You might assume order fulfilment is the same across the board. In reality, there are four distinct types of order fulfilment - each of these comes with its own advantages and challenges. In this article, we're looking closer into these fulfilment types, so you can choose the one that best suits your business and skyrockets your efficiency.
What is order fulfilment?
Order fulfilment refers to the process of receiving, processing, and delivering customer orders. It involves actions such as taking an order, picking and packing items, and shipping them out to your customers. You can say an order fulfilment process is complete when a shopper has received the products they ordered on time, eventually driving repeat business.
The four different types of order fulfilment
There are four types of order fulfilment you should consider for your own business:
● In-house fulfilment
● Third-party fulfilment
● Drop shipping
● Hybrid fulfilment
By using each of these, you access a different set of advantages that will work best for certain company sizes or requirements. Remember you can always use these in a combination through variations such as cross-docking and direct-to-consumer fulfilment.
While these aren't your traditional types of order fulfilment, you can expect them to rise in the future with the help of automation and artificial intelligence.
In-house order fulfilment
In-house order fulfilment lets you handle the entire fulfilment process internally. Your company will be responsible for everything without involving partners in the process or outsourcing day-to-day operational efforts.
The main reason why you might want to use in-house order fulfilment is to gain better control over what's happening in your company. For instance, you could get a clearer idea of hurdles in your process or provide personalisation options when packaging a product for a human touch.
In-house fulfilment stands out from other types because it means your company will have to invest in warehousing, hire more people, and improve the way you ship. This is great if you have stable order volumes or simply if you want to stay closer to your customers every step of the way.
Benefits of in-house order fulfilment
If you're not yet prepared to let a third-party company handle part of your fulfilment process, in-house order fulfilment gives you the control you need. You'll be able to handle inventory directly, never being afraid of low stock levels or poor accuracy when it comes to adjusting for demand.
Other in-house order fulfilment benefits to consider are:
● You'll respond to customer queries quicker
● You can provide flexible terms when handling product returns or exchanges
● You'll know exactly what conditions imply for your shipping times and processes
● You can see and check the quality of your packaging materials
Drawbacks to in-house order fulfilment
This type of fulfilment might not be right for you if your order volumes suddenly grow or if they tend to fluctuate. That's because you'll need more resources at every stage of the fulfilment process which can be challenging without the help of external parties.
Other in-house order fulfilment disadvantages to consider:
● You'll have to pay a lot more at the beginning to set up warehousing, buy equipment, hire workers, etc.
● Some third-party providers can offer discounts (e.g. shipping, packaging) which you won't be able to access
● The entire process can take more time since inventory management and shipping happens internally
● Larger workloads could create delays
Third-party order fulfilment
Third-party order fulfilment (or 3PL) moves your fulfilment process to an external logistics provider. This is the polar opposite of doing everything in-house as you'll have one or more partners in charge of warehousing, packing, shipping, and more.
The process is straightforward and requires minimal intervention from your side: A customer places an order and the 3PL provider handles everything, shipping it to the client.
This also means you can use the provider's own systems, knowledge, and infrastructure, reducing the initial overhead costs for you. You can also opt for third-party order fulfilment if you're scaling in a new region or testing a new market and don't want to invest in your own warehouse.
Benefits of 3PL order fulfilment
3PL is perfect if you want to avoid initial large investments. For example, a third-party provider can help you handle increased order volumes during peak seasons or expand into new markets.
And if you remember one of the core drawbacks of doing everything yourself was a lack of access to special discounts and shipping rates, a good 3PL partner will have this covered so you can reduce costs.
With some of the other benefits of third-party order fulfilment you'll be able to:
● Enter a market you're not familiar with by using a partner's existing technology and expertise
● Reduce costs for infrastructure and operations
● Stay focused on the other aspects that matter to you such as marketing or customer support
● Ship faster or at lower rates
Drawbacks to 3PL order fulfilment
The main reason you might want to avoid this type of order fulfilment is that you'll ultimately depend on your partner. Any issues, delays, or challenges they're experiencing will impact the quality, accuracy, and timeliness of your own services.
Additional disadvantages of 3PL order fulfilment can include:
● Experiencing back-and-forths due to poor communication between your business and the provider
● Limitations that can arise from a provider’s technology and systems
● Unexpected costs occurring when a partner changes their services or one of their own partners
● Poor flexibility and customisation options for shipping and packaging
Dropshipping
Dropshipping has been a trending fulfilment method over the past years, allowing individuals and companies to sell without a physical product stock.
When the seller receives an order, they purchase the item directly from a third-party supplier or manufacturer. The latter ships the product directly to the customer so the seller doesn't handle the product and instead only takes care of marketing and customer support.
This model is mostly used by new businesses or when trialling a new type of product. To understand how to implement this model in your online business, check out our guide to dropshipping for online retailers.
Benefits of dropshipping order fulfilment
Dropshipping is popular for a couple of good reasons, but the main benefit is that it allows you to start a business with little to no upfront investments.
Other advantages of choosing dropshipping include:
● Getting to skip inventory or warehousing logistics since another party will be handling those
● Working on your business from anywhere as a physical location isn't required
● A quicker market entry and opportunity to easily sell trending products
● Larger access to a global supply chain
Drawbacks to dropshipping order fulfilment
The market for dropshipping is saturated, therefore you might experience lower profit margins as you purchase products at wholesale prices and mark them up for sale. Your competition will drive prices down, making it more difficult to maintain a lucrative business.
More disadvantages of dropshipping include:
● Little to no option to customise products or packaging
● Difficulty in establishing strong relationships with suppliers
● Higher shipping costs when working with multiple suppliers
● Increased risk of product returns or customer complaints
Hybrid fulfilment
Hybrid fulfilment is a versatile logistics approach that combines all the three types of order fulfilment we've already covered. This model allows businesses to adapt and constantly change their strategy based on demands and long-term goals.
In other words, you can opt for this method if you want to choose exactly what you want to be responsible for while still being able to outsource some operations.
There are many ways of approaching hybrid fulfilment. For instance, you could handle your main products in-house, test new or seasonal product lines through dropshipping, and tap into a new market through 3PL.
You can also mix in-house with third-party order fulfilment independently to maintain better control over the products you sell.
Benefits of hybrid order fulfilment
Hybrid order fulfilment could confuse new business owners due to its flexibility so you should only use it when you're juggling different product lines, markets, geographical locations, or brands altogether.
The biggest benefit you'll get is controlling what matters the most (e.g. customer service, product quality) with minimal financial risk.
Additional benefits of hybrid order fulfilment include being able to:
● Cut costs exactly where you want
● Test all of your new products
● Improve shipping efficiency by using whatever fulfilment method works for a particular region or product
● Maintain high inventory accuracy and customer service levels
Drawbacks to hybrid order fulfilment
With hybrid order fulfilment, it's quite difficult to tell what your costs will be from the start. Using multiple fulfilment channels implies switching between providers and manufacturers often. This can lead to higher shipping fees and other charges a provider implies.
With other hybrid order fulfilment disadvantages:
● You'll fully rely on your and your providers' technology for inventory and order management
● Challenges in maintaining consistent branding and customer experience
● You'll find it more complicated to track shipments and manage returns
● You simply won't ever fully trust the operations of your third-party partners
How to choose the right type of order fulfilment
There are a couple of key factors to take into consideration before choosing the order fulfilment strategy that will work for you. We've already outlined a couple of scenarios for each type above, but you'll first want to ask yourself:
● What your current capacity to handle orders is
● If you have a strategy for peak sales times
● If significant fluctuations in order volume will impact your operations
● What your priorities are in terms of the customer experience (e.g. strong customisation options, faster shipping, quality products)
Answering these and comparing each order fulfilment type based on their cost will allow you to pick a method that is suitable for your operations.
Simplify your order fulfilment with Mintsoft’s order fulfilment software
After you've chosen the right type of order fulfilment that can help you scale and keep customers satisfied, it's time to bring it all together. An order management system (OMS) like Mintsoft streamlines operations by automating processes, improving inventory management, and providing real-time insights.
Explore our OMS page to learn how Mintsoft can enhance your fulfilment!
