certain products surge in popularity at specific points in the year. Those inconsistencies in shipping volumes make order fulfillment hard.

    If you usually process 100 SKUs per day but that surges to 350 in the lead-up to Black Friday, for example, labor shortages could mean you miss two-day delivery promises because you don’t have enough staff to fulfill orders. 

    This is where outsourcing fulfillment shines. Providers have experience dealing with seasonal demands and often hire temporary workers around peak sales seasons. There’s minimal impact on order fulfillment times. 

    International shipping

    The beauty of ecommerce is that customers can order anything from anywhere. Yet international shipping doesn’t impact customers’ shipping expectations. It’s your responsibility to get the order picked, packed, and shipped to your customer in as little time possible.

    • "Fulfillment should ideally support all the energy the customer is bringing to their purchase and not get in the way of their enjoyment.” —Noah Chaimberg, Founder of Heatonist

    Again, localizing your inventory helps alleviate this issue. By stocking inventory in an international warehouse closest to your customers and automatically routing orders there, goods will have already cleared customs. 

    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, founder and CEO of Bonny. “A lot can go wrong in terms of the pack out: the wrong goods can be added to the order, goods shipped to the wrong customer, there isn't sufficient padding around the items leading to damage, etc.” 
      • Cost. You still need to make a profit on orders you’re outsourcing the fulfillment of. Bake any inventory storage, picking and packing, and shipping fees into your pricing. 
      • Technology. Save yourself the headache later down the road by opting for an order fulfillment service that can scale as your sales volume does. Fulfillment providers using order- picking robots, for example, can pick more orders than a human. 
      • Location. Store inventory at warehouses in the Shopify Fulfillment Network and automatically route new orders to be fulfilled at the one closest to your customer. 
      • Speed. In a time where shipping speed is everything, ask providers on your shortlist 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 those occurrences are limited, and your fulfillment provider can rectify the problem. 
      • Ethics. A quarter of merchants say one of their biggest supply chain-related concerns is ensuring manufacturing partners employ ethical and fair labor practices. Check yours has health and safety measures in place, and pays their workers well. 

        The Shopify Fulfillment Network hits all this criteria. Merchants can use the fulfillment service to store, pick, pack, and ship inventory from warehouses across the US. 

        If that isn’t good enough, you’ll also save time and money by printing shipping labels at discounted prices when fulfilling orders. 

        Refine your order fulfillment operations 

        Order fulfillment needs to be a top priority for any ecommerce brand. Whether you’re outsourcing fulfillment or keeping it in-house, your process needs to be robust. Loyal customers are at risk if you fail to meet their speedy expectations.

         

        Order fulfillment FAQ

        What does it mean when an order is in fulfillment?

        When an order is marked as “in fulfillment,” it’s in the process of being picked and packed from a retailer’s warehouse. It’s the stage prior to being shipped to the customer’s location.

        What is order fulfillment rate?

        Order fulfillment rate is the percentage of all orders marked as “shipped.” For example, if you have 100 pending orders and 30 have been shipped, your order fulfillment rate would be 30%.

        Is order fulfillment the same as order logistics?

        Order logistics is another way to describe the order fulfillment process. It’s the way in which inventory is stored, packed, and shipped to a customer once it has been ordered via your ecommerce website.


        How do I start an order fulfillment business?

        To start an order fulfillment business, you’ll need a place to store orders—such as a warehouse or storeroom. Find ecommerce brands who will pay to store inventory there. Then, have them route order confirmations to your warehouse for you to pick, pack, and ship.
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