Order fulfillment strategies

When discussing order fulfillment strategies with new clients, we were surprised when several listed our services as a 3PL as a “strategy.” In fact, a subsequent googling of “order fulfillment strategies” will provide several articles that list various order fulfillment models as strategies. 

For readers unsure of what we’re referring to, here’s a quick breakdown:

The public confusion here shouldn’t be especially surprising for those of us who have been in the industry for years; fulfillment is complicated, and there is plenty of overlap between strategies and models. For example, both omnichannel and distributed models can use either a 3PL or an in-house model. 

For a quick overview of various order fulfillment strategies and the models they typically include, consult the table below:

Omnichannel order fulfillment strategies

Businesses looking to create a seamless customer experience across multiple marketing and sales channels will want to consider an omnichannel fulfillment model. This option links all channels through a high-quality Order Management Software (OMS) that coordinates picking, packing and shipping practices to provide customers the same experience regardless of whether they ordered via mobile, website or marketplace. 

Omnichannel order fulfillment strategies typically look like this: 

Regardless of which fulfillment node is used, an omnichannel order fulfillment strategy ensures that all picking, packing and shipping practices remain the same, ensuring that the customer receives the same package regardless of where it comes from. 

Omnichannel strategies have several models through which they can be implemented (e.g., 3PLs, in-house models and BOPIS). The sections below outline each.

Third-party logistics (3PL)

A third-party logistics (3PL) model is when a company outsources their fulfillment needs to an experienced third-party with an existing fulfillment infrastructure (e.g., warehouses, equipment and software) in exchange for payment, typically either a flat rate or cost-plus pricing.

3PL order fulfillment is customizable to the needs of individual clients — in fact, most of the order fulfillment strategies discussed here can be implemented through a third-party — however, the general process looks like this:

3PLs typically focus on ease of use for the client, who gets to hand off their work to the 3PL in exchange for paying them an agreed-upon price. The 3PL then handles inventory management, picking/packing/shipping and delivery using their existing order fulfillment infrastructure.

• Working with a 3PL is an effective order fulfillment strategy for a wide variety of companies.
• Companies without existing order fulfillment infrastructure
• Companies seeking to scale up or down quickly
• Companies seeking an omnichannel fulfillment or distributed warehousing strategy
• Companies who are comfortable with having a smaller degree of control over their fulfillment

In-house

In-house fulfillment models are often a smaller company's first option due to the low cost associated with a small fulfillment operation. This model consists of a company using their own resources — staff, equipment and technology — to fulfill orders without the use of a third-party. 

This creates a highly tailored fulfillment process consisting of:

As companies grow, however, in-house fulfillment models become more difficult to manage as the cost of purchasing your own warehouse, improving existing equipment and hiring more specialists grows.  This makes in-house models more useful for:

• Companies with highly-personalized branding
• Companies seeking greater control over their fulfillment
• Smaller companies operating on a limited budget that DON’T need comprehensive fulfillment
• Larger companies ready to handle the high upfront costs of high-volume fulfillment

Buy online, pick up in store (BOPIS)

Buy online, pick up in store fulfillment models provide a bridge between digital sales and brick-and-mortar establishments, allowing legacy businesses to maintain a storefront while remaining competitive in the online marketplace. 

Fulfilling an order with a BOPIS model looks like this:

BOPIS models carry the added benefit of in-store extras; customers are more likely to do some additional shopping when they come in to pick up their order, resulting in further revenue for the company. This model does, however, come with the caveat that not all customers will use it, meaning it is highly unlikely to function as a standalone model. 

This means that companies seeking a BOPIS model are typically:

• Existing local/regional chains seeking an online component to their fulfillment 
• Large retailers leveraging their network of stores for easy pickup

Distributed order fulfillment strategies

Where omnichannel fulfillment strategies spread fulfillment across multiple channels, a distributed order fulfillment strategy distributes inventory across physical locations to ensure faster shipping and reduce last-mile delivery costs.

Distributed order fulfillment strategies utilize the same models as their omnichannel counterparts; a 3PL can handle a distributed strategy on your behalf, or you can use your own team and resources — assuming you have what the strategy requires — and orders can be delivered to your storefront from the nearest distribution hub, making BOPIS an excellent strategy as well. 

The central difference is that while an omnichannel fulfillment strategy creates multiple channels to order from, distribution strategies create multiple centers to source inventory from. In that context, it’s possible to combine the two in a hybrid model, as discussed further below.

Lean order fulfillment strategies

For companies looking to minimize inventory holding costs or capitalize on storage space, lean strategies (and inventory-light strategies, discussed further below) often make the options. 

Lean order fulfillment strategies consist of keeping a small amount of raw materials necessary for the production of parts available for when orders come in, but only replenishing those materials as they are used. There are a few variations, but the process looks generally like this:

These strategies allow companies to reduce waste in their production line, cutting down on overstocking or dead stock while encouraging a more efficient production & forecasting process. This does come at the expense of sensitivity in the case of demand spikes and supply chain disruptions, which typically results in lean order fulfillment strategies being used by:

• Companies with resources for precise coordination and timing
• Companies with stable demand that experience minimal fluctuations

Just-in-time (JIT)

Just-in-time (JIT) order fulfillment refers to a model of lean strategies in which materials are ordered for fulfillment only once the order has been placed, effectively turning it around just in time. 

The typical process for JIT fulfillment looks like this:

JIT keeps inventory and storage costs low by not keeping materials on-hand, however, this can result in longer delivery times and vulnerability to supply chain disruptions. As a result, JIT fulfillment is typically used by:

• Custom order shops (e.g., custom furniture, automotive manufacturers)
• Companies with typically high inventory costs
• Companies where holding excess stock can be particularly dangerous (e.g., food & beverage, medicine)

Inventory-light order fulfillment strategies

Inventory-light order fulfillment strategies outsource the production of products to a third-party while keeping the order management under your control. This removes the need for warehousing and eliminates inventory costs for companies seeking a budget-friendly solution.

The process for inventory-light order fulfillment strategies follows a similar pattern, regardless of which model you use it. Generally speaking, it looks like this:

The most common form of this is drop-shipping, which has become particularly popular in the last decade. The central difference between dropshipping and other forms of inventory-light management is in the level of control and customization in the process, as described in the table below:

Order fulfillment strategies are critical, but — as the sections above imply — who implements them and how is similarly important. 

The table below catalogs a few order fulfillment models. To make things easier, we’ve included columns detailing what strategies each model is typically used with as well as what kind of company makes the best match.

Hybrid order fulfillment strategies

Depending on the needs of the company, it may be prudent to combine different strategies; for example, a retailer with a central line of inventory items and the occasional specialty item may consider supplementing an in-house fulfillment model with dropshipping to handle additional loads on their fulfillment. 

These strategies provide companies with a great deal of customization, however, that customization comes at the expense of needing more intensive inventory management and a greater level of scrutiny to ensure that you are not overpaying. Companies considering one of these strategies may want to consider looking at professional management for omnichannel fulfillment strategies.

In-house order fulfillment strategies 

If you intend on working with a 3PL, the more granular aspects of your order fulfillment strategy will be handled by their in-house staff. Assuming you prefer to do this on your own, here are a few things to consider about running your own warehousing strategy. 

Any of these techniques can be used in conjunction with your larger order fulfillment strategy. For example, ABC slotting is just a generally good practice regardless of whether you have an omnichannel strategy using a BOPIS model or a distributed strategy through an in-house team.

Tips to improve your order fulfillment strategy

The important thing to remember about your order fulfillment strategy is that it needs to fit your company. As you consider your options, consider the following to improve your fulfillment:

• Optimize inventory management
• Institute standardized checks before shipping
• Tend to relationships with shippers
• Automate processes where possible

Finally, consider working with an expert. We’ve said a couple times that order fulfillment is hard, and we meant it; even experienced in-house teams make mistakes when trying to prep and execute their own strategy. Working with a 3PL like Cart.com provides clients with instant access to a nationwide network of distribution centers, custom software designed to handle every aspect of your logistics and experienced personnel to help you meet your goals.

Get started and contact us today.