Order fulfillment requires multiple steps in a sequential process like sourcing, manufacturing, backorder management, pick and pack, ship and associated customer communications. Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer. Sometimes order fulfillment is used to describe the more narrow act of distribution or the logistics function, however, in the broader sense it refers to the way firms respond to customer orders.
The first research towards defining order fulfillment strategies was published by Mather (1988) and his discussion of the P:D ratio, whereby P is defined as the production lead-time, i.e. how long it takes to manufacture a product, and D is the demand lead-time, i.e. how long customers are willing to wait for the order to be completed. Based on comparing P and D, a firm has several basic strategic order fulfillment options:
- Engineer-to-Order (ETO) – (D>>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) – (D>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) – (D<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) – (D=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.
- Digital Copy (DC) – (D=0, P=0) Where products are digital assets and inventory is maintained with a single digital master. Copies are created on-demand, downloaded and saved on customers’ storage devices.
In its broadest definition, the possible steps in the process are:
- 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
- Invoicing / Billing – The presentment of the commercial invoice / bill to the customer
- 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
- Settlement – The payment of the charges for goods / services / delivery
- Returns – In case the goods are unacceptable / not required