Order Fulfillment

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Definition of Order Fulfillment (or otherwised spelled as order fulfilment) is the complete process of how a supplier services its customer from inquiry all the way through to final delivery. Order fulfillment can be a complex undertaking within some businesses where customer requirements and methods of supplying them can be challenging. There are many order fulfillment services as well as order fulfillment companies that aid businesses manage their order fulfillment process. A good understanding of order fulfillment management starts by understanding the steps in an order fulfillment system:

Let’s go over the different order fulfillment steps via Wikipedia:

Product Inquiry – Initial inquiry about offerings, visit to the web-site, catalog request

Sales Quote – Budgetary or availability quote

Order Configuration – Where ordered items need selection of options or order lines need to be compatible with each other

Order Booking – The formal order placement or closing of the deal (issuing by the customer of a Purchase Order)

Order Acknowledgment / Confirmation – Confirmation that the order is booked and/or received

Order Sourcing / Planning – Determining the source / location of item(s) to be shipped

Order Changes – Changes to orders, if needed

Order Processing – Process step where the distribution center or warehouse is responsible to fill order (receive and stock inventory, pick, pack and ship orders).

Shipment – The shipment and transportation of the goods

Delivery – The delivery of the goods to the consignee / customer

Invoicing / Billing – The presentment of the commercial invoice / bill to the customer

Settlement – The payment of the charges for goods / services / delivery

Returns – In case the goods are unacceptable / not required

There are different order fulfillment strategies at the disposal of the supply chain manager. The more efficient the order fulfillment process, the lesser steps there will be, the smoother the process, and the less the costs. However, sometimes more efficient order fulfillment process doesn’t always mean a better one. Some customers might have specific requests, and especially in market-in companies..preparation, customization and listening closely to your customer is absolutely key.

As you might imagine the production lead time and order fulfillment lead time required by the customer are the two key factors at stake here. If you are at the mercy of your customers and they have the advantage in negotiation power, then your production lead times (P) will have to be shorter than the order fulfillment required time (O).

Here are some of the better known order fulfillment strategies:

Engineer-to-Order (ETO) – (O>>P) Here, the product is designed and built to customer specifications; this approach is most common for large construction projects and one-off products, such as Formula 1 cars

Build-to-Order (BTO); syn: Make-to-Order (MTO) – (O>P) Here, the product is based on a standard design, but component production and manufacture of the final product is linked to the order placed by the final customer’s specifications; this strategy is typical for high-end motor vehicles and aircraft

Assemble-to-Order (ATO) – (O<P) Here, the product is built to customer specifications from a stock of existing components. This assumes a modular product architecture that allows for the final product to be configured in this way; a typical example for this approach is Dell’s approach to customizing its computers.

Make-to-Stock (MTS); syn: Build-to-Forecast (BTF) – (O=0) Here, the product is built against a sales forecast, and sold to the customer from finished goods stock; this approach is common in the grocery and retail sectors.

 Make-to-Stock and Make-to-Order are the two main strategies and the strategy employed will usually depend on the type of product at hand (the length of its lead time), the associated costs of inventory, as well as the size and importance of the customer.

Order fulfillment is one of the most critical areas of supply chain management because it pits production efficiency as well as inventory management against customer satisfaction and a market-in approach. Choosing the right order fulfillment policy will naturally be tricky in an organization where the barriers between the different departments and corporate strategy isn’t entirely clear.