What is order fulfillment?

What is order fulfilment? It involves receiving goods and then processing orders to deliver them to customers. It begins with the customer placing an order and ends when they receive it. Order fulfillment handles the return transaction if the customer wants to return the product.

Here is a summary of the steps involved in order fulfillment:

  • Receiving inventory shipments
  • Stock storage
  • Processing of orders
  • Shipping
  • Returns processing

It can be costly and complicated to fulfill orders. While some companies manage order fulfillment internally, others outsource it to a 3PL or third-party logistics company.

Let’s look closer at the challenges and benefits of order fulfillment.

What are the different types of order fulfillment processing?

One component of the larger supply chain is order fulfillment. There are four types of order fulfillment.

In-House Order Fulfillment

A business can use its employees to manage fulfillment processes in the in-house ordering model. All fulfillment steps are handled by employees, including storing and shipping products at company-controlled locations. For established companies who want full control of the operation, in-house fulfillment is a great option. In-house fulfillment is a popular option for startups based at home, especially for small orders. Many move to hybrid or outsourced fulfillment as they grow out of their first space.

Fulfillment of Outsourced Orders

Outsourcing order fulfillment is when shipping, storing, and order/refund processing is handled by a third-party logistics (3PL) or order fulfillment company. This option is available to companies with insufficient storage space or staff. The 3PL’s employees manage the fulfillment process from beginning to end, from receiving inventory from the manufacturers to delivering the orders to the customer. The 3PL manages inventory, so companies using outsourced fulfillment do not need to build their warehouses.


Dropshipping is like outsourcing, except that there is no inventory to manage. The retailer does not keep an inventory of the products it sells. The retailer buys the item from a third-party supplier when it is sold. A supplier could be a manufacturer or a company that purchases products from manufacturers for dropshippers. Your supplier will handle all orders and ship them to you. Only the products that you sell are charged to your account. This option is common for startup and e-commerce retailers.

Hybrid Fulfillment

A hybrid fulfillment model is used if a company uses all of the above options for order fulfillment. A company might process custom orders or items that require assembly before shipping. However, they may also use dropshipping services to ship non-custom orders. Companies often use dropshipping for expensive or infrequently bought items. Dropshipping is a great option for companies that need greater flexibility or is experiencing rapid growth.

Why is order fulfillment important

Consumers today receive their orders within two days (or even the next day). Fast and reliable shipping is in high demand. If your order fulfillment process doesn’t work consistently or is not timely, it can be difficult to get shipments delivered on time, negatively impacting your business and your bottom line.

Look at these stats: 43% of customers will not shop with a retailer for at least one month after a bad delivery experience. Another 38% of customers say they will not shop with retailers again.

Customers’ buying habits can be directly affected by the availability of order fulfillment options. Customers desire delivery options that meet their specific needs. Customers want to choose between moderate and fast shipping options, depending on their time and budget. Companies that do not offer the best options could lose business before customers are willing to give them a chance. 58% say they have purchased from a company because they had more delivery options.

It is essential to meet customer expectations and provide prompt delivery and return services if you want to be competitive. You can optimize your order fulfillment process to:

  • Shipping costs can be lowered
  • Lower operational costs
  • Expand your customer base globally
  • Customer service can be improved
  • Focus on selling