Order fulfillment is the process of storing goods, packing orders, and shipping products to buyers. In a broad sense, order fulfillment is everything that happens after a customer places an order up to the moment they receive that order. Businesses can handle fulfillment in-house, outsource to fulfillment partners, drop ship, or combine methods.
The Order Fulfillment Process
The term “order fulfillment” refers to all of the activities involved in shipping products to customers. In terms of your business’ workflow, order fulfillment starts with receiving shipments, sorting stock, and shelving inventory for efficient picking and packing. Then, as the orders come in, products are picked, inspected for quality and accuracy, packed, and then labeled for shipment.
If you are doing in-house fulfillment, all of these steps will be completed in your warehouse. If you outsource fulfillment or use drop shipping, these steps will be completed by another company.
The Right Order Fulfillment Solution for Your Business
Order fulfillment is a simple logistical process, but it can be time-consuming and labor-intensive. In fact, many new and growing businesses find that ecommerce shipping and handling keeps them so busy it’s hard to perform other essential tasks like marketing, product scouting, and website maintenance.
New and growing companies often choose to outsource order fulfillment or use drop shipping. Whereas more established businesses find that having operations in-house provides more control and can help them save on order fulfillment costs.
Here are four primary ways businesses can handle order fulfillment.
In-house Order Fulfillment
In-house order fulfillment is when businesses manage their own warehouse and shipping operations, typically with their own facility, equipment, and staff. In-house order fulfillment is best for established businesses or businesses that want total control over their end-to-end operations.
Pros of In-house Order Fulfillment
- Hands-on: Fulfilling orders yourself allows you to learn all of the ins-and-outs of ecommerce operations.
- Cost-effective: For new businesses that can manage everything themselves from their house, this is an extremely low-cost way of fulfilling orders.
- Offers complete control: Managing order fulfillment in-house means you can personally oversee all aspects of your business.
Cons of In-House Order Fulfillment
- Can outgrow at-home operations: If your business has a sudden growth spurt, you may find yourself overwhelmed and out of space.
- Time-consuming: Spending all of your time filling orders means less time for marketing efforts, people managing, or product sourcing.
- Hard to downsize: It’s easy to fill a warehouse in the middle of a seasonal sales spike; however, when sales slow down, you will still be left with a warehouse full of products.
- Large upfront costs: If you do have a warehouse full of products, that comes with a hefty price tag. Plus, if those products do not sell, you are still stuck with them.
Outsource Order Fulfillment
Companies can outsource order fulfillment by using order fulfillment companies or larger third-party logistics companies. Fulfillment service companies specialize in inventory management, order processing, and shipping. So, they will handle all of these tasks for you. This is a good option for businesses that want to save time by not handling these operations in-house.
Pros of Outsource Order Fulfillment
- Frees up time: Having someone else handle your order fulfillment frees up a ridiculous amount of time for you to focus on other aspects of your business.
- Lower shipping costs: Most fulfillment services have discounted volume shipping rates that they will pass along to you.
- Fast delivery: Many fulfillment companies have multiple warehouses across the country to ensure fast delivery and low rates.
- Growth flexibility: Using a fulfillment partner makes it easier to handle sales spikes or slowdowns in a cost-effective manner.
Cons of Outsource Order Fulfillment
- Less control: When you outsource fulfillment, you are not directly overseeing the process.
- More expensive: Using an order fulfillment company can be more expensive than managing an efficient in-house operation.
Fulfill Orders With Drop Shipping
With drop shipping, every step of the order fulfillment process is handled by the suppliers who ship orders directly to your customers and only bill you for the products you sell. Drop shipping is a good option for startup ecommerce businesses or any online businesses that don’t want to purchase wholesale products upfront.
Pros of Drop Shipping Order Fulfillment
- No upfront inventory costs: When you drop ship products, you only pay for what is purchased by customers, so there are no bulk wholesale orders or leftover unsold products.
- No warehouse or storage fees: The drop ship supplier stores all products until they are sold, so you do not need a warehouse.
- Saves time: Similar to outsourced fulfillment, having someone else handle filling orders frees up time for you to focus on other aspects of the business.
Cons of Drop Shipping Order Fulfillment
- Less control: With drop shipping, you don’t see any part of the individual order before it reaches the customer.
- Smaller profit margins: Drop shipping can be more expensive than sourcing wholesale products in bulk.
Every ecommerce business needs a website. Shopify is one of the most popular ecommerce platforms because you can build a site, manage orders, and connect with customers all under one platform. Plus, Shopify has tools such as Oberlo, that connect your website directly with drop shipping suppliers. Visit Shopify for a free trial.
Hybrid Order Fulfillment Solution
A hybrid approach to order fulfillment combines a few, or all, of the above order fulfillment options. This is a popular solution for growing businesses because it offers a lot of flexibility. For example, you can use in-house fulfillment for custom products or items that need to be assembled, such as gift baskets. You can use outsourced fulfillment for noncustom items that are steady sellers or to help manage seasonal sales spikes without expanding your warehouse. Use drop shipping for large, expensive, or infrequently purchased products that you do not want to stock in-house.
Pros of Hybrid Order Fulfillment
- Flexibility: Using different strategies for fulfillment allows you to add products or change directions easily.
- Strategic: A hybrid approach can often be the most cost-effective order fulfillment solution if you are strategic about which products are fulfilled in each solution.
Cons of Hybrid Order Fulfillment
- Lots of moving parts: Having inventory spread across many different locations is just not ideal for some people and can be hard to manage.
- Time-consuming: Juggling orders across different fulfillment solutions can also be time-consuming.
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 in 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 elements.
A Place to Receive & Stock Products
Any order fulfillment operation needs organized product storage to make the process work. A spare room, garage, storage unit, retail stockroom, or warehouse can all provide the space you need depending on the size of your operation. Organize your space with shelves, bins, bags, or stacked boxes. Use whatever works to keep products organized and handy for fast picking.
Space to Prepare and Pack Orders
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 bar code scanner. Once checked, items are packed for shipment.
Shipping Supplies for Packing Orders
The rule of thumb in shipping is every inch counts. Always use the smallest, lightest box, flat mailer, or envelope possible to ship a product safely. Uline is a great source for all types of shipping boxes and mailers.
You will also need packing materials. Plain newsprint, packing 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 also need a way to seal boxes and mailers. Many envelopes and mailers are self-sealing. However, for boxes, you’ll need strong packing tape with a good dispenser.
Pro tip: Use recycled packing materials for an eco-friendly solution. Using old newspapers can save costs and be more environmentally friendly than using new packing peanuts for each order. It may look unprofessional, but you can get around this by noting on your packing slips and website that you reuse and recycle materials throughout your business. Online customers tend to appreciate green business practices, and you will appreciate the savings.
Packing Slips 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 because they don’t include prices. Whichever you use, you can print them from your ecommerce platform’s order manager or a back-end order management software system.
A Way to Create & Print Shipping Labels
The final order fulfillment stage is printing shipping labels for packed boxes. You can use carrier websites―such as UPS.com or FedEx.com―carrier-specific shipping software―such as FedEx Ship Manager or Stamps.com―or shipping rate comparison software―such as ShipStation or PayPal Shipping―that lets you find the best price for each shipment. Most of these sites and software support all types of printers; laser, inkjet, or thermal label printers.
If you are fulfilling your own orders, Stamps.com is a convenient way to calculate, buy, and print United States Postal Service (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. Visit Stamps.com to start a four-week trial and get $5 in free postage.
Order Fulfillment Basics: What Every Shipper Should Know
Once you have orders pulled, checked, and packed, you need to get them into customers’ hands. To do this, you’ll use a shipping carrier, usually UPS, FedEx, or USPS. However, before you label your first shipment, you need to know what affects your shipping rates so you can keep your costs low. Here are the seven key basics that every shipper should know.
1. Box Weights & Sizes
Box weight and size play a role in determining shipping rates. As the table below illustrates, a few extra inches can 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. However, if your box weights and sizes vary per order, comparing carriers will ensure you get the best rate on every package. The easiest way to do that is by using a shipping rate comparison software such as Ordoro, ShipStation, or ShippingEasy.
How Package Weight & Size Affect Shipping Rates
|Houston to New York|
|Large Envelope - 1 pound|
|10x10x10 box - 4 pounds|
|16x16x16 box - 5 pounds|
(or $15.33 standard)
Pro 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 weighing less than two to three pounds. Stamps.com, a USPS shipping software, provides a free shipping scale when you sign up for a four-week trial so that you can weigh your packages easily. For packages weighing more than three 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
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 because of its dimensions (length x width x height).
In the example below, the actual box weight is 39.6 pounds, which will round up to 40 pounds with all carriers, but due to size its dim weight is 70 pounds, and a 70-pound rate will be applied.
Pro tip: Flat-rate boxes are ideal 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 Types
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 Surcharges on UPS and FedEx Shipments
|Houston to New York|
Same for Commercial & Residential
|Large Envelope - 1 pound|
|10x10x10 box - 4 pounds|
|16x16x16 box - 5 pounds|
(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 increases, the Zone numbers, shipping rates, and delivery times all increase.
Pro tip: Use delivery zone maps on your website. Shoppers unsure about delivery times may not place their order. A Time-in-Transit map on your shipping information or checkout page can communicate delivery times clearly. 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
If you are using an ecommerce platform such as Shopify, instead of adding a static map, you can use an app or plugin to help manage the shipping for you. This will also allow shoppers to see real-time estimated shipping times and rates for their specific locations.
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. Offering a choice of delivery speeds is good customer service, but make sure you can deliver what your customers pay for. When customers pay extra for faster or 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. That gives you time to get expedited orders packed and shipped same-day.
Popular Shipping Methods for the Major U.S. Carriers
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. However, 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. Be sure to compare costs always. 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. There are plenty of different ways to go about this.
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 pickup 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 to the post office. You can manage USPS shipping easily and qualify for even lower rates through a few services, including Stamps.com and Endicia.com.
7. Use Shipping Rate Comparison Software to Cut Costs
UPS, FedEx, and USPS websites and software have one major drawback: You can’t compare rates among multiple carriers. 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.
8. Other Shipping Considerations
Because you’re selling online, anyone can find and view your website. If you’re a standard ecommerce store, most of your orders will come from individual shoppers. However, you may also receive commercial or international orders.
Many independent online stores only offer domestic shipping, but you still might have the occasional shopper from Canada or Great Britain who can’t live without your product. You may also wish to offer international shipping to broaden your customer base. When that happens, consider using International Priority from USPS. It coordinates very well with Canada Post, Royal Mail, and many other international postal systems.
Shipping Large Orders
If you ship large multibox 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 more than 250 pounds. UPS and FedEx both offer freight service, but you’ll generally get the best rates from a freight broker.
Order Fulfillment Frequently Asked Questions (FAQs)
What is order fulfillment?
Order fulfillment covers all of the steps that happen in between when a customer places an online order and when they receive that product in the mail. The process of order fulfillment includes inventory management and storage, picking and packing orders, and shipping products to customers.
How can I improve my order fulfillment?
Transparency is key when it comes to order fulfillment. You should be able to pinpoint where each product and order is in the fulfillment process at any given time. Having an efficient warehouse operation―whether in-house or outsourced―and a state-of-the-art ecommerce platform with order management tools helps the process go smoothly. Also, compare shipping rates from different providers regularly to make sure you are getting the best deal.
Should I outsource order fulfillment?
If you are new to ecommerce, don’t have space to store products, or don’t have the time to oversee the order fulfillment process, definitely consider outsourcing order fulfillment. Slow or inaccurate order fulfillment leads to unhappy customers. So, relying on professionals and experts to fulfill your orders can be a smart move if you don’t have the time or resources available.
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.
FedEx Supply Chain is a fulfillment provider that offers packaging, warehousing, transportation, and free shipping options for your customers without ruining your profit margin. This all-in-one solution is a great order fulfillment option for growing ecommerce businesses. Visit FedEx Supply Chain for a free consultation.