Published: 4 August 2024
Contributors: Alice Gomstyn, Alexandra Jonker
Fulfillment optimization is the process of determining the best options for sourcing and order fulfillment, which results in more efficient use of inventory and reduced costs.
Successful fulfillment optimization can achieve multiple business objectives, including preventing stockouts, avoiding markdowns, attaining customer satisfaction and increasing profitability. Common practices include optimizing inventory management, streamlining warehouse operations and improving shipping processes.
Organizations might use fulfillment optimization systems to improve their fulfillment operations. They can be integrated into order management systems (OMS) and other business operation systems.
Fulfillment optimization can help companies tackle the challenges and inefficiencies of the order fulfillment process (OFP) to deliver customer orders in a timely and cost-effective manner.
The OFP is inherently complex. It involves managing logistics, manufacturing, supplier relationships and more. Successful OFP results in a business delivering the right product to the right customer at the right time and place.
However, during the order fulfillment process, a great deal can go wrong. Stockouts, or demand for specific goods that outstrips supply, can leave would-be customers empty-handed, resulting in missed revenue opportunities and unmet customer expectations. Excessive inventory levels can result in costly warehousing and lead businesses to implement major markdowns. While markdowns help get products out the door, they can also hurt profits. Bottlenecks in the supply chain can delay product manufacturing and delivery, impacting the customer experience. Companies can also face high shipping costs that affect product pricing.
E-commerce platforms and omnichannel fulfillment strategies have introduced even more complexity to the OFP. Many businesses today struggle to manage order fulfillment across traditional brick-and-mortar stores, distribution centers and warehouses.
Fulfillment optimization practices can vary by business and industry. Common ones include:
Inventory management entails determining how much of a product to order, when to order it and where to store it. Forecasting customer demand by analyzing historical sales patterns can help companies optimize stock levels at stores and fulfillment centers to avoid stockouts and markdowns.
Making warehouse operations more efficient can result in faster order processing while also saving on staffing and labor costs that contribute to fulfillment costs. Strategies include optimizing warehouse layouts, integrating automation and robotics into workflows and incorporating warehouse management systems (WMS).
Shipping costs contribute to total fulfillment costs. Businesses can reap significant cost savings by determining cost-effective shipping options that meet delivery time objectives. For example, it can prove less expensive to send a customer’s order in two shipments instead of one. Likewise, a business might save money by sourcing and routing an order from one distribution center instead of another.
A fulfillment optimization system is a solution that can integrate with other systems, such as order management systems and enterprise resource planning systems (ERP) to improve fulfillment outcomes. Leading fulfillment systems use artificial intelligence (AI) and data analytics to help businesses quickly respond to market changes while protecting margins and ensuring the best customer experience.
A high-quality fulfillment optimization system might empower businesses to:
- Gain real-time inventory visibility across data sources
- Provide real-time orders promising to increase retail conversion rates
- Forecast customer demand to improve inventory management
- Scale existing fulfillment capacity to better accommodate customers
- Make better use of aging and returned inventory
- Improve supply chain management and sourcing decisions to minimize shipping costs
- Set operating performance objectives and KPIs by using real cost and profit drivers
- Increase profitability through efficient deliveries at the lowest cost-to-serve
Pandora, one of the world’s largest jewelry brands, used an intelligent and automated fulfillment engine to ship orders to customers quickly and cost effectively. In addition, inventory visibility enabled the company to use stores as mini-distribution centers for online orders.
Germany-based home improvement retailer hagebau improved customer satisfaction by leveraging an order management system that offered customers different fulfillment options, including buy online and pick-up in-store and buy in-store and ship home. The ability to buy goods online and return them in stores also provided a more convenient customer experience.
Parker Hannafin Corporation, a manufacturer of motion and control technologies, built a single source of truth on inventory and orders. The initiative improved inventory visibility, enabling the company to optimize stock levels and reduce inventory carrying costs. This ensured orders were filled quickly and accurately, boosting customer satisfaction.
Deploy a complete order management platform for smart, scalable and seamless commerce.
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Order management is the tracking of orders from inception to fulfillment, and the management of the people, processes, and data connected to the order.
Inventory management is tracking inventory from manufacturers to warehouses and from these facilities to the point of sale.
Supply chain management (SCM) is the coordination of a business’ entire production flow, from sourcing raw materials to delivering a finished item.
Where ecommerce once described a simple process—a consumer purchase from a website, for instance—the term has expanded as technologies have advanced.
Sourcing is the process of identifying, evaluating and selecting suppliers to provide goods and services.
Artificial intelligence (AI) is technology that enables computers and machines to simulate human intelligence and problem-solving capabilities.