Lessons about order fulfillment from the Shopify Fulfillment Network

The Shopify Fulfillment Network, our own third-party logistics and warehousing network designed for scaling Shopify merchants, has shipped millions of orders to thousands of ZIP codes. Although SFN is a technology-forward shipping solution (have you met Chuck?), we have amazing humans powering the tech and tackling order fulfillment challenges that may sound very familiar.

Whether your business is using third-party logistics or not, measuring and improving your order fulfillment process is more than a simple operational task. It unlocks opportunities for improvement in efficiency, cost, speed, and overall customer experience. Here are some of the lessons shared by our team of fulfillment experts.

Start with the basics

This might seem too obvious, but the number one rule when optimizing order fulfillment is to ensure your orders are being received and transmitted smoothly—also known as “order flow.” Ensuring this process is well-oiled ensures your business is ready to tackle the changes that come with growth. Examples of order transmission errors might include:

  • Inventory discrepancy
  • Address verification
  • Payment fraud risk

Once the basics are locked in, you can shift your mindset to optimizing—including the way you work with your fulfillment partner, overall shipping speed and cost, and the clearness in your expectation setting with customers.

🧐 Ask your data
It might be difficult to spot trends in order flows at a glance. Use certain signals that orders are not going through—such as returns—or even looking at the percentage of orders fulfilled to spot trends over time. Are there specific months or weeks in which these numbers are trending below expectation?

Measure what matters

Your business is unique, and although there are best practices, order fulfillment performance should mirror your overall inventory and order processing strategy. If you don’t have a formal strategy yet, that’s fine too. The trick is to start from your current state and make iterative improvements along the way.

For example, if you have a team handling your fulfillment, or a logistics partner, they might only be shipping orders according to a cutoff time, which means you shouldn’t be looking at percentage of orders fulfilled in the same day until later in the day, or not at all depending on when that is. Performance should be measured according to existing processes. Some of the key metrics you should consider are:

  • Percentage of orders fulfilled: same day, next day, within internal/external service-level agreement (SLA)
  • Average fulfillment time: including fulfillment cost per order, profit
  • Products returned

🧐 Ask your data
Right from your orders screen, Shopify lets you dive into some of these metrics. In-context analytics offers you a set of metrics that are a part of the performance measurement of businesses of all sizes and industries. Whether you’re starting to improve operational efficiency or are well into managing internal or external relationships, this set of reports allows you to drive performance improvements over time.

Order fulfillment improvement is not a sprint—well, mostly

It’s a fair statement that most improvements to order fulfillment will take some time to realize into gains. When you’re busy focusing on growing your business, optimizing operations might stay on the back burner.

While fixing order flows and putting sustainable change in place can have an immediate impact, changes to partnerships, cutoff times, and costs might lead to medium-to-long-term gains. As a rule of thumb, use the following guidelines for when to spend some time looking at these metrics. The suggestions above are also connected to when you should start seeing performance improvements.

  • Order flow metrics: daily and weekly
  • Shipping time and cost: monthly
  • Fulfillment partner performance: monthly and quarterly

🧐 Ask your data
Create a custom report to assess your monthly shipping profit and loss. Simply subtract the amount you charged customers for shipping from the cost. Dividing that amount by the number of orders in that time period gets you to an average profit or loss by order and unlocks clear opportunities for improvement.

Do not let yourself feel overwhelmed by the endless amount of optimization that can be tackled in order fulfillment. Start with the structural basics, build your own shipping processes (or align with your 3PL on what those should be), and make improvements over time to other opportunities, such as increasing your shipping profit, shipping speed, and the promises you can ultimately make to customers.

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