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Order Fulfillment for Ecommerce: Definition, Process, Tips, and Tools

Ryan Baum
Ryan Baum
Last updated on 
November 25, 2022
June 7, 2022
Order Fulfillment for Ecommerce: Definition, Process, Tips, and Tools

Gone are the days when a customer places an order online without considering order fulfillment. They want free shipping, two-day shipping, and live order tracking — and that’s just table stakes.

Big ecommerce brands and marketplaces, especially Amazon Prime, have trained customers to expect their orders will arrive as soon as the next day and with absolutely no hassle. That creates challenges for small and medium businesses now tasked with achieving similar results.

Your ecommerce business may not have the resources for next-day delivery, but having online orders arrive quickly and smoothly is non-negotiable. Slow or frustrating order fulfillment can easily trigger a product return or a negative review, and will likely prevent a customer from turning into a repeat customer.

Even small brands can optimize their order fulfillment process, from taking in and storing inventory to taking return requests, and deliver great results every time.

What does order fulfillment mean?

Order fulfillment is the sequence of steps that starts after a customer places an online order, and ends when your customer receives their order. It includes order intake, order picking, assembling, packing, shipping, and order tracking

What does order fulfillment mean?

Some companies include post-delivery communications in this category, while others put that communication into another category, like customer support or onboarding.

All organizations rely on some third-party assistance within the order fulfillment process — even if you’re a solo business owner who handles most of the order fulfillment process in house (like inventory storage and order processing), you use a delivery carrier like FedEx or USPS to drop off packages. 

Other businesses lean on more outsourced fulfillment solutions to manage warehousing and ship orders, such as a dropshipping partner or third-party logistics (3PL) operation. Self-fulfillment is quite time-consuming for stores with high volumes of orders, so you’ll likely outsource more of the order fulfillment process as you grow. 

Common challenges of order fulfillment

Companies frequently run into several common hurdles when building an ecommerce fulfillment strategy, especially as they grow and scale. Processing more customer orders is a good thing, but only when businesses can keep up with customer expectations around their fulfillment needs. 

Top challenges of order fulfillment.

Do any of these order fulfillment challenges sound familiar to your business?

  • Poor inventory management: Frequently being out of stock (or, worse, selling items you don’t have in stock) hampers your sales potential and harms the customer experience.
  • Low shipping quality: When you hand packages off to a shipping carrier, much of the shipping process is out of your hands. Yet, customers still blame you when items don’t arrive or show up damaged.
  • Too much stock: Keeping too much stock on hand affects storage and carrying costs, and you can end up stuck with unsellable items that have gone out of style, out of season, or otherwise become unpopular.
  • Supply chain breakdown: When one or more links in your supply chain are unable to keep up with demand for inventory.

These issues are common, but they add up over time, diminishing your customer experience (CX) and growth potential. Building loyal customers is key to repeat business and a poor fulfillment strategy put that at risk. Every time a customer has to reach out about an issue in the process, you’re a step closer to losing them. 

Even if you have the fastest, friendliest customer service team around, a fulfillment operation that doesn’t require customers to reach out is always preferred.

Most customer service interactions do not drive loyalty.
Source: The Effortless Experience

📚Related reading: Our list of revenue-driving ecommerce shipping best practices.

Why is order fulfillment important for ecommerce businesses?

Why pay close attention to your order fulfillment strategy? Because it’s what ensures your customers get what they ordered, when they expect it. 

As many as 90% of online shoppers see 2-day and 3-day delivery as the standard, with 30% of shoppers saying that they expect same-day delivery. In fact, the same-day delivery market in the US is expected to grow by more than $9 billion from 2020 to 2025.

What’s more, Arvato finds that 54% percent of U.S. shoppers have walked away from a purchase because of the cost of delivery, and 27% percent have done the same because the ecommerce business didn’t have fulfillment options that arrive in time.

Providing a delivery estimate is also key. A 2020 report from Navnar found 68% of customers said estimated delivery time during the checkout process influenced their decision to complete a purchase.

The bottom line is that customers expect fast, cost-effective, and transparent shipping if you want to win their business and loyalty.

What customers expect from shipping in ecommerce.

How does the order fulfillment process generally work?

Let’s take a step back to the basics and look at how the order fulfillment process works for the typical ecommerce business selling on an ecommerce platform.

Each of these steps has its own set of intricacies and details, and it’s easy to overlook something in one or more of these areas. Looking at each step before getting any deeper in will help you better assess what your business needs to handle — and how to go about doing so.

1) Receiving inventory

Receiving inventory is the process of taking stock into a warehouse or fulfillment center. Before you (or your order fulfillment company) can ship products to customers, you (or they) must first have products to ship. 

Order fulfillment process step 1: receiving inventory

Depending on how your business is structured, inventory can come from your own production facilities, from other companies directly, or from third-party or intermediary services.

Part of the receiving process is counting and inspecting incoming stock for damage. Categorizing or labeling starts here and continues in the next step.

2) Storing inventory

Any products you don’t immediately process and ship need to be categorized, logged, and stored, usually using a stock-keeping unit (SKU). Some larger businesses may also use some other kind of barcode or radio-frequency identification (RFID) tracking system to help with inventory management.

Order fulfillment process step 2: storing inventory

Items are placed into inventory storage, either in your warehouse (whether that’s a large facility or just your garage) or in your fulfillment service center or third-party logistics partner’s warehouse.

This step encompasses a lot, as your strategy here dictates how much time and labor goes into finding and packing items later on. For example, digital inventory management systems are crucial for tracking and locating items stored in inventory.

3) Processing the order

Processing an order involves developing a system to find items, pull them from the inventory, and then pack them once a customer places an order. 

Order fulfillment process step 3: processing the order

This could look like you going to your at-home inventory and packaging the items, or your fulfillment partners taking your items from a warehouse. It all depends on the size of your business.

You can streamline and track order processing Gorgias and with apps that integrate into Gorgias such as ShipMonk and Bigblue. ShipMonk, for example, pulls order fulfillment data and tracking information right into Gorgias helpdesk.

There’s also ShipBob, a 3PL that takes care of order fulfillment for ecommerce businesses. ShipBob integrates with Gorgias to pull all your customer orders fulfilled by ShipBob into a single account.

4) Shipping the order

This step is when your team (or your 3PL) hands off the order to a transportation channel (for example, shipping carriers like FedEx, UPS, and USPS).

Order fulfillment process step 4: shipping the order

This is the step where your strategy most directly influences the costs your business incurs. The packing materials, weight, and sizes you choose get calculated into a measurement called dimensional weight (DIM weight), which generally determines how much you pay in shipping costs.

This is an opportunity to communicate shipping notices to the customer. AfterShip provides tracking for you and transparency for customers and integrates with Gorgias so you can quickly access shipping information when communicating with customers.

Providing detailed shipping information is a crucial step of your fulfillment process. According to Optimroute, 24.6% of customers said they were “extremely likely” to buy again from a brand that provides real-time order tracking.

Shipping is deep into the process, but your shipping options greatly impact your incoming sales. Shipping costs are the most common reason behind abandoned carts: According to the Baynard Institute, 48% of customers will abandon a cart if shipping costs are too high, and 22% will do the same if the delivery time was too slow.

Top reasons for cart abandonment.
Source: Baymard

📚Recommended reading:

5) Handling returns

Any ecommerce business must have a process for handling returns in place, and this crucial function usually falls under order fulfillment. Your returns procedures must establish when returns are and are not accepted, along with how to determine which returns can be restocked and which cannot (e.g., soiled or defective items).

Order fulfillment process step 5: handling returns

You need to be prepared for returns as they’re guaranteed to happen. In 2021, shoppers returned over 20.8% of products ordered,  according to the National Retail Foundation. Items returned in 2021 alone were worth a total of $761 billion.

Again, apps can make this all easier. Loop Returns, for example, automates returns for Shopify merchants. Loop and Gorgias work together to place all your returns data inside the Gorgias helpdesk. 

📚Recommended reading: 

The 4 types of order fulfillment

While the broad strokes we just outlined are fairly consistent, the details of order fulfillment are different from company to company, as are fulfillment costs.

Most businesses fall into one of four categories or types of order fulfillment. Below, we’ll detail each of these four categories: in-house order fulfillment, third-party order fulfillment, dropshipping order fulfillment, and hybrid order fulfillment.

In-house order fulfillment

In-house order fulfillment is what it sounds like — the business handles all the steps listed above internally (aside from the actual shipping). Employees or contractors for the ecommerce business receive and store inventory, pick and pack orders with a shipping label and packing slip, and handle the customer relationships that accompany each order.

In-house is common on two extreme ends of the spectrum: smaller, low-volume businesses and startups (where packing boxes doesn’t consume too much of any one person’s time), and major enterprises (think Amazon).

📚Recommended reading: How to Offer Free Shipping and Lift Revenue

Third-party order fulfillment

In a third-party model, everything about the order fulfillment process is outsourced to a third-party logistics company. Outsourcing to a third-party fulfillment provider like the Shopify Fulfillment Network, Amazon FBA, Amazon MCF, or Deliverr is a highly strategic choice for ecommerce businesses that have grown to a certain order volume but lack order fulfillment infrastructure.

Using an order fulfillment service also makes sense for firms with volatile or seasonal sales patterns, where maintaining as much storage space as possible is unsustainable during slower seasons.

📚Recommended reading: Shopify Fulfillment Network Review From an Ecommerce Merchant

Dropshipping order fulfillment

Dropshipping is when an ecommerce store doesn’t keep items in stock and, instead, sources products from a third-party manufacturer or wholesaler who  holds the items and ships them as needed. The store owner pays the wholesale price as items are shipped, removing the burden of keeping their own inventory.

This is different from the 3PL model, where the store provides its own inventory to the third-party provider, and different from when a store stores its own inventory.

It makes sense for D2C businesses that own their own manufacturing and want to keep order fulfillment in house. It also makes sense for ecommerce businesses that want minimal involvement in the fulfillment process. Essentially, the business forwards shipping details to the manufacturer, who takes over the transaction.

The downside to dropshipping is that it means giving up control of the order process. Additionally, costs (and shipping times) can shoot up quickly when customers are far away from your manufacturing partner’s shipping locations.

Hybrid order fulfillment

Hybrid order fulfillment is any scenario that combines multiple strategies. For example, a company with heavy seasonal sales might keep most order fulfillment in house, but outsource some to a third-party firm during Q4. Alternatively, the company may select high-value or specialty items for dropshipping, while everything else is handled another way.

Best practices and tips for an optimized order fulfillment process

Once you’ve determined a broad direction for your order fulfillment strategy (or identified some top-tier issues with your current process), it’s time to reevaluate and optimize. Use these best practices and tips to tighten up your order fulfillment strategy and further wow your customer base.

Streamline receiving processes so damaged goods are handled promptly

Returns handling is something no business wants to focus on, but it’s an important area nonetheless. 

Assess all incoming products before they’re sent to your inventory and set a process to separate and catalog those damaged goods. All damaged items should be documented so you can provide proof to the wholesaler or manufacturer of defective items.

Return damaged goods as soon as possible so you can get replacements and not slow down your order fulfillment. The last thing you want is to find a product that is damaged just as you’re packing it for shipment and be left scrambling.

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Organize your inventory and warehouse with efficiency in mind

If you’re handling your own inventory management and doing in-house fulfillment, keeping your inventory and warehouse organized can have a meaningful impact on your bottom line. When used in combination with an order fulfillment system, better organization can generate real results.

Searching for lost pallets is a resource drain that generates zero revenue. The right organizational strategy makes it easier for human or automated pickers to find the items, and can even reduce travel time between items. This is especially true as you scale organizational strategies across entire or multiple distribution centers — clear organization helps improve pick and pack times.

Even for small businesses, which may involve keeping inventory in a garage or office, it’s still important to have an organizational system in place. Simple tools like labels and a spreadsheet can go a long way.

Using a 3PL like ShipBob makes this all easier by taking inventory out of your hands, leaving you to focus on branding and customer service.

📚Recommended reading: An Essential Guide to Ecommerce Inventory Management

Automate processes wherever possible

Automation in warehousing settings requires substantial upfront investment and may even require rethinking your entire warehouse footprint. But wherever you’re able to implement it, automation can help save you money and time in the long run by optimizing labor, improving working conditions, and making operations safer.

Automation can happen in small ways, too. Using Gorgias and the apps that integrate into the helpdesk puts all your data into one place and makes it easier and faster to make decisions.

Adding an app like Alloy Automation makes your Gorgias admin even more efficient by pulling in tickets, daily shipments, survey data, and review information.

📚Recommended reading: Automate and Streamline Ecommerce Tasks While Keeping a Human Touch

Use order fulfillment software that integrates with customer service software

As your company grows, you’ll eventually turn to some kind of order fulfillment software. When you do, choose one that integrates well with your chosen customer service software — you don’t want siloed information systems that can’t talk to each other.

When your fulfillment software integrates with your helpdesk, you can see fulfillment data while answering customer questions. So, if a customer asks about the status of their order, you don’t have to pull open a new tab and copy/paste things like tracking numbers and estimated delivery dates. All of that is already in your helpdesk, making it much faster to provide helpful, personalized answers. 

NetSuite and Gorgias integration.

Source: NetSuite and Gorgias integration

NetSuite and ShipBob are two leaders in this category. The latter also offers some third-party logistics support.

Learn more about Gorgias’ multiple integration options.

Prioritize your inventory’s accuracy

From a customer’s perspective, which is worse? Seeing that an item is sold out before you order it, or ordering (and paying for) an item that’s listed as in stock, only to find out later that the item was not actually in stock?

Most customers would prefer the bad news upfront. Inventory inaccuracies create a host of customer frustrations that your business would surely prefer to avoid.

The math here is simple, even if the execution is complex: The more accurate your inventory, the more success you’ll have in delivering the right products on time.

Whether you’re using an in-house order fulfillment model or you’re relying on a 3PL partner’s distribution centers, using a warehouse management system is generally better than relying on manual data entry. This is certainly true as you grow or scale your ecommerce venture.

You also want to be sure to watch the right set of inventory management metrics, which can show you how well you’re doing at keeping an accurate inventory. These metrics will vary depending on your goals, but could include:

  • Backorder rate (rate of unfulfilled orders due to items on backorder)
  • Accuracy of forecast demand (compares on-hand quantity to the forecasted demand)
  • Lost sales ratio (number of days a product is out of stock compared to projected sales over that time)
  • Inventory shrinkage (inventory that you cannot find or cannot sell due to damage)
  • Fill rate (measures how many items were shipped compared to ordered)
  • Customer satisfaction score (number of positive responses against all responses)

If you’d like to learn more about these and other metrics, NetSuite has put together a solid explainer on 33 of the most important inventory management KPIs and metrics. Their guide explains all six of the metrics we’ve listed, plus several others.

Minimize package touching and handling

In general, it’s a good idea to limit the number of touches that each package gets (There are packing strategies that disregard this, such as wave picking, but we still consider it to be a best practice unless you have an overriding reason to choose a different strategy).

Why is it a good strategy to minimize touching and handling? Because of all the things that could potentially go wrong at every touch:

  • Product damage
  • Shrinkage
  • Employee injury
  • Packing mistakes (too many, not enough, or missing items)

Additionally, every touch is added time and energy expended on an item. You want to get items out the door with as little friction as possible, so engineer your processes in a way that minimizes touches and handoffs.

Keep enough inventory to keep up with demand

This best practice circles back to demand forecasting, which is always a complex element for ecommerce retailers. You want to keep enough inventory on hand to keep up with customer demand, because delivering on time and reducing stockouts are two primary ways to increase customer satisfaction.

Of course, you don’t want to overdo it and end up with excess or even dead inventory. Keep your inventory levels modest, yet sufficient — always have enough to deliver on time, but remain agile enough that you don’t end up with pallets upon pallets of product sitting around that cannot be sold.

Regularly assess your orders for what items are most popular and keep an eye on key calendar dates — like Black Friday and the holiday season — to predict how much inventory you’ll need.

Use an RFID system to enhance analytics

If you’re not relying on a third-party order fulfillment system and you’ve reached a certain size and complexity, consider implementing a radio-frequency identification (RFID) system for tracking inventory. 

RFID is a technology that uses tags and a reader device to track inventory in an automated way. It’s a way of providing real-time tracking for your inventory. Learn more about RFID with this Luluemon case study:

https://youtu.be/cZfx2naKYXo

Such a system far outpaces traditional systems for tracking and managing inventory, and it unlocks additional levels of analytics that can give you a better understanding of your inventory.

When doing inventory at scale, better data means better decision-making, which can filter through all levels of your supply chain.

Be clear with your shipping options

Unless you offer pick-up or can deliver orders yourself, such as in a local delivery area, you’ll be relying on a shipping carrier such as USPS, FedEx, or Purolator.

Customers want clear shipping times and flexibility. Do your research to understand which shipping partner will best suit your needs and communicate their various options to your customers, who may be willing to pay more for shipping if it means a faster delivery time.

The same is true if you’re using a third-party fulfillment partner. Ensure they can meet your shipping expectations, keeping in mind the average customer expectation for online delivery is three days

Another way to achieve this is with good coverage. Ideally, a fulfillment provider has enough warehouse locations to cover at least 95% of the US, for example.

Native Union, a tech accessory brand, lets customers input their shipping zip code to estimate the cost of each delivery option before they place an order:

Estimate shipping costs.
Source: Native Union

Make returns and edits a simple process

Your customers want a simple returns process, as do your in-house order fulfillment teams.

There’s strategic value in instituting a transparent returns process that’s easy for your customers to understand and use when they need it. Don’t forget about the back end, either. Your internal teams are just as important to your continued order fulfillment success, so make sure the process for handling returns is simple to execute.

Start by setting expectations for returns and exchanges ahead of time with a FAQ or Help Center page that clearly outlines your return and refund policies.

Then, streamline the returns process with the following recommendations:

Use self-service order management to let customers cancel orders and request returns

Make it as easy as possible for customers to initiate cancellations or request returns, saving time for both them and your customer service team.

Use Gorgias’ Automation Add-on to create a self-service portal that customers can use for these processes. Instead of waiting for an agent to help, customers can use the chat widget on your ecommerce website to:

  • Track the status of their order
  • Return an order
  • Report issues
  • Cancel an order
Self-service order tracking and management with Gorgias.

For any ecommerce business, these are the top reasons customers reach out or file tickets, cluttering your dashboard. Letting customers take care of these processes themselves streamlines your workflow and builds customer satisfaction.

Use a tool like Loop to fully automate the returns and exchanges

Loop is a returns app that allows a customer to initiate a return or exchange all on their own without having to wait for your customer support team. With Loop, customers can see which of their items are available for return or exchange or select a new item or size for replacement.

Loop helps with customer retention by offering an exchange or bonus credit rather than an outright return, giving customers a chance to stay a customer. Loop then provides you with data so you can get insights into where customers may be running into issues with your products.

Automated returns with Loop Returns.
Source: Loop


And best of all, Loop fully integrates with Gorgias so you can see all those return and exchange details in one place. Read how Kulani Kinis saved $400,000 in refunds using Gorgias and Loop together.

📚Recommended reading: 10 Ways To Reduce Ecommerce Product Returns With Great CX

Enhance your ecommerce order fulfillment process and customer service with Gorgias

Ecommerce businesses benefit when they get intentional about their order fulfillment strategy. By leapfrogging past common hurdles like poor inventory management or poor shipping experiences, businesses can strengthen customer relationships and continue to grow.

The best practices and tips we’ve provided here can get you well on your way to improving your order fulfillment strategy. But in the end, you also need the right tools and apps to round out your inventory and customer service abilities.

Gorgias can transform how you empower your customer service team with better helpdesk and customer service tools tailored to the needs of ecommerce businesses. 

Plus, Gorgias integrates with all the top ecommerce platforms, shipping and fulfillment software, and other ecommerce apps used by businesses like yours to simplify essential services like order management.

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