Order Fulfillment Process

Updated on May 21, 2024
In this article
In this article

Key Takeaways:

  1. The order fulfillment process includes several critical steps such as receiving inventory, processing orders, picking and packing items, and handling returns. Each step needs to be managed efficiently to ensure customer satisfaction and operational effectiveness.
  2. Businesses face significant challenges in order fulfillment, including managing inventory levels, planning for demand, ensuring accurate and timely logistics, and effectively handling supply chain execution.
  3. The order fulfillment rate is a key performance metric that reflects the efficiency and accuracy of a company’s order fulfillment process.

What Exactly is Order Fulfillment?

Order fulfillment involves a multi-step process that begins with receiving goods, followed by processing them, and ultimately delivering the orders to customers. It starts when a customer places an order and concludes once they receive their product. Additionally, if a buyer wishes to return a product, the order fulfillment process also handles the return transaction.

This time-consuming process varies depending on the size and capacity of the company. Some businesses manage order fulfillment in-house, while others outsource it to third-party logistics companies.

Why Is Order Fulfillment Important?

Companies generate revenue by selling goods, products, and services either to other businesses (B2B) or directly to consumers (D2C). Regardless of the target market, a sale isn’t truly complete until the customer receives their purchased items. Order fulfillment is the crucial process that ensures this completion, making it an essential component at the heart of every business. Efficient order fulfillment not only ensures customer satisfaction but also enhances the company’s reputation and fosters repeat business.

Order Fulfillment Methods

Companies can choose from various order fulfillment methods depending on their size, capacity, and business model:

In-House Fulfillment

  • Description: The company manages the entire fulfillment process internally, from receiving inventory to shipping products to customers.
  • Benefits: Complete control over inventory, quality, and customer experience.
  • Challenges: Can be resource-intensive and require significant investment in staff, technology, and warehouse space.

Third-Party Logistics (3PL)

  • Description: The company outsources the fulfillment process to a specialized third-party logistics provider.
  • Benefits: Access to advanced logistics infrastructure and expertise, scalability, and reduced overhead costs.
  • Challenges: Less control over the fulfillment process and potential communication issues.


  • Description: The company markets and sells products, but the supplier handles inventory management and shipping directly to the customer.
  • Benefits: Low upfront costs, no need for inventory storage, and simplified logistics.
  • Challenges: Limited control over product quality and shipping times, and potentially lower profit margins.

Outsourced Fulfillment

  • Description: Similar to 3PL, but the company contracts fulfillment services to an external provider that may offer a more comprehensive range of services, including inventory management, order processing, and customer service.
  • Benefits: Allows businesses to leverage the provider’s expertise and technology, freeing up internal resources to focus on core activities. It can also provide flexibility and cost savings, particularly for smaller businesses or those with fluctuating demand.
  • Challenges: Relinquishing control over parts of the fulfillment process, which may lead to concerns over quality and customer experience. Effective communication and contract management are critical to success.

Hybrid Fulfillment

  • Description: A combination of in-house fulfillment and outsourcing to 3PL providers or dropshipping.
  • Benefits: Flexibility to manage high-demand periods, control over certain aspects of fulfillment, and cost optimization.
  • Challenges: Requires coordination between in-house and external fulfillment operations.

Choosing the right order fulfillment method depends on the company’s specific needs, resources, and long-term business goals. Efficient fulfillment is crucial for ensuring customer satisfaction and maintaining a competitive edge.

Tips to Improve Your Order Fulfillment Process

Companies managing their own order fulfillment process should plan ahead for a smooth order process that’s automated where possible. Using a fully-featured ERP helps you track orders, inventory, and shipments from end-to-end for enhanced visibility, the best customer and employee experience, and ideally maximized profits.

  1. Select the optimal ERP system for order fulfillment – Choose a platform offering comprehensive tracking for orders, inventory, and all business operations. Some platforms provide seamless tracking across various business areas, including order fulfillment, finances, and human resources, ensuring secure, cloud-based accessibility for your team.
  2. Establish integration with suppliers and vendors – Leverage modern ERP systems to directly integrate with your suppliers and vendors. Configure your rules, establish connections with your suppliers and vendors, and let your systems manage the process seamlessly.
  3. Streamline Order Processing – Streamline your order processing by automating repetitive tasks such as order entry, picking, packing, and shipping.
  4. Optimize Warehouse Layout – Optimize your warehouse layout to maximize efficiency in picking and packing operations. Organize shelving, labeling, and aisle markings strategically to create a logical flow within the warehouse.
  5. Employee Training – Invest in equipping employees with the necessary skills to handle inventory management and utilize technology platforms effectively.

How to Build Your Order Fulfillment Strategy

Building an effective order fulfillment strategy requires careful planning and consideration of various factors. Here’s a guide on how to develop your order fulfillment strategy:

Understand Your Customers’ Needs

Start by analyzing your customers’ preferences, expectations, and purchasing behaviors. Identify key factors such as delivery speed, packaging preferences, and return options that influence their satisfaction.

Evaluate Your Current Operations

Assess your existing order fulfillment process to identify strengths, weaknesses, and areas for improvement. Analyze factors such as order processing time, inventory accuracy, and shipping costs.

Set Clear Objectives

Define specific goals and objectives for your order fulfillment strategy. These could include reducing order processing time, improving inventory management accuracy, or enhancing customer satisfaction ratings.

Choose the Right Order Fulfillment Model

Consider the various order fulfillment models available, such as in-house fulfillment, third-party logistics (3PL), dropshipping, or a combination of these approaches. Select the model that best aligns with your business goals, resources, and customer requirements.

Invest in Technology

Implement advanced technology solutions such as warehouse management systems (WMS), inventory management software, and order management systems (OMS) to streamline your fulfillment operations. These tools can improve efficiency, accuracy, and visibility throughout the order fulfillment process.

Optimize Inventory Management

Develop effective inventory management strategies to ensure optimal stock levels, minimize stockouts, and reduce excess inventory. Implement techniques such as just-in-time (JIT) inventory, ABC analysis, and cycle counting to enhance inventory accuracy and efficiency.

Focus on Order Accuracy and Timeliness

Prioritize order accuracy and timely delivery to meet customer expectations and build trust. Implement quality control measures, streamline order processing workflows, and optimize shipping methods to minimize delays and errors.

Monitor Performance and Continuously Improve

Regularly track key performance indicators (KPIs) such as order accuracy rates, order processing time, and customer satisfaction scores to evaluate the effectiveness of your order fulfillment strategy. Identify areas for improvement and implement corrective actions to optimize performance over time.

    By following these steps and tailoring your approach to your specific business needs, you can develop a robust order fulfillment strategy that enhances customer satisfaction, drives operational efficiency, and supports business growth.

    Order Fulfillment Challenges

    Setting up effective order fulfillment can be tough for businesses, with challenges in demand, inventory management, and warehouse logistics. Here are the main hurdles in the order fulfillment process:

    1. Inventory Management: Keeping the right amount of inventory is essential to avoid running out of stock, which can drive customers to shop with competitors.
    2. Demand Planning: Understanding the demand for products is essential to avoid both overstocking and understocking, with demand shaping strategies utilizing marketing and promotions to stimulate demand.
    3. Logistics Planning: The shipping process is critical, requiring careful consideration of shipping methods, speed, and handling to ensure timely and intact delivery to customers and safeguarding reputation and sales.
    4. Supply Chain Execution: Even with careful planning, sudden spikes in demand can cause inventory shortages. Quickly restocking from manufacturers who can fill orders fast is crucial to handle these demand changes.

    Most Common Questions Answered

    What does it mean when my order says in fulfillment?

    When your order status says “in fulfillment,” it means that the order is being processed and prepared for shipment. This includes steps such as picking the items from the inventory, packing them securely, and labeling them for delivery. Once these steps are complete, the order will be shipped out to you, and the status will likely change to “shipped” or “in transit.”

    What are the seven steps in the order fulfillment process?

    The order fulfillment process typically consists of the following seven steps:

    1. Receiving Inventory: This step involves accepting and logging incoming stock from suppliers or manufacturers. It includes inspecting the goods for quality and accuracy and storing them in the warehouse.
    2. Inventory Storage: After receiving, the inventory is organized and stored in designated areas within the warehouse. Efficient storage practices are crucial for easy retrieval during the picking process.
    3. Order Processing: When a customer places an order, the fulfillment process begins. This includes verifying order details, checking inventory availability, and generating a picking list.
    4. Order Picking: Warehouse staff or automated systems locate and retrieve the items listed in the order from their storage locations. This step requires accuracy to ensure the correct items are picked.
    5. Order Packing: The picked items are then packed securely for shipment. This includes selecting appropriate packaging materials, labeling the package with the correct shipping information, and including any necessary documentation.
    6. Shipping: The packed orders are handed over to the shipping carrier. This step involves selecting the best shipping method based on factors like cost, speed, and destination, and then tracking the shipment.
    7. Returns Processing: If customers need to return items, the fulfillment process includes handling these returns. This involves receiving the returned products, inspecting them, updating inventory, and issuing refunds or exchanges as needed.

    What is order fulfillment rate?

    The order fulfillment rate is a metric used to measure the efficiency and effectiveness of a company’s order processing system. It is typically expressed as a percentage and indicates the proportion of customer orders that are successfully fulfilled without any issues, such as stockouts or errors, within a given period.

    For example, if a company received 1,000 orders in a month and successfully fulfilled 950 of them without any issues, the order fulfillment rate would be 95%.

    A high order fulfillment rate indicates that a company is efficient at processing and delivering orders accurately and on time, which is crucial for maintaining customer satisfaction and loyalty.

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    About the author
    Alice Pegorin
    Alice Pegorin is a talented writer and a world-citizen who was born and raised in Brazil. In 2019, she moved to Lisbon, Portugal to pursue a BSc in Marketing and Advertising at IADE-UE. Following her passion for business management, Alice moved to Berlin, Germany in 2022 for her Erasmus semester at UE-Germany, where she completed her studies. Alice is a curious and open-minded individual who adapts easily to any environment. She enjoys exploring new cultures and experiences, and is always eager to learn. Currently based in Berlin, Alice travels to Portugal from time to time to visit friends. Her passion for writing and business management makes her an invaluable member of our team at Wonnda, and we're thrilled to have her on board.
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