Order fulfilment strategies in supply chain management

Order fulfilment is an integral part of the Supply Chain Management (SCM) process. It works towards fulfilling the requirements of the consumers in the process (Wu et al., 2016). However, even though fulfilling orders is cardinal in setting a supply chain in motion, the order fulfilment process of SCM involves other activities. It is a composite process that involves designing a framework or a process to reduce costs. Furthermore, it requires the establishment of a cross-functional network with all SCM stakeholders and coordination between them, along with sound logistics management (Croxton, 2003). A perfectly implemented order fulfilment procedure helps improve the overall SCM quality (Mishra and Sharma, 2014).

E-commerce retailers order fulfilment strategies

E-commerce businesses have a competitive edge over their traditional counterpart due to their ability to satisfy customers with low prices, wide choice and smooth delivery process. This core feature of e-commerce requires specific order fulfilment strategies.

  • Distributed delivery centre-based fulfilment: E-commerce retailers maintain multiple self-operated distribution centres through which products are handed over to the customers.
  • Partner fulfilment operations: the SCM process is distributed among various partnerships to ensure that the delivery is steadfast (Ricker and Kalakota, 1999).
  • Third-party order fulfilment:  A product is sourced in bulk quantities from the manufacturer and then sent to the third parties for packing and delivery to the customer upon order placement (Tian, Ellinger and Chen, 2010)
  • Build to order: The products are produced on-demand after the order is received from the customer.
  • Dropshipping (Ricker and Kalakota, 1999; Widmer, 2019): E-commerce retailers receive an order and the supplier completes production, packaging and delivery of the order (Gan, Sethi and Zhou, 2010)

Amazon is a reputed global e-commerce retailer which follows the dropshipping strategy which is termed as ‘Fulfillment’ by Amazon. Different businesses consider Amazon’s platform as their sales platform, while Amazon itself is a retailer that secures orders from customers and passes on to the respective suppliers (Widmer, 2019). Furthermore, in this fulfilment service, the third-party sellers are also given the opportunity to store, pack and ship their products through Amazon’s online marketplace (Amazon Services, 2019).

Order fulfilment strategy of Amazon
Fig.1: Order fulfilment strategy of Amazon

Traditional order fulfilment strategies

Retailers that follow the traditional store-based distribution processes often face operational challenges in fulfilling orders. These complexities usually arise due to the complexities in managing orders along with their store-based distribution processes (Ishfaq and Raja, 2018). Thus, the order fulfilment strategies that are appropriately suitable are:

Warehousing

It is the process in which the seller owns or rents space for storage of products so that order fulfilment can be carried out immediately. Thus, production is executed before the customer places an order. This order fulfilment strategy is most appropriate for supplying to small and medium-sized retailers that do not have to deal with enormous inventory (Brun and Castelli, 2008; Hbner, Kuhn and Sternbeck, 2013).

Distribution centre-based order fulfilment

In this, the seller maintains a dedicated central distribution centre for customers. Sometimes, a shared distribution centre is also maintained by a number of sellers to save time and cost (Scott and Scott, 2008).  

Direct fill by vendors

It is the third most popular order fulfilment strategy in traditional retailing. Here, the sellers buy products at wholesale rates from the vendors who source or manufacture them. They then sell it to customers at higher retail prices (Ishfaq and Raja, 2018).

Order fulfilment strategies of traditional retail stores
Fig.2: Order fulfilment strategies of traditional retail stores

Example of Walmart

The case of Walmart is ideal for explaining the order fulfilment strategy by retailing organizations. Walmart is an international American retail corporation that sells a range of consumer goods through its chain of discount stores, retail outlets and hypermarkets located all over the world. It follows the dedicated distribution centre-based order fulfilment. Hence, in order to meet the customer orders with the right products at the right time, Walmart has segregated its dedicated distribution centres on the basis of parameters like facility, state, type and city. Among the core distribution centres of Walmart include (MWVPL International Inc., 2019):

  • Regional merchandise distribution centres,
  • fashion distribution centres,
  • import or redistribution centres,
  • full-line grocery and perishable goods distribution centres,
  • speciality distribution centres,

In the case of e-commerce companies, the core function of SCM is taken care of by third party manufacturers and producers. Therefore, e-commerce retailers only serve as the point of contact between the manufacturer and the consumer. On the other hand, in the traditional retailing firms the entire process remains within the discretion of the seller.

References

  • Amazon Services, A. (2019) Help grow your business with Fulfillment by Amazon, Amazon Services LLC. Available at: https://services.amazon.com/fulfillment-by-amazon/benefits.html (Accessed: 25 September 2019).
  • Brun, A. and Castelli, C. (2008) ‘Supply chain strategy in the fashion industry: Developing a portfolio model depending on product, retail channel and brand’, International Journal of Production Economics, 116(2), pp. 169–181. doi: 10.1016/j.ijpe.2008.09.011.
  • Croxton, K. L. (2003) ‘The Order Fulfillment Process’, The International Journal of Logistics Management, 14(1), pp. 19–32. doi: 10.1108/09574090310806512.
  • Gan, X., Sethi, S. P. and Zhou, J. (2010) ‘Commitment-penalty contracts in drop-shipping supply chains with asymmetric demand information’, European Journal of Operational Research, 204(3), pp. 449–462. doi: 10.1016/j.ejor.2009.11.008.
  • Hbner, A. H., Kuhn, H. and Sternbeck, M. G. (2013) ‘Demand and supply chain planning in grocery retail: An operations planning framework’, International Journal of Retail & Distribution Management, 41(7), pp. 512–530. doi: 10.1108/IJRDM-05-2013-0104.
  • Inc., M. I. I. (2019) The Walmart Distribution Center Network in the United States. Available at: http://www.mwpvl.com/html/walmart.html.
  • Ishfaq, R. and Raja, U. (2018) ‘Evaluation of Order Fulfillment Options in Retail Supply Chains’, Decision Sciences. Blackwell Publishing Ltd, 49(3), pp. 487–521. doi: 10.1111/deci.12277.
  • Mishra, P. and Sharma, R. K. (2014) ‘Investigating the impact of perfect order fulfilment on quality level and SCM performance’, International Journal of Modelling in Operations Management. Inderscience Publishers, 4(1/2), p. 95. doi: 10.1504/ijmom.2014.063599.
  • Ricker, F. and Kalakota, R. (1999) ‘Order Fulfillment: The Hidden Key to e-Commerce Success’, Supply chain management review, 11(3).
  • Roberts, B. and Berg, N. (2012) Walmart: Key Insights and Practical Lessons from the World’s Largest Retailer. Kogan Page Publishers. Available at: https://books.google.co.in/books?hl=en&lr=&id=TLC2LiaU6x8C&oi=fnd&pg=PR5&dq=walmart,+an+american+retailer&ots=MBqE9_5TxI&sig=Gbp6ur2AmiO8FQExEqvvZ4ouZsY&redir_esc=y#v=onepage&q=walmart%2C an american retailer&f=false (Accessed: 25 September 2019).
  • Scott, J. E. and Scott, C. H. (2008) ‘Online grocery order fulfillment tradeoffs’, in Proceedings of the Annual Hawaii International Conference on System Sciences. doi: 10.1109/HICSS.2008.335.
  • Tian, yu, Ellinger, A. E. and Chen, H. (2010) ‘Third-party logistics provider customer orientation and customer firm logistics improvement in China’, International Journal of Physical Distribution & Logistics Management, 40(5), pp. 356–376. doi: 10.1108/09600031011052822.
  • Widmer, B. (2019) The Ultimate Amazon Dropshipping Guide: How to Dropship on Amazon. Available at: https://www.salehoo.com/blog/benefits-of-free-amazon-shipping-for-dropshippers.
  • Wu, L. et al. (2016) ‘Smart supply chain management: A review and implications for future research’, International Journal of Logistics Management. Emerald Group Publishing Ltd., 27(2), pp. 395–417. doi: 10.1108/IJLM-02-2014-0035.

Apara Bhattacharya

Research analyst at Project Guru
Ardent passion has helped Apara into a career that involves writing on varied subjects and expressing different contemporary issues around the World. A Masters in English and a diploma in Business English are her academic strengths that have helped her in shaping her career as an analyst. She started her career with an NGO that imparts soft skills and communicative English. Her association with reputed research firms of India gave her a break as a researcher scholar was .
Apara Bhattacharya

Discuss