There are many stages an order must pass through that involves software systems and physical systems. It’s no wonder companies large and small are contracting out this function to specialized order fulfillment services providers. Use this Business.com to help to choose a basic or advanced order fulfillment service.

1. 1
Business.com
Guide to Order
Fulfillment Services

2. Legal Notice:
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3. Contents
Steps in Order Fulfillment 4
Benefits of Using an Order Fulfillment Service 6
Basic Order Fulfillment 10
Advanced Order Fulfillment 13
Order Fulfillment Software 15
Pricing Order Fulfillment Services 17
Top Tips for Order Fulfillment 18
Business.com Checklist for Order Fulfillment Services 20
Glossary of Order Fulfillment Terms 22

4. 4
Steps in Order Fulfillment
Shipping on the surface seems like a relatively simple
problem, but when you have to send 4,000 boxes all over
the world, it becomes this amazingly complicated task.”
David Carr, co-founder of Twine, in CrowdCrux
Broadly speaking, order fulfillment comprises the process in receiving,
processing, and shipping a customer order. More specifically, order fulfillment
entails the following steps, roughly in chronological order:
1. Maintaining inventory.
2. Responding to a sales order to determine availability and location in
inventory.
3. Confirming pricing.
4. Configuring the order (if there is more than one piece or product).
5. Booking the order (placing a request into the inventory system for what
is ordered).
6. Acknowledging and confirming the order is booked.
7. Invoicing/billing the customer.
8. Determining the shipping address where the item will be sent.
9. Sourcing the order – determining which facility to ship it from.
10. Determining which carrier will be used to ship the item.

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11. Issuing order changes initiated by the customer after-the-sale,
substituting for pieces no longer in inventory, or updating the order with
newer pieces in inventory.
12. Processing the order – the physical picking and packing of the order at
a warehouse or distribution center.
13. Shipping the order, which may go directly to the customer or to one or
more distribution points.
14. Delivering the order to the customer.
15. Settling, receiving, and processing payment for the received order.
16. Handling returns of unacceptable or damaged goods by either refilling
the order or refunding the customer.
17. Updating inventory.
Now that’s a lot of steps! We tend to take them for granted, or bundle them
together under a term like “shipping,” but there are many stages an order must
pass through that involves software systems and physical systems. It’s no wonder
companies large and small are contracting out this function to specialized order
fulfillment services providers.
There are many stages an order must pass
through that involves software systems and
physical systems. It’s no wonder companies large
and small are contracting out this function to
specialized order fulfillment services providers.

6. 6
Benefits of Using an Order
Fulfillment Service
T
here are a number of advantages to outsourcing all or part of the
order fulfillment process. This outsourcing option is particularly
attractive for merchants with only an online store that lacks warehouse
and distribution facilities. Even established “brick-and-mortar” companies
will contract with order fulfillment services to reduce infrastructure costs and
improve operational efficiency. The benefits include:
¾¾ Seasonal and Sales Fluctuation Flexibility. While no one should
complain about selling more than anticipated, there are headaches
associated with unforeseen surges in sales and seasonal rushes. To
adequately respond to higher than normal ordering, additional workers
are hired, more capital equipment is purchased, possibly even extra
warehouse space is leased to ensure timely and proper fulfillment. The
problem is, what happens when sales inevitably trend down to “normal”
levels, and you have these extra workers, equipment, and square footage
you no longer need?

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A fulfillment services company eliminates the need to hire, train and
manage workers, and purchase equipment and space. When sales are
up, the fulfillment services company manages the surge. When sales
decline, there’s no idle equipment, no temps or excess employees to
let go, and no costs for empty shelves. All you need to worry about
is providing the fulfillment services company with your product at the
levels that are necessary to meet current demand. The order fulfillment
services company worries about the rest.
¾¾ Lower Shipping Costs. No one likes to pay for shipping, so it’s a great
marketing tool to offer free shipping. However, no shipper is going to
send your goods to customers for free. So how do companies afford
to offer free shipping? Warehouses and distribution facilities located
strategically around the country significantly lower shipping costs to the
point where it becomes economically feasible to offer customers free
shipping. But if you’re not big enough to maintain facilities throughout
the country, what do you do? Contract with an order fulfillment company
that does have a regional/national/international infrastructure in place
and take advantage of bulk delivery discounts that most order fulfillment
companies can offer because of that scope.

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¾¾ Grow New Markets. Looking to expand, but holding back because you
lack the infrastructure to ship overseas or even west of the Mississippi?
An order fulfillment services company can extend your reach without
undue capital investment. And should dipping your toes in some new
market waters prove not worth getting completely soaked, you haven’t
spent the same amount of money and resources you would have if you
went about it alone.Your order fulfillment services partner supplies the
infrastructure and scales it over time to grow as your business grows,
without your commitment to high and potentially risky new overhead.
¾¾ Eliminate Fixed Costs. The cost of carrying inventory rises when
sales are flat or in decline, but you still pay the same rent and utilities
for warehouse space. By contracting with an order fulfillment services
company, your fixed cost is now a variable cost. When business is slow,
your order fulfillment costs go down. Of course, they also go up when
business improves, but that’s a price well worth paying and not one you
need to maintain when it’s not necessary.
¾¾ Focus on Your Core Competencies. The logistics of order fulfillment
can be complex. If it’s not your area of expertise, or if you find you are
unable to hire the right people for the job, an order fulfillment services
company may be just the thing.You worry about making your product
and making it better, and hire someone else to do all the stacking and
packing that they can do better than you.

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¾¾ Differentiate Your Brand. What seems a rather mundane and routine
process is actually an exciting opportunity to stand out from your
competition. As Jeff Dahltorp, vice president of Fifth Gear, explained to
Retail Solutions Online:
Rather than looking at order fulfillment as a commodity
back end process, retailers should tailor their fulfillment
strategy to capitalize brand awareness.Take a look at
the target audience and find ways to deliver goods in a
way that stands out from the crowd... Retailers can tap
into resources of the [order fulfillment] vendor to achieve
economies of scale, thus increasing the cost advantages
of offering customized fulfillment [such as] personalized
embroidery, specialty merchandise handling, promotional
inserts, gift wrapping, and product photography.”
Rather than looking at order fulfillment as a commodity
back end process, retailers should tailor their
fulfillment strategy to capitalize brand awareness

10. 10
Basic Order Fulfillment
A
ll order fulfillment services worthy of the name will provide certain
standard services and at competitive prices as there is a great deal
of competition in the order fulfillment industry. You should expect to
find these basics offered by every vendor you’re considering:
¾¾ Storage Facilities. Inventory is often stored in warehouses or other
storage facilities.Your inventory might require special storage facilities,
such as a refrigerated warehouse or hazardous-material storage.
¾¾ Shipping Facilities. The ability to package items for shipment, including
providing packing materials, boxes, tubes, tape, labels, and scales.You
might require a service that has its own delivery vehicles.
¾¾ Inventory Tracking. This is usually a computerized system. Often
inventory is tracked with bar codes, or Universal Product Codes (UPC
numbers), that are scanable. Advanced systems include RFID (Radio-
frequency identification) tracking by using tags on the inventory that
communicate continuously with sensors throughout the storage and
shipping facility.

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¾¾ Order Entry. Recording requested goods, either manually or via
real-time system, to trigger the packing and shipping of goods to the
customer. This includes the ability to change orders, which is necessary
to ensure the accuracy of an order or to respond to customer requests.
¾¾ Order Accuracy. An industry-standard measure of the rate of accurate
fulfillment, it’s the percentage of times an order is filled correctly. No large
fulfillment service has a 100% rate of order accuracy, so if you hear that
you should be suspicious.
¾¾ Packaging Services. Proper packaging reduces breakage, which
can cause customer dissatisfaction and higher operating costs to
process returns.
¾¾ Service Level Agreements. Industry-standard measures of performance
often guaranteed by order fulfillment services. Includes “dock-to-stock,”
which is the time it takes from product reception to the time it is placed
in “pickable” inventory. An industry standard is 48 hours, but the shorter
the better. The “fulfillment time” is the period from when a customer order
is received until it leaves the warehouse or distribution center. To some
extent, the fulfillment time is chosen by the customer.

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¾¾ Electronic Data Interchange (EDI). A standard for exchanging order
information between computer systems including invoices, shipping
forms, and other documents.
¾¾ Shipping Discounts.Your order fulfillment services company should
have strong partnerships and be able to obtain volume discounts from
major shipping carriers (FedEx, UPS, and USPS).
¾¾ Returns Processing. The returns process is a way to turn a negative (“I
didn’t get what I ordered.”) into a positive (“I didn’t get the right thing at
first, but they corrected the problem quickly and professionally, and I’m
now satisfied.”). All fulfillment services should have the ability to process
returns and you should not be charged for errors made by the service.
The returns process is a way to turn a negative (“I
didn’t get what I ordered.”) into a positive (“I didn’t get
the right thing at first, but they corrected the problem
quickly and professionally, and I’m now satisfied.”)

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Advanced Order Fulfillment
B
eyond the basics, your unique order fulfillment requirements might
dictate the purchase of advanced services. You may be limited in the
number of firms that offer such services and therefore in less of a
position to bargain. Here are some typical special needs:
¾¾ Kitting and Assembly: Creation of product kits by assembling
component parts and products and shrink-wrapping the items into
custom packaging. This process is frequently used for special gifts,
promotions, and retail displays.
¾¾ Unusual Merchandise. The specific demands of your product may require
certain equipment, processes, and expertise. Fashion merchandise, for
example, is handled differently than electronics.You may have to pay more
to find an order fulfillment service that has handled similar products or has
the capacity to accommodate your needs.

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¾¾ 3PL: Third-Party Logistics. This is a kind of “super” order fulfillment
company that supports complex supply chain management. 3PL
companies provide integrated warehouse, distribution, packaging,
inventory management, and transportation services customized and
scaled to specific customer requirements. The 3PL typically has an
extensive and highly sophisticated IT (information technology) system
to effectively manage costs. 3PLs frequently compete less on their
capabilities of the physical assets, but on the capabilities of their IT
systems to improve cost-efficiencies.
¾¾ Advanced Partnerships. Because fulfillment involves so many
different steps, it helps to use a vendor that has solid relationships with
companies that provide ancillary services that can help your business
grow, such as online marketing and database management.
3PL companies provide integrated warehouse,
distribution, packaging, inventory management,
and transportation services customized and
scaled to specific customer requirements.

15. 15
Order Fulfillment Software
I
ntegral to any order fulfillment service is the software used to automate
the time-consuming tasks of warehouse and inventory management,
order processing and fulfillment, and shipping and tracking. The order
fulfillment services company should offer systems that easily integrate with
your existing IT infrastructure to provide seamless and secure, easy-to-
access, detailed, real-time, on-demand reporting on where and how orders
are processed throughout the supply chain.
Every vendor has its own twist about why its software is better than someone
else’s. While you aren’t overly concerned with the internal processes the
company performs to provide your order fulfillment services, you do want the
capabilities to:
ƒƒ Create new orders
ƒƒ View, search, and edit existing orders
ƒƒ View inventory
ƒƒ Forecast inventory levels
ƒƒ Receive inventory alerts (e.g. low stock levels, out-of-stock notifications)
ƒƒ Check/verify returns

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ƒƒ Integrate your e-Commerce shopping cart or other ordering system
ƒƒ Manually enter orders as needed
ƒƒ View invoices
ƒƒ Run reports
ƒƒ Receive email alerts on order statuses
Most commonly, the order fulfillment services company provides an online
dashboard that allows you access to their software. All you need is a computer
and an Internet connection. More complex situations may involve direct
integration into enterprise-wide software architecture.
Most commonly, the order fulfillment services
company provides an online dashboard that
allows you access to their software.

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Pricing Order
Fulfillment Services
P
ricing varies according to the order
fulfillment services company and the extent
and range of services it provides.
While some may negotiate a short- or long-term contract, typically the agreement
is fee based and dependent on the number of individual units of product shipped,
the volume of expected ordering, and/or the product price. In many cases, the
fee is negotiable.
Typically the agreement is fee based and dependent
on the number of individual units of product shipped

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Top Tips for Order Fulfillment
¾¾ Look for a vendor with warehouse and distribution facilities that can
most effectively reach your customers. Request shipping zone maps
to determine what portion of your customers are likely to receive next-
day service.
¾¾ Be clear about who is responsible for insuring your inventory in transit to
the fulfillment service, while held by them, and in transit to the customer.
The fulfillment service should be the one on the hook for any damage to,
or loss of, inventory while in their possession.
¾¾ How does the order fulfillment services company “gear up” for seasonal
spikes? What contingency plans are in place to handle higher than usual
ordering? How have they addressed this issue in the past?
¾¾ Ask if the pick and pack costs include the cost of handling returns.You
don’t want to be charged for restocking returns or refilling orders when
the error was made by the order fulfillment service and not by you or
your customer.

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¾¾ Does the order fulfillment services company understand your brand and
how best to present it? On the blog QuietLogistics, J.R. Siegel writes:
The way your product is packaged, wrapped and
presented is the first thing customers will see when your
orders arrive on their doorsteps.When customers tear
off the packaging tape and open their orders, they’re
generating subconscious feelings about your brand. If
your products are packaged haphazardly, consumers
will feel deflated. No one wants to get a $300 dress in a
$0.10 cent package. But if orders arrive looking pristine,
customers will be wowed.”
The way your product is packaged, wrapped
and presented is the first thing customers will see
when your orders arrive on their doorsteps.

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Business.com Checklist for Order Fulfillment Services
My Needs Vendor 1 Vendor 2
General Services
Free shopping cart integration
Web-based dashboard
24/7 access
EDI-compliant systems
Inventory storage
SKU labeling and bagging
Inventory management
Setup costs
Base fee
Sliding scale contract
Per item/order no contract
Service Level Agreements
Dock-to-stock
Fulfillment time
Pick and Pack Services
Bar code (UPC) tracking
RFID tracking
Pick and pack costs
Dunnage materials used
Dunnage material costs
Packing list customized to order
Gift wrapping
Product embroidery/personalization

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Email order confirmations
Custom packaging
Real-time reporting
Minimum order requirements
Kitting and assembly
Multiple retailer support
Cross-docking
Order Shipping
Domestic
International
Shipping method (train, truck, air)
Discounts
C.O.D. collection
Customer shipment tracking
Laser printing
FedEx, UPS, USPS agreements
Agreements with other shippers
Support
24/7 Internet ticket system
800 call center
Returns processing
Custom IT
Returns refurbishment
Mail services
Digital product photography
Contract length

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Glossary of Order
Fulfillment Terms
3PL: Third-Party Logistics. This is a kind of “super” order fulfillment company that
supports complex supply chain management.
Allocated Inventory: Reserved for a specific order, customer, promotional
event, or other special need, and cannot be used to fulfill “regular” orders. Once
allocated, stock should not appear as inventory available for new orders.
Bar Code: Scanable UPC (Universal Product Code) representing a unique
identification used to track product location and status.
Accessorial Charge: Expense to provide extra services beyond normal order-
processing and shipping services.
Cross-Docking: Unloading product directly from incoming transport onto
outbound transport with little or no storage in between. Also used to describe
combining material from different origins onto transport vehicles (or into
containers) with the same or similar destination.

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Dunnage: Material used to protect freight, such as cardboard, Styrofoam
peanuts, or air pillows.
DC: Distribution Center. A warehouse located strategically near transportation
lanes to facilitate cost-effective shipping.
EDI: Electronic Data Interchange. The computerized exchange of
ordering information.
FIFO: First-In, First-Out. An accounting practice in which the first products
received are used to fulfill orders; the opposite of LIFO.
Freight Bill: An invoice for transportation charges generated when an order
is delivered.
Handling Charge: Fee for labor involved to move goods in order to assemble
an order for shipment.
Intermodal: Using two different forms, or modes, of transportation, e.g.
truck and rail.
LIFO: Last In, First Out. An inventory management method in which the oldest
items in inventory are selected first to fulfill an order.

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Pick and Pack: Location and (if required) assembly of product(s) packaged
for shipping.
Kitting: Assembling component parts and products into custom packaging.
Lot: Product grouping that shares the same manufacturing run or date.
Lot Number Traceability: The ability to locate items according to their
lot numbers.
Master Carton: Large package used to hold smaller packages and use of one
master carton reduces handling of multiple small pieces.
RFID: Radio-frequency identification (RFID) is the wireless use of radio-
frequency electromagnetic fields to automatically identify and track tags attached
to inventory.
Shipment Release: The order has been packed and staged for shipment, but is
not yet in transport. The order can be modified if requested, though this is not a
best practice.
SKU: Stock Keeping Unit. It’s a unique code that identifies a particular inventory item.
SLA: Service Level Agreements. Usually includes two key metrics: “dock-to-
stock” and “fulfillment time.”
WMS: Warehouse Management Services.