After surveying over 3,000 etailers and retailers in late 2021, Cin7 discovered that product sellers who outsourced their logistics to a third party (3PL) provider were 30% more likely to increase profitability. As an added value to you, we’ve included a link to another blog article that explains how to work successfully with a 3PL.

Returning to our main subject here, read on to learn about the order fulfillment process, its strategies, and how to optimize the entire process.

What is the order fulfillment process?

Order fulfillment encompasses receiving, storing, processing, managing, picking, packing, and shipping products to the customer or a retailer in response to an order that has been placed.

Order fulfillment can also be defined as a sequence of steps involved in processing an order to the satisfaction of the customer and making the necessary changes in the inventory records. It may also include the processing of returns and re-adjustment of the records.

Order fulfillment process

The steps of the order fulfillment process are receiving, picking, packing, and shipping. So, let’s go through them one by one.

Receiving

Order fulfillment starts from the procurement of stock to sell. As soon as the products you have ordered reach your warehouse, receiving and storage begins. Receiving includes the unloading of the inventory, documenting it, and putting it away in the warehouse and allotting a serial number and SKU.

Picking

Picking begins when a picklist is created and continues through to picking the correct products in the correct quantity, in good condition and forwarding the order on to packing.

You can also click on the title to know about picking strategies in detail.

Packing

After the picked products reach the packing station, a specialized table, the products are packed, sorted, and barcoded before dispatching for shipment.

You can also click on the title to know about packing procedures and packing stations in detail.

Shipping

Shipping is an essential part of order fulfillment, and one needs to choose an efficient shipping partner that is affordable, safe and fulfills the order in less time so that you can compete in today’s ecommerce market. Make sure that your shipping partner also provides a convenient return process because this is where you can reclaim a lost customer who might be angry about a problem delivery.

Strategies to optimize order fulfillment

The level of competition each ecommerce company faces is enough to understand that no matter how good your sales are, you still need to optimize your order fulfillment process using different strategies. The write-up ahead will give you an insight into some of the very effective ways to increase the productivity of your order fulfillment process.

Use automation to reduce errors and increase perfect order percentage

Warehouse and inventory management software that automatically calculates, manages, analyzes, and prepares reports about inventory & warehouse performance are very helpful in reducing the discrepancies and losses. Moreover, machines powered by automation like cobots, AGVs, articulated arm robots, Goods to Person, and AS/RS (automated storage and retrieval system) can be used to move, manage, and store fast-moving products in a quicker way to fulfill the orders.

However, managing fast-moving products is not the only thing you have to do to optimize your order fulfillment process. You also need to optimize your medium and slow-moving inventory so that you don’t overstock them, miss the opportunity to sell them, or let them expire or depreciate.

The benefits of using automation in order fulfillment are:

• Save Space – You can save between 30 and 85% of floor space using the vertical cube of a warehouse.
• Enhanced Throughput – Boosts order turnover and increases the cut-off time.
• Better Productivity and Accuracy – Automated machines like pick-to-light systems boost picking rates by 600 percent, reducing labor costs and errors.
• Improved Inventory Control – You have full control of your inventory because all the tasks are completed on time with fewer efforts. Moreover, you have all the information about inventory status in real time.
• Improved Ergonomics – Employees don’t have to bend and reach for products because the machines hand them the products at the correct height called the “Golden Zone,” which is waist-high.

The process of arranging inventory in a way that each SKU is stored in the most appropriate warehouse is called the slotting process. This process is a crucial part of warehouse management that makes a huge impact on the order fulfillment process. The slotting process aims to achieve:

• Increased proficiency and productivity
• Balanced workflow
• Smart space utilization
• Enhance inventory accuracy
• Minimize parts handling
• Better worker ergonomics
• Decreased search time to find a product
• Reduce travel time to product

You can purchase slotting software, or you can include this in your warehouse management software (WMS). Slotting needs a lot of inventory data, so it’s always recommended that your WMS includes slotting software. However, if you are using Excel, make sure you have the following information about your inventory.

• SKU hits – number of times a product is picked
• Pick quantities (number of SKUs picked per order)
• Number of pallets, broken case, and cartons of each SKU
• Total SKU quantity, reorder quantity, and reorder point.
• SKUs that are frequently picked together
• SKU numbers and descriptions
• SKU sizes and weights
• SKU picking methodology

Slotting of products should be done according to the pick velocities of each SKU. Fast and medium moving SKUs should be kept in a more accessible location. Furthermore, determine the storage location for each SKU by considering the weight, height, breadth, and volume of each type of SKU along with the type of equipment necessary to pick the products. For instance, by hand, fork truck, ladder, or scissor lift.

Classify your inventory

Inventory needs to be classified in a warehouse to make the order fulfillment process error-free and fast. Customers want their products as quickly as possible, with companies promising same-day shipping to same-day delivery the fulfillment game is getting very competitive.

Classify inventory by its picking velocity (fast-moving, slow-moving, very slow-moving, and medium moving). Group similar size and types of products, picking cost, and inventory value. You can group the fast movers, slow movers, and medium movers and plot their movement against time to get the picking to cost you are incurring for moving each SKU.

You can also classify inventory based on the value of products. According to the Pareto Principle or 80-20 rule, 80% of the effects come from 20% of the causes. This means that 20% of your inventory is responsible for 80% of the company’s sales.

Therefore, with the help of the Pareto Principle, you can perform an ABC analysis:

A – it’s the 20% of the total products and constitutes for 80% of sales

B – it’s the 30% percent of items and is responsible for 15% of sales

C – it’s the remaining 50% of the inventory that brings in 5% of the revenue

Understandably, many companies tend to focus their picking optimization efforts entirely on the products lying in Fast Movers or the A group, which brings in 80% of the revenue. Never ignore the remaining inventory because it’s the remaining 80% of the stock that if appropriately managed, can improve efficiency, the bottom-line, throughput, and lower inventory costs.

Design and follow processes and workflows

There is always a need for flawless picking methodologies that improve the order fulfillment process, increase throughput, and reduce efforts. You can rely on many picking methods in line with your needs.

Zone picking – The warehouse is divided into different zones, and pickers are assigned those zones. Pickers need to pick products from the zones allotted to them and pass them on to the next zone. This process is also called “pick and pass.”

Zone picking is a clever technique for a company with high order volume and SKUs with low to moderate picks per orders. Separate zones give you the freedom to manage each one differently, like using automation in one zone and manual product handling in another zone.

Batch Picking – Multiple, similar kinds of orders are grouped to make small batches or 4-12 orders. Pickers pick the orders in batches at the same time with the help of a picklist that has the location and other details. Batch picking requires a smart inventory and order management software solution that creates a picklist that can consolidate similar orders.

Wave Picking AKA Parallel Picking – In wave picking, all the zones are picked simultaneously, and then the items are later consolidated to form a complete order. This method is best for warehouses with many SKUs and medium to high picks per order.

Match inventory to storage equipment

Finding the correct storage equipment for various types of inventories is crucial to ensure that storage doesn’t slow down the picking process or make it difficult for the pickers.

Different types of storage technologies:

• Shelving – Shelving utilizes upright posts supporting formed steel sheet panels as horizontal shelves.
• Pallet rack – Single or multi-level storage meant to support the stacking of single products or palletized loads.
• Pick modules – This applies to FIFO inventory management. Refers to gravity-based flow storage of pallets or cartons that employ elevated rails and wheels or rollers within a rack-supported structure.
• Drawer systems – Cabinets within enclosed shelving best for smaller items.
• Vertical carousels – A series of shelves stacked vertically that can rotate around a track like a Ferris wheel. These automated storage and retrieval systems (AS/RS) deliver products quickly and safely to a work counter that is ergonomically situated to benefit the employee.
• Horizontal carousels – These are bins fixed on an oval track that can spin horizontally to bring the container near the operator so that he/she can pick or drop products in it. The carousels are equipped with AS/RS.
• Vertical lift modules (VLMs) – An enclosed AS/RS with two column trays with an inserter and extractor center. It automatically retrieves products when asked for. It is very efficient and reduces the time consumed picking products.

Order fulfillment options

Order fulfillment options like third party fulfillment (3PL), merchant fulfillment, and drop shipping can be beneficial.

Let’s review the various fulfillment options:

Merchant fulfillment

This type of fulfillment is also called in-house fulfillment. The best thing about this type of fulfillment is that it gives you total control of your supply chain, and in the long run, it can be more profitable as well. However, to fulfill orders on your own, you need to invest money in setting up a warehouse, buying equipment, hiring laborers, etc.

Drop shipping

Drop shipping is an approach that is used by many ecommerce companies. Retailers are responsible for marketing and sales and pass order details on to product manufacturers. Then, manufacturers and suppliers ship the orders directly to the customers.

Third-party fulfillment (3PL)

Outsourcing of order fulfillment logistics, including inventory, orders, shipment, and returns management to a third party company that charges a fee or takes a cut of revenues is called third party fulfillment

Many companies often choose third-party fulfillment firms to manage tasks that require significant investments and are tough to handle. Third party logistics providers offer the expertise that only qualified businesses can acquire and can be useful for small companies looking for smart and efficient order fulfillment assistance.

To learn more about streamlining your order fulfillment and warehousing, we’ve included a link to another Cin7 blog article that explains how you can successfully work with a third party (3PL) logistics provider like the other 71% of sellers who plan to do so in the next few months.

Summing up

Order fulfillment is a critical aspect of retail business and there should be strategies in place to ensure that the process is flawless. If executed properly, smooth order fulfillment and perfect order percentage are what every company strives for. Also, you need to choose the best way to fulfill orders using third party fulfillment, drop shipping, and merchant fulfillment because every option has its benefits and requirements.

Inventory planning is the process of determining the optimal quantity and timing of inventory for the purpose of aligning it with sales and production capacity.

Stock replenishment is an important activity for all retailers. However, there are several things that retailers need to keep in mind while re-stocking their inventory and in this process, calculating the reorder point plays a very important role. 

So what is reorder point, let’s understand that and also learn how to calculate it using a simple reorder point formula. 

What is the reorder point?

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“A replenishment/reorder point is the unit quantity on hand that triggers the purchase of a predetermined amount of replenishment inventory.”

Reorder point hence becomes an indicator for the storekeeper to restock the items that are finishing up in the store.  It is similar to the fuel reserve indicator that you have in your motor car or bike so that you can refuel it before you run out of fuel while driving. 

Once the reorder point is hit, the shopkeeper places a new order for the refilling of items so that he can fulfill his future orders successfully without any halt.  

“The end result being no interruption in production and fulfillment activities while minimizing the total quantity of inventory on hand.”

However, one important aspect to keep in mind is that each item/product in the store can have a different reorder point as the reorder point is calculated on the basis of the time taken for your supplier to deliver the products to you. 

This brings us to the next important topic. 

How to calculate reorder point using a formula?

For calculating the reorder point you need a lead time, average daily usage rate, or selling rate of the product and safety stock with the vendor. 

Lead time – is the time taken for the supplier to send the products once the vendor places the purchase order of items. 

Average Daily sold units of the product – meaning on average the number of goods sold on a daily basis. 

Safety stock – is a specific quantity of products kept aside so that they can be used in times of emergency or during stock-outs. 

The formula for calculating reorder point is

Average daily sold units x Lead time 

For instance, Star Mobile Shop sells 25 units of Samsung Smartphones every day and his supplier takes 4 days to send a fresh stock of Samsung Smartphones then what should be the reorder point for Star Mobile shop? 

Therefore, using the above formula:

25 (average rate of daily sold units)   x 4 days (lead time)= 100

The answer is 100 units need to be replenished by the Star Mobile shop from his supplier every 4 days. 

However, in the above example, we are only considering the average number of units sold per day. In reality, this number can increase somedays or decrease some days because we all know that sales are fluctuating every day. So to cover up the sudden rise and fall in the demand for the product a company or shop needs to keep a safety stock. Hence, the reorder point formula can also include safety stock

(Average daily units sold x Delivery Lead time) + Safety stock

Continuing with our example of Star Mobile shop and using this reframed formula, 

(25 x 4) + 25  = 125

Thus, we get the inventory reorder point as 125 units. If Star Mobile Shop’s stock for Samsung Smartphones falls below 125 units, then a new order should be placed. 

Conclusion

Hope the above example has made it clear on how to calculate the reorder point.  

Also, at this point, it is crucial to understand the reorder point only indicates the quantity at which you should place a new order for restocking the item(s). But for knowing how much quantity of a product must be ordered you need to use other methods like Economic Order Quantity method or Just-in-time method.