Setting Up Your E-Commerce Order Fulfillment Process

Wondering how you can get orders into your customers’ doorsteps as quickly as possible? Setting up an efficient e-commerce order fulfillment process can be the answer. Here’s what it is, including the steps to complete it. 

In this article, learn about the following:

1. What is e-commerce fulfillment?
2. Steps involved in the e-commerce order fulfillment process
3. 4 methods of e-commerce order fulfillment
4. Factors affecting your e-commerce order fulfillment
5. Your back-office accounting support

What is e-commerce fulfillment?

E-commerce order fulfillment is the process of delivering products from your warehouse to your customer’s delivery address. It usually starts with ordering your inventory from your suppliers and ends with handling after-sales consumer concerns (e.g., repair, replace, refund). In the between goes your inventory management, packing and delivery of goods.  

This process applies to both business-to-consumer (B2C) and business-to-business (B2B) e-commerce companies. But regardless of who your end consumers are, order fulfillment uses the same measure of success — that is, the time it takes to complete an order. The faster it takes to deliver a product, the more satisfied your customers will be. On the contrary, slow fulfillment could result in negative customer experiences and a lower number of repeat businesses. 

Steps involved in the e-commerce order fulfillment process

Below are the steps to a typical e-commerce order fulfillment process. 

1. Inventory management

Inventory management is the process of controlling the amount of your store’s on-hand items. Getting this stage right keeps you from understocking (running out of products to sell) and overstocking (capital gets stuck in slow-moving inventory).  

Tips for a better inventory management process: 

• Create a stock-keeping unit (SKU) for each product to identify inventory and track sales. SKU is a unique alphanumeric code, usually presented as a scannable bar code, that contains information on a product such as brand, color, style and size. 
• Use inventory management software to have real-time access to your inventory. This will help you track the movement of your products and determine which items to replenish. 
• Conduct regular quality checks to separate outdated and damaged items from products in good condition. 
• Identify the minimum stock levels of each item so you can fulfill orders every time. 

2. Order processing

The next step to e-commerce order fulfillment is order processing. As the name suggests, it is the workflow that ensues after a customer places an order. It’s usually composed of the following activities: 

1. • Receiving

This takes place after a customer places an order. You can automate the process that goes after this by using an order management system (OMS). By doing so, you can automatically forward order details from your e-commerce store to your warehouse or fulfillment center. It also allows you to reserve the inventory and avoid overselling items. 

At this stage, it’s a good practice to send a confirmation message to inform customers that you have received their orders. In your message, include good-to-know information like the summary of the product, date of purchase, total price, billing and shipping addresses, payment method, shipping method, delivery address and a ‘view order’ redirecting them back to your website 

1. • Picking

After forwarding the order details to your warehouse, your staff (pickers) will begin picking the items out of existing stock. It’s still a manual process because your pickers need to collect each product from their respective places.  

However, you can automate a part of this process by scanning the SKU. This will record automatically the product information on your system instead of having to manually encode it using spreadsheets. 

The importance of inventory management (see step 1) comes into play at this stage. When you have an efficient inventory, locating and picking the items based on their variations can be easier. 

1. • Sorting

The next step is to sort picked items according to their delivery addresses. It’s also a good time to double-check if all items are available and are ready for shipping. 

1. • Packing

Use sturdy packaging to keep your products in good condition during shipping. For the label, make sure to include the correct delivery address and receiver details. You must also write down return information in case a need for return and replacement arises.  

See to it that your branding is visible to bring a more personalized experience to your consumers. Also, make sure to adhere to the packaging guidelines of the courier company to prevent untoward incidents such as delayed deliveries and damaged items. 

1. • Shipping

Now that you’ve packed the orders, it’s time to ship them to the right delivery addresses. You can either ship the items directly to your customers or you can combine them with other orders within the same area to cut shipping costs and reduce the number of total shipments.  

After delivering the orders, send a follow-up message to your customers to make sure they receive the right items on time. 

3. Returns management

In its 2020 report, the National Retail Federation found that retailers expect 13.3% of merchandise they sold during the holiday season will be returned. But despite it being an expectation, without a proper returns process, product returns can result in losses.  

In the U.S., retailers lost $18 billion per year when people return stolen items, use the item and return it later and claim an item that never arrived. This means that for every $100 in returned merchandise, retailer lose an average of $5.90 to return fraud. 

Read Next: Common Challenges of E-Commerce Businesses and their Solutions 

To manage your returns properly and minimize fraud cases, it’s crucial to develop clear returns policies. On top of this, you must also make them visible on your site and understand the costs involved in returns management. Meanwhile, assessing the returned items is also crucial to know if you can return them to your inventory or dispose of them altogether. 

This process can be painful to both sides. It can be a frustrating experience for your customers and extra work and cost for you. But it’s necessary. The challenge is to turn the negative into a positive experience. 

Digitizing much of the process can be your starting point to have a seamless returns process. Not only will it save you time but can also simplify the process for your customers. Find a way to impress them with your after-sales customer service and you’ll have the opportunity to reconvert those returns to new purchases. 

In the next section, let’s discuss the different ways to carry out the e-commerce order fulfillment process. 

4 methods of e-commerce order fulfillment

Should you fulfill e-commerce orders in-house or would it be smarter to outsource it? 

The answer depends on several factors, including the type of your products, order volume, market coverage, tasks you’re willing to manage yourself and more. 

In some cases, you can use two or more methods to meet your current need and fast-track the delivery of your products to the market.  

As a start, familiarize yourself with these e-commerce order fulfillment methods so you can figure out which one suits you best.  

1. In-house order fulfillment

Ideal for small businesses with low order volume and large companies with its own extensive fulfillment facility. 

Also known as self-fulfillment and merchant fulfillment, in-house order fulfillment takes place when you complete the entire e-commerce order fulfillment process internally. 

This model gives you 100% control of your inventory and fulfillment process. When you’re a start-up, it’s also cheaper since you only need to pay shipping fees.  

But once you grow to a certain level, this method may not be ideal anymore. Handling the entire activity can be time-consuming and costly by then. When this time comes, you can either hire more staff, invest in building/leasing a bigger warehouse or outsource this process to a third party. 

2. Third-party fulfillment

Ideal for growing businesses and those with multiple market locations 

Outsourcing to a third-party logistics (3PL) provider is a good model for growing businesses you can choose a specialized company with extensive order fulfillment capabilities — from experienced professionals to the equipment and tools they use to speed up the process. 

The catch is you’ll have less control over the process. That’s why it’s critical to have due diligence when selecting a 3PL provider to ensure you’re handling your order fulfillment to a reliable partner. 

Related: Due Diligence in Outsourcing Accounting Services 

3. Dropshipping

Ideal for start-up entrepreneurs 

Dropshipping is a low-risk method of selling products to consumers due to its lower operational capital requirements. You won’t need a warehouse nor spend time with order processing since you don’t have the physical products in the first place. Instead, a manufacturer produces, stores, and ships the orders.  

Whenever a customer places an order, all you have to do is to forward the details to the manufacturer and the latter will take care of the remaining logistical activities. 

4. Hybrid fulfillment

Ideal for businesses with diverse supply chains and multiple market locations 

Hybrid fulfillment occurs when you make use of two or more methods discussed above to streamline product deliveries. 

For example, if your e-commerce store expands to multiple states within the U.S., you can choose to work with a drop shipper to fulfill orders from the outside states. For customers located within your state, you can handle the fulfillment process in-house or entrust it to a local 3PL. 

By combining these methods, you can test which option is more cost and time-efficient. 

Factors affecting your e-commerce order fulfillment

Before you set up your e-commerce order fulfillment, take note of the factors below to determine which method suits your business. 

1. Order volume

Your store’s order volume is a major determinant of how you should carry out your e-commerce order fulfillment process. 

When the order volume is low, it’s better to start with the in-house order fulfillment method. 

As the volume increases, you may want to consider outsourcing to a 3PL or working with a drop shipper to satisfy order demands.  

2. Location

You must also consider the location of your fulfillment center and the market you serve when choosing an order fulfillment method. The farther the delivery address is, the higher the delivery costs will be. When you’re selling to other geographical locations, see if you can work with a 3PL located in that area to reduce shipping zones. 

3. Delivery time

The speed of delivery is a key factor influencing customer satisfaction. With the large companies offering two-day delivery options, make sure to figure out how you can expedite shipping to keep up with the competition.  

4. E-commerce platform and software integrations

Your e-commerce platform also helps decide which method of order fulfillment to choose. If it supports inventory management and other features to automate order fulfillment, in-house order fulfillment can remain doable. 

Meanwhile, using integrations or e-commerce fulfillment solutions can help in automating order processing. Whenever a customer places an order, your fulfillment staff will automatically be alerted to pick, sort, pack and ship the items. 

An efficient order fulfillment process improves customer experience, fosters brand loyalty, lowers fulfillment costs and streamlines inventory management. On the contrary, it reduces customer frustration, cart abandonment and cancellation of orders. Figure out how you can expedite the process using the right method, and it can be one of your key differentiators. 

Your back-office accounting support

Do you need help with accounting and bookkeeping? At e-commerce accountants at D&V Philippines are here to assist you with inventory management and financial reporting. Take advantage of their specialized knowledge in e-commerce accounting and cloud accounting software to simplify your accounting processes and provide you with real-time, accurate reports on your financial health.