What Is Order Fulfillment? Processes & Strategies for 2022
This article is part of a larger series on Retail Management.
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 the order. Businesses can handle fulfillment in-house, outsource the function to fulfillment partners, dropship their orders, or combine methods.
Our top recommendation for small business fulfillment is to hand over the task to ShipBob. The company’s wide network of 27 domestic and international warehouses allows for speedy two-day shipping to your customers.
Plus, there’s no minimum order volume requirements, and you only pay for the resources you use—making it a highly cost-effective way to manage fulfillment.
The term order fulfillment refers to all of the activities involved in getting ordered products out to customers.
Order fulfillment starts with receiving inbound wholesale shipments, sorting stock, and shelving inventory for efficient picking and packing.
Then, as orders come in, products are picked, inspected for quality and accuracy, packed, and labeled for shipment. In many cases, returns management (or reverse logistics) is considered an extension of the fulfillment process.
If you’re doing in-house fulfillment, all of these steps will be completed in your facility—whether it’s a warehouse, storage unit, garage, or other space. If you outsource the fulfillment process (or use dropshipping), these steps will be completed by a third-party company.
Let’s take a closer look at the differences between these methods.
Order Fulfillment Strategies
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 keep them so busy it’s hard to perform other essential tasks— like marketing, product scouting, and website maintenance.
Plus, the infrastructure required to handle fulfillment efficiently (such as an industrial warehouse and ample staff) is too great of an expense for many small retailers.
New and growing companies often choose to outsource order fulfillment or use dropshipping— whereas more established businesses find that having operations in-house provides more control and can help them save on order fulfillment costs.
Here are the four primary ways businesses choose to handle order fulfillment.
In-house order fulfillment is when businesses manage their own warehouse and shipping operations, typically with their own facility, equipment, and staff.
This method is typically best for
- Small businesses processing fewer than 10 orders per day
- Well-funded, established operations seeking end-to-end control
- Businesses experimenting with different product offerings, sources, and processes
- Full-time store owners
To learn more about the costs and processes of in-house fulfillment, see our breakdown of in-house fulfillment vs fulfillment center.
|Hands-on: Fulfilling orders yourself allows you to learn all of the ins and outs of ecommerce operations.||Limited scalability: If your business sees an influx in orders (which is common during the holiday season), you may find yourself overwhelmed and out of space/resources.|
|Cost-effective: For new businesses that are able to manage everything themselves from their garage, office, or home, this is an extremely low-cost way of fulfilling orders.||Time-consuming: Spending all of your time filling orders means less time for marketing efforts, people managing, or product sourcing.|
|Offers complete control: Managing order fulfillment in-house means you can personally oversee all aspects of your business.||Hard to downsize: Ramping up operations during seasonal sales spikes can leave you with costly excess resources in the post-holiday lull.|
|Large upfront costs: Investing in your own warehouse facility, equipment, and staff is a major expense.|
|Market-rate shipping: Unlike third-party fulfillment companies and high-volume drop-ship suppliers, retailers who perform their own fulfillment don’t receive discounted shipping rates.|
Businesses can outsource the tasks involved in 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 handle all of these tasks for you with advanced infrastructure and guaranteed accuracy.
This method is best for
- Growing small businesses processing 10+ orders per day
- Solopreneurs busy managing their own marketing, product sourcing, and development
- Multipreneurs needing to dedicate time to other ventures
- Part-time store owners who work a separate job
|Frees up time: Having someone else handle your order fulfillment frees up an immense amount of time—allowing you to focus on other aspects of your business.||Onboarding process: Partnering with a fulfilment company usually requires an onboarding process, startup fees, software training, and inventory migration.|
|Reduced shipping costs: Most fulfillment services receive deeply discounted shipping rates thanks to the large volume of orders that they ship every day, and these discounts are passed along to you.||Less control: When you outsource fulfillment, you are not directly overseeing the process. This makes it difficult to fulfill special requests and make experimental changes.|
|Fast delivery: Many fulfillment companies have multiple warehouses strategically positioned across the country. This allows you to distribute your inventory near various customer bases—ensuring fast delivery and low rates.||Minimum order requirements: Most fulfillment partners require a minimum volume of orders to be processed per month. This prevents many new businesses and startups from outsourcing fulfillment.
ShipBob is one of the only fulfillment partners with no minimum order volume requirements.
|High scalability: Using a fulfillment partner makes it easy to handle sales spikes or slowdowns in a cost-effective manner. Nearly all third-party fulfillment companies charge based on usage, so you only pay for the resources you need.|
In the dropshipping business model, every step of the order fulfillment process is handled by the supplier. The seller doesn’t keep any inventory in stock, but rather forwards each order (along with payment) to the vendor as the orders come in. The vendor then packs and ships the merchandise to the customer.
Dropshipping is a good option for:
- Entrepreneurs looking to start a low-risk operation with a minimal investment
- Retailers wanting to test a new concept or product category
- Part-time sellers who can only manage an online store for a limited number of hours each week
- Established online stores seeking to expand their offerings
Interested in dropshipping? Read our guide to starting a dropshipping business.
|No up-front inventory costs: When you dropship products, you only pay for what is purchased by customers, so there are no bulk wholesale orders or leftover unsold products.||Less control: With dropshipping, you don’t see any part of the individual order before it reaches the customer. This can lead to quality issues and higher return rates.|
|No warehouse or storage fees: The dropship supplier stores all products until they are sold, so you don’t need to own or lease a warehouse.||Smaller profit margins: Dropshipping is generally less profitable than sourcing wholesale products in bulk.|
|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—or work a separate job.||Long delivery times: Most drop-ship suppliers are based in Asian countries, so delivery to the customer can take a long time.|
A hybrid approach to order fulfillment combines some (or all) of the above order fulfillment methods. 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 supplement it with outsourced fulfillment for non-custom items that are steady sellers or to help manage seasonal sales spikes without expanding your warehouse. In addition, you can use dropshipping to test potential new additions to your store before investing in a bulk wholesale order.
Brick-and-mortar retail stores can fulfill a portion of their online orders by allowing shoppers to buy online and pick up purchases in-store. Read our guide to setting up a click-and-collect fulfillment solution.
This option is best for:
- Retailers experimenting with new processes, products, channels, and concepts
- Full-time sellers with the available resources to manage multiple fulfillment methods
- Brick-and-mortar stores expanding into online sales
|Flexibility: Using different strategies for fulfillment allows you to easily add products or change directions.||Lots of moving parts: Having inventory spread across many different locations is just not ideal for some operations and can be hard to manage.|
|Strategic: Using a hybrid approach can often be the most cost-effective order fulfillment solution if you are strategic about which products are fulfilled by each method.||Time-consuming: Juggling orders across different fulfillment solutions can occupy a lot of time and attention.|
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 a fulfillment partner.
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 connects with tools such as Oberlo to connect your website directly with dropshipping suppliers. Visit Shopify for a free trial.
All order fulfillment and shipping operations need the following elements:
A Place to Receive and 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.
High order volumes typically require an industrial warehouse for sufficient receiving, storage, and operational capabilities. In these cases, the warehouse layout is vital to your fulfillment operation’s success. It should also be outfitted with the right equipment for your products and processes—like proper shelving units and stock carts.
This is one of the biggest reasons why retailers choose to partner with third-party fulfillment companies. They have a specialized infrastructure to handle products and order volumes of all sizes, so you don’t have to invest in leasing and equipping your own facility.
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 using a barcode 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 safely ship a product. Uline is a great source for all types of shipping boxes and mailers.
You’ll 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, but for boxes, you’ll need strong packing tape with a good dispenser.
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 from a back-end inventory management software.
A Way to Create and Print Shipping Labels
The final order fulfillment stage is printing shipping labels for packed boxes. You can use any of these tools to create and print labels:
- Carrier websites (such as UPS.com or FedEx.com)
- Carrier-specific shipping software (such as FedEx Ship Manager or Stamps.com)
- Shipping rate comparison software (such as ShippingEasy or ShipStation) that also lets you compare rates to find the best price for each shipment and manage your orders
Most of these sites and software support all types of printers—laser, inkjet, or thermal.
The majority of the retailer’s role in order fulfillment involves managing orders and preparing them for transport. After that, getting the goods to the customer is done by a shipping carrier—but navigating their services is a complex task within itself.
Here’s what you need to know about ecommerce shipping.
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. 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 lb.
10x10x10 box - 4 lb.
$16.55 Standard ground
16x16x16 box - 5 lb.
$21.60 Standard ground
Note: The prices listed above include peak holiday surcharges and are likely to be reduced during other months of the year.
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 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 you can easily weigh your packages. For packages above three pounds, UPS and FedEx are generally cheaper. Learn more about carrier rates and services in our FedEx vs UPS vs USPS buyer’s guide.
Dimensional Weight: What It Is & Why It Matters
When shipping, you’ll likely 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 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.
Flat-rate boxes are perfect 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.
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, USPS is a cheaper method for shipping to home addresses since that’s their primary business.
Residential Surcharges on UPS & FedEx Shipments
Houston to New York
Same for Commercial & Residential
Large envelope - 1 lb.
$12.22 / $12.56
$15.36 / $16.87
10x10x10 box - 4 lb.
$19.54 / $23.81
$17.10 / $21.97
$16.55 Standard ground
16x16x16 box - 5 lb.
$48.53 / $67.14
$37.05 / $41.92
$21.60 Standard ground
Note: The prices listed above include peak holiday surcharges and are likely to be reduced during other months of the year.
Carriers use delivery zones to define parts of the country, and these zones 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.
One advantage of partnering with a fulfillment center is that it may have multiple warehouses strategically positioned around the country—leading to more efficient delivery zones for your customer bases. ShipBob, for example, allows sellers to distribute stock between any of its 22 warehouses in the US.
Use delivery zone maps on your website—unclear delivery times can prevent shoppers from placing an order. A Time-in-Transit map on your shipping information or checkout page can clearly communicate delivery times and instill confidence in the buyer.
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.
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.
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 US Carriers
Standard / Parcel Select
2nd Day Air
3rd Day Air
Next Day Air
Priority Mail Express
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.
How to Ship With UPS, FedEx, and 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, as well as add daily or scheduled pick-up services for a fee.
- Learn about UPS WorldShip software
- Learn about FedEx Ship Manager software
Ship with USPS
To get started with USPS, register online to purchase discounted postage and print shipping labels from its website. You can also schedule a free carrier pickup for your packages to save trips to the post office. You can easily manage USPS shipping and qualify for even lower rates through a few services, including Stamps.com and Endicia.com.
UPS, FedEx, and USPS websites and software have one major drawback—you can’t compare rates among multiple carriers.
Comparing rates is the best way to minimize shipping costs and make sure you’re getting the best price. Here, shipping rate comparison tools (such as ShippingEasy and Ordoro) add value to any ecommerce operation, even small startups. Plus, these tools provide users with deeply discounted rates that can reduce your fulfillment spend dramatically.
These tools not only help you get the best rate, but also assist in managing orders, sending confirmation emails, promotional marketing, and automating tasks. Most shipping software platforms are highly affordable, and some are even free to use.
Read our buyer’s guide on the best shipping software for small businesses to learn more.
Inbound and B2B Shipping
Transporting large shipments, such as wholesale orders from your supplier to your warehouse, is done differently from individual parcels.
If you order in bulk or 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.
Read our full guide to getting a freight quote to learn more.
Order Fulfillment Challenges in 2022
Fulfillment has some associated challenges that you’ll need to navigate year after year, alongside unique obstacles brought about by specific events or environments (such as COVID-19). Here are some important factors to keep in mind as you manage your fulfillment process in 2022.
Supply Chain Issues
The pandemic caused an increase in ecommerce demand and a shortage of labor, equipment, materials, and space—which culminated in a major supply chain crunch that is expected to impact retailers well into the future.
Widespread and local supply chain disruptions are nothing new; they can be the result of natural disasters, political instability, transportation failures, cyber-attacks, and market fluctuations.
It’s best to be proactive about issues that could hinder your fulfillment operation. Here are some tips to handle disruptions and maintain a resilient supply chain.
- Build inventory: Have a backstock of essential products that can support your business’ sales through multiple months of disruption.
- Identify backup suppliers: In case your primary vendor is unable to provide the goods you need, have backup suppliers available to avoid running out of stock. It’s best to build relationships with your secondary suppliers and even order a portion of your inventory from them throughout the year.
- Communicate with your customers: Transparency is key when it comes to retaining customers through a supply chain crunch. Be upfront with shoppers about delays and other problems and offer solutions to improve their experience.
The holidays drive a significant increase in retail demand. According to the National Retail Federation (NRF), holiday sales are steadily increasing each year—despite inflation and economic hardship.
It’s vital to keep up with the chaos as winter holidays bring order volume fluctuations and shipping and sourcing delays. Here are some helpful tactics.
- Stock sufficiently: To avoid backorders and lost revenue, make sure you order sufficient stock well in advance by forecasting demand for upcoming holidays.
- Outsource: It can be difficult to handle seasonal demand without bringing on additional staff and expanding your warehouse space. But these extra resources come along with the need for training, payroll, management, and trimming fat when business slows down in January. Before the holidays ramp up, consider outsourcing all or a portion of your fulfillment to a third-party company that has the scalable infrastructure to meet changing demand.
- Automate: For smaller businesses that don’t want to scale up for the holiday season or outsource to a fulfillment center, consider investing in software like Ordoro that can automate many of the labor-intensive tasks involved in fulfillment.
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. Or, you may wish to offer international shipping to broaden your customer base.
In any event, you have multiple options for fulfilling international orders. Consider using International Priority from USPS—it coordinates very well with Canada Post, Royal Mail, and many other international postal systems.
To learn about your other options, read our international fulfillment and cross-border shipping guide.
Proper inventory management means having the right products, in the right quantities, at the right time to sell to customers—making it integral to order fulfillment.
Dedicated fulfillment companies specialize in inventory management, so outsourcing is a popular way to handle this task efficiently.
But if you’d prefer to tackle it yourself, check out our in-depth guide to inventory management for small businesses.
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.