Order fulfillment is the process of storing goods, packing orders, and shipping products to buyers. For ecommerce businesses, order fulfillment is the mission-critical function. You can handle fulfillment yourself, outsource to fulfillment partners, drop ship, or combine methods. Whichever you choose, we’ll show you how to set up an efficient, cost-effective order fulfillment operation for a growing business.
We’ll examine many order fulfillment options throughout this guide. One thing to note is that you can lose money handling fulfillment and shipping on your own if you don’t have the efficient systems and scalability of a large ecommerce business. FedEx Supply Chain is an all-in-one fulfillment provider that offers packaging, warehousing, transportation, and free shipping options for your customers without ruining your profit margin. Click here for a free consultation.
Let’s begin by examining how order fulfillment works and discuss your options.
The Order Fulfillment Process
The term order fulfillment refers to all of the activities involved in shipping products to customers. As a workflow, order fulfillment starts with receiving shipments, sorting stock, and shelving inventory for efficient picking. Then, as orders come in, products are picked, checked for accuracy, packed correctly, and finally labeled for shipment.
4 Ways to Handle Order Fulfillment
Order fulfillment is a simple logistical process, but it can be time-consuming and labor intensive. In fact, many new and growing ecommerce businesses find that order fulfillment keeps them so busy it’s hard to perform other essential tasks like marketing, product scouting, and website maintenance.
The good news is you don’t have to go it alone.
Here are 4 primary ways that small businesses can handle order fulfillment.
1. In-house Order Fulfillment
Manage a warehousing and shipping operation yourself in your own facility with your own staff.
2. Outsource Fulfillment
3. Drop Shipping
Use drop ship suppliers who ship orders direct to your customers when ordered and bill you only for the products you sell.
4. Hybrid Order Fulfillment Solution
A hybrid approach that combines a few, or all, of the above order fulfillment options, is a popular solution for growing businesses.
We’ll explore each of these order fulfillment options in more detail below. But first, let’s cover the fulfillment and shipping basics that every ecommerce business owner needs to know.
The Elements of an Order Fulfillment Operation
Every online seller needs a solid understanding of the order fulfillment process, even if you outsource this task completely. Knowing how it all works is essential keeping costs low whether you ship daily from your own warehouse, or turn it all over to drop shippers or a fulfillment partner.
All order fulfillment and shipping operations need the following 6 elements:
1. A Place to Receive, Organize, and Store Products that Ship
Any order fulfillment operation needs organized product storage to make the process work. A spare room, garage, storage unit, retail stockroom, or warehouse — all can provide the space you need. Organize your space with shelves, bin, bags, stacked boxes — whatever works to keep products organized and handy for fast picking.
2. A Place to Prepare and Pack Orders for Shipping
Often called a packing station, this area can be a kitchen table, a stockroom counter, or a series of tables or workstations in a warehouse. Ideally, it’s a place where you can organize packing materials such as boxes, mailers, tape, wrap, and fill for easy access.
Whatever your setup, this is where your picked items are checked for accuracy against the customer’s order by checking items off a packing slip, or with a barcode scanner. Once checked, items are packed for shipment.
3. Shipping Boxes or Mailers
The rule of thumb in shipping is every inch counts. Always use the smallest, lightest box, flat mailer, or envelope you can to safely ship a product. Uline is a great source for all types of shipping boxes and mailers.
4. Packing Materials
Plain newsprint, kraft paper, bubble wrap, air pillows, foam sheets, and peanuts are the most common materials used to protect products and fill the voids in shipping boxes. Finally, you need a way to seal boxes and mailers. Many envelopes and mailers are self-sealing, but for boxes, you’ll need strong packing tape — and a good dispenser.
Tip: Recycled Packing Materials Can be a Plus
Yes, you can use old newspapers for fill, but it may be seen as unprofessional, especially on higher-end goods. However, you can get around that by noting on your packing slip that you recycle and reuse materials throughout your business. Online customers tend to appreciate green business practices, and you’ll appreciate the savings.
5. Packing Slips and/or Invoices
A printed invoice or packing slip showing all items ordered is useful as a checklist for pulling orders and checking for accuracy. The major difference between the two is invoices include prices while packing slips do not. All orders should include an invoice for a receipt. But packing slips are better for gift orders since they don’t include prices. Whichever you use, you can print them from your ecommerce platform’s order manager or from a back-end order management software system.
6. A Way to Create & Print Shipping Labels
The final order fulfillment stage is printing shipping labels for packed boxes. You can use carrier websites, carrier-specific shipping software, or shipping rate comparison software that lets you find the best price for each shipment. Most of these sites and software support all type of printers; laser, inkjet, or thermal label printers.
Ways to Print Shipping Labels for Online Orders
FedEx Ship Manager
For US Postal Service (USPS):
USPS.com / Stamps.com / Endicia.com
If you are fulfilling your own orders, Stamps.com is a convenient way to calculate, buy, and print USPS-approved postage, all from your own computer. It comes with a free shipping scale to accurately weigh packages, automatically imports your orders from the marketplace you sell from, and sends tracking information to your customers. Click here to start a 4 week trial and get $5 in free postage.
Next, we’ll explore the world of shipping and examine which methods and carriers are best for various fulfillment needs.
The Shipping Basics: What Every Shipper Needs to Know
Once you have orders pulled, checked, and packed, you need to get them into customers’ hands. For this, you’ll use a shipping carrier, usually UPS, FedEx, or USPS. But before you label your first shipment, you need to know what affects your shipping rates so you can keep your shipping costs low. Here are the 7 key points that every shipper should know.
1. Box Weights and Sizes
Box weight and size play a role in determining shipping rates. As the table below illustrates, a few extra inches can really make a difference — often more so than weight. That’s why it’s important to use the smallest box or mailer possible for every shipment.
If you ship in just a few box sizes at set weights, managing rates with one carrier can be fairly easy. But if your box weights and sizes vary per order, comparing carriers will ensure you get the best rate on every package. For this, you’ll need a multi-shipper management tool, which we’ll discuss further in the next section.
How Package Weight & Size Affect Shipping Rates
|Houston to New York|
|Large Envelope - 1 lb|
|10x10x10 box - 4 lb|
|16x16x16 box - 5 lb|
(or $15.33 Standard)
Tip: USPS Priority Mail Can Be the Best Choice
USPS Priority Mail consistently beats both UPS and FedEx on flat mailers and small, lightweight packages under 2-3 pounds. Stamps.com, a USPS shipping software, provides a free shipping scale when you sign up for a 4 week trial, so you can easily weigh your packages. For packages above 3 pounds, UPS and FedEx are generally cheaper. Learn more about carrier rates and services in our shipping buyer’s guide.
Dimensional Weight: What it is & Why it Matters to You
When shipping, you’ll see the term dimensional weight, or dim weight, on your shipping charges. Dim weight is a practice used by all carriers to apply rates based on a box’s overall dimension, not just its actual weight.
Simply put, if you ship a large, lightweight box, you end up paying more in weight than its actual weight because of its dimensions (length x width x height). In the example below, the actual box weight is 39.6 lbs (which will round up to 40 lbs. with all carriers), but due to size its dim weight is 70 lbs., and a 70 lb. rate will be applied.
Tip: Flat-rate Boxes are Great for Small, Heavy Products
With flat-rate box programs like USPS Priority Flat Rate and FedEx One Rate, rates are based on the box size only, not the weight. If you ship small, heavy items, this can be a good deal, but with small, lighter weight items you’re usually better off with dim weights.
2. Address Type – Commercial or Residential
UPS and FedEx differentiate between commercial and residential addresses and typically charge a higher rate or add surcharges to packages shipping to residential addresses. Often, the USPS is a cheaper method for shipping to home addresses since that’s their primary business.
Residential Address Surcharges On UPS and FedEx Shipments
|Houston to New York|
Same for Commercial & Residential
|Large Envelope - 1 lb|
|10x10x10 box - 4 lb|
|16x16x16 box - 5 lb|
(or $15.33 Standard)
3. Delivery Zones
Carriers use delivery zones to define parts of the country and use these zones to determine shipping rates and package time-in-transit. Zones are based on your location, so you will always be in Zone One. As distances from your location increase, the Zone numbers, shipping rates, and delivery times all increase.
How Distance / Zones Affect Shipping Rates & Time in Transit
|Ship a 10x10x10, 4-lb. box via Ground from Houston to:|
Zone / Price / Time
Zone / Price / Time
Zone / Price / Time
Tip: Use Zone Maps on Your Website
Shoppers unsure about delivery times may not place their order. Here, a Time-in-Transit map on your Shipping Information page can clearly communicate delivery times. Just be sure to state your order processing times alongside the map so shoppers will have realistic delivery expectations. Both UPS zone maps and FedEx zone maps can be customized to show transit times for packages shipping from your location to anywhere in the country:
4. Shipping Methods
Shipping methods are the different service levels that carriers use to define delivery speeds and shipping rates. Generally, the faster the delivery time, the higher the rate.
Popular Shipping Methods for the Major US Carriers
Tip: Deliver on Your Expedited Shipping Promises
Offering a choice of delivery speeds is good customer service, but be prepared! When customers pay extra for faster/expedited service, they expect it to arrive as promised. A good rule of thumb for efficient order fulfillment is to post an early cutoff time for Expedited orders on your website, say 10am. That gives you time to get Expedited orders packed and shipped same-day.
5. Overall Shipping Volume
Shipping volume refers to the average number of packages you ship per week. Both UPS and FedEx offer discounted rates based on average shipment volumes, service methods, and package weights and sizes. Volume discounts are great if you have lots of orders. But, it makes it hard for small sellers to compete since larger sellers get big discounts and thus can offer cheap or free shipping to shoppers.
However, small shippers can increase volume to discounted rates. For example, you can run all of your shipments through one carrier, either UPS or FedEx, and have suppliers ship inbound stock under your shipping account. Over time, your volume will increase and so will your discounts. But always compare costs! Shipping rates are a moving target, so make it a habit to review your inbound and outbound costs regularly.
6. How to Ship With UPS, FedEx & USPS
Now that you know what goes into your shipping rates, it’s time to decide which carriers you want to use and how you’ll compare rates and print labels. Here again, you have some options.
Ship with UPS & FedEx
It costs nothing to create a shipper account with UPS or FedEx and you can start the process online. Once registered, you’ll instantly receive commercial rates on both ground and air shipments, which are lower than the retail rates. You’ll also be able to create shipping labels online or through free software installed on your computer. You can also add daily or scheduled pick-up services for a fee.
Ship with USPS
To get started with the USPS, register online to purchase discounted postage and print shipping labels from their website. You can also schedule free carrier pickup for your packages to save trips the post office. You can more easily manage USPS shipping and qualify for even lower rates through a few services, including:
UPS, FedEx & USPS websites and software have one major drawback: You can’t compare rates among multiple carriers. For this, you need shipping rate comparison software which we’ll discuss next.
Use Shipping Rate Comparison Software to Cut Costs
Comparing rates among multiple carriers is the best way to minimize shipping costs. Here, shipping rate comparison tools such as Ordoro, ShipStation, and ShippingEasy add value to any ecommerce operation, even small startups.
Here’s a look at ShippingEasy’s Browse Rates screen which lets you quickly toggle between shippers to find the best rate for each package you ship:
These cloud-based services integrate seamlessly with most ecommerce platforms and are very budget-friendly. Best of all, most have a free basic plan for low-volume shippers. Higher volume shippers pay there’s a monthly fee, but that’s quickly recovered in both time and dollars saved by finding the best shipping rates. Learn more about the costs and benefits of these tools in our shipping software guide.
Other Shipping Considerations
Your website can be seen by all types of shoppers, including individuals and commercial buyers, as well as international audiences. So, you’ll occasionally receive orders that don’t fit into your normal routine, such as:
Even if you don’t offer international shipping, you might have a customer in Canada or the British Isles who just can’t live without your one-and-only widget. When this happens (and it will), try International Priority from the USPS. It handshakes beautifully with Canada Post and Royal Mail, plus many other nations’ postal systems.
If you ship large multi-box orders to commercial buyers, consider shipping these on pallets using LTL freight, which means “less than truckload.” Truck freight can be far cheaper, especially on shipments totaling over 250 lbs. UPS and FedEx both offer freight service, but you’ll generally get the best rates from a freight broker.
Shipping will always be a major expense for online sellers. But you can keep rates in check if you understand how it all works and put the cost-saving tips we covered throughout this section into action.
The Right Order Fulfillment Solution for Your Business
Now that you know what it takes to get orders processed and into customers’ hands, the question is, should you:
- Do it yourself with in-house order fulfillment
- Extend your collection by drop shipping directly from vendors
- Outsource everything to an order fulfillment center
- Use a hybrid mix of some or all of these fulfillment options
Like everything else in business, the answer is: That depends. Let’s look at each of these 4 fulfillment solutions in detail.
1. Do it Yourself with an In-House Fulfillment Operation
Our Elements of a Fulfillment Operation section above covers everything you need to set up your in-house fulfillment operation. An in-house operation is a great starting point for most ecommerce businesses. The hands-on experience you get doing it all yourself is the best way to understand this critical aspect of online sales.
For a small operation or startup, starting in-house using your house, garage, retail stockroom, or a nearby storage unit can be ideal. But growth can happen quickly and often comes in bursts due to seasonal spikes or a lucky viral post. When that happens, there are two main cost considerations you’ll face: space and staff. You’ll love having both in a growth stage, but neither is easily downsized if business drops off. Remember! Warehouses are easy to fill with products and people but can be hard to empty. Just a little food for thought.
Here are some alternatives that allow you to extend order fulfillment capacity without investing in more warehouse space and staff.
2. Extend Your Sales with Drop Shipping
With drop shipping, your suppliers handle your order fulfillment. Inventory is stocked in their location and orders are sent to customers directly from their warehouse. Best of all, you don’t pay for the stock until you make the sale.
Managed correctly, drop shipping can greatly extend your selling capacity with little to no added costs. For many small businesses, drop shipping is especially useful for:
- Extending product collections without inventory costs
- Fulfilling large orders
- Selling goods in case quantities
- Quick-ship needs
- Selling non-stocked products, like bulky or large-ticket items
Why Consider Drop Shipping for Order Fulfillment?
Drop shipping is a very budget-friendly option since you don’t purchase the stock until it’s already ordered. You also save by not having to pay for inbound shipping or inventory storage.
Many sellers that use in-house fulfillment extend their capabilities by drop shipping large-ticket or volume orders directly from suppliers. Other ecommerce companies use drop shipping as their only order fulfillment method. You can learn more about this option in our guide to starting a drop shipping business.
3. Stay Flexible with a Third-Party Logistics (3PL) Fulfillment Partner
Fulfillment companies specialize in inventory management, order processing, and shipping. If these are tasks you don’t want to tackle, you’re not alone. Many small and growing ecommerce businesses turn to order fulfillment partners to manage some or all of the order fulfillment side of their business.
There are many pros to using a fulfillment partner, including:
- Time saved – You can focus on marketing, product development, and other growth tasks
- Shipping savings – Most get discounted volume shipping rates and pass this on to you
- Fast delivery – Many operate warehouses nationwide to ensure fast delivery at the lowest rates
- Growth Flexibility – Fulfillment partners help you handle sales spikes or slowdowns cost-effectively
Of course, there are costs involved but you need to compare outsourced fulfillment costs against space and staff costs of an in-house fulfillment operation. You can learn even more about working with fulfillment companies in our guide to 3PL costs, plus check out top providers in our fulfillment services guide.
Why Consider Outsourcing Your Order Fulfillment?
Even if you have an in-house operation, a fulfillment partner can be an ideal solution for as-needed order fulfillment, such as:
- Product roll-outs
- Limited time offers
- Promotion-linked sales
- Seasonal volume
If you’re serious about using a 3PL provider, FedEx Supply Chain offers packaging, warehousing, and transportation, as well free shipping options for your customers. Click here for a free consultation.
4. Combine it All in a Hybrid Operation
Many online sellers find that mixing several fulfillment solutions into a hybrid operation is the best way to grow their business. This lets you increase your product collection and attract more sales without expanding facilities or over-investing in inventory.
Why Consider a Hybrid Order Fulfillment Solution?
A hybrid order fulfillment approach works for all types of online sellers and is easily explained using some real-world examples:
How a Growing Ecommerce Seller Uses Hybrid Fulfillment
- In-house fulfillment handles customized products that are assembled-to-order
- Outsourced fulfillment handles non-custom items that sell in higher volumes
- Product suppliers handle occasional extra-large orders via drop-ship
How a Retail Store Uses Hybrid Fulfillment for Online Orders
- In-house fulfillment handles online orders for goods that are stocked in-store
- Drop ship vendors handle orders for large-ticket items that are sold on the store’s website, but not stocked in-store
How a Manufacturer Uses Hybrid Fulfillment
- In-house fulfillment handles large wholesale orders that ship to retail stores for resale
- Outsourced fulfillment handles small consumer orders that come in from its direct-sales website
Managing Hybrid Order Fulfillment
Hybrid fulfillment is a very flexible option for growing sellers, but juggling orders among different fulfillment solutions can be time-consuming. Here, order management systems can help sellers distribute and oversee orders across all fulfillment in-house locations, drop shippers, and outsourced fulfillment partners.
Learn all that these systems offer and compare top options for small business in our order management software guide.
The Bottom Line
Accurate and timely order fulfillment is the lifeblood of a successful ecommerce operation. To stay ahead of your competition, you must understand the entire order fulfillment process, embrace efficient habits, and manage costs end-to-end. There are many ways to get orders into the hands of your customers, and often a mix of fulfillment solutions is the best choice for a growing business. So as you grow, look for flexible, as-needed fulfillment options that let you expand capacity while controlling costs.
Maybe it’s time to expand your facility and staff up. If so, great! But if you’re not certain, don’t let your current capacity stop you from selling more. Consider offering more products from reliable drop shipping vendors or letting a 3PL take over the bulk of your daily grind. Then oversee it all seamlessly with a good order management system.
If you think that outsourcing fulfillment is right for your business, let FulfillmentCompanies.net do the work finding you the perfect fit. Click here to get 5 quotes from potential partners – for free.