Optimizing Order Fulfillment: Guidance for CPG Brands

Change necessitates new ways of thinking and new approaches to long-standing issues. Nowhere is that truer than in the retail industry, which finds itself subject to globalization, digitalization, heightened consumer expectations, and near-constant supply chain disruption.

Consumer packaged goods (CPG) brands, in particular, find themselves fighting a battle on two fronts, with many organizations expanding their operations beyond B2B sales and into direct-to-consumer (DTC) channels. In order to weather supply chain volatility and satisfy increasing demands for rapid delivery — all while reducing costs and growing business sustainably — these brands must look to optimize order fulfillment using new and innovative methods.

The 4 Different Types of Order Fulfillment

There are four different types of order fulfillment processes in the CPG industry:

In-House Order Fulfillment:

All steps of the order fulfillment process are managed by the brand and its employees, from purchase, to product storage, to shipping. This fulfillment strategy enables the brand to control all aspects of order fulfillment, though it can be costly to maintain staff and inventory.

Outsourced Order Fulfillment:

Following the point of purchase, the brand outsources all order fulfillment to a third-party logistics provider (3PL), or a fulfillment center. This is a good fulfillment strategy for brands that have limited space for inventory. Many 3PL companies provide warehouse security, climate-controlled storage, return services, and secure shipping options.

Drop Shipping:

In this fulfillment strategy, the brand accepts orders but maintains no inventory. Instead, the brand sources goods from a third party — either the supplier, a warehouse, or a wholesaler. Drop shipping is a low-cost fulfillment strategy, making it a popular option for eCommerce fulfillment, but it prevents brands from having visibility into the status of order during fulfillment, or from guaranteeing the quality of the product shipped to the customer or end consumer.

Drop shipping also allows retailers to create an endless aisle experience for end consumers. With endless aisles, rather than buy products off store shelves, shoppers in retail stores select items from digital, touchscreen kiosks. CPG brands then drop ship those items to end consumers on behalf of their retail customers. Brands that offer drop shipping order fulfillment need to balance the needs of their retail customers with the needs of their direct-to-consumer business. Collaboration and planning tools that leverage data science can help brands optimize inventory to support both lines of business.

Hybrid Fulfillment:

The brand uses a mix of fulfillment solutions: in-house for popular items, outsourcing for items that require assembly, and/or drop shipping for infrequently-purchased items. This fulfillment strategy works well for brands that require flexibility, such as those that have both B2B and DTC channels, and those that offer items to their retail customers at consignment prices.

The State of Order Fulfillment in 2022

Within the past year, we’ve witnessed major changes in end consumer behavior and demographics, rising material price inflation, and trade deals and tariffs, all of which have had a direct impact on brands’ supply chain operations, with particular attention to order fulfillment.

Although consumer demand within the retail industry has started to cool due to the effects of inflation, many shoppers consider consumer packaged goods such as food items and cleaning supplies to be a necessity, meaning there will always be a market for these products. A growing interest in sustainability has also led many consumers to buy directly from brands in an effort to cut down on extraneous shipping materials and reduce fuel usage.

Amidst all of this, the demand for immediacy remains white hot, prompted in part by brands that have set a high bar for near-instantaneous order fulfillment. Many brands have adopted a DTC fulfillment strategy in order to satisfy this demand, hoping to avoid delays caused by drop shipping or retail shortages. As an added bonus, by developing direct relationships with end consumers, brands are able to reap the rewards of first-party data and enjoy higher profits as a result of eliminating middleman costs.

This has contributed to a push throughout the CPG space to improve customer service technologies. With the influx of DTC ordering comes inevitable product shortages, leading to an uptick in status inquiries. End consumers expect full transparency — to know where their products are, when those products will ship, when they will arrive, and why they might be delayed. Until recently, brands lacked the upstream or downstream supply chain visibility to offer consumers answers to these questions.

Fortunately, order management systems (OMSes) enable brands to automate warehouse operations and gain visibility into every stage of the order lifecycle, providing them with the visibility they need to design more intelligent supply chains. Artificial intelligence (AI) and data modeling also empowers brands to identify the best fulfillment options, including which locations to ship from, which carriers to use, and whether they should split an order for faster fulfillment. These technologies not only have the power to increase supply chain visibility and accountability — but they also enable brands to optimize every aspect of fulfillment by accessing real-time data and using analytics to extract actionable insights from that data. From adopting hybrid fulfillment solutions and better regulating inventory to strategically sourcing products and growing warehousing operations at scale, brands are able to leverage these insights to make more informed decisions and drive growth.

3 Major Order Fulfillment Challenges

As essential as it is, the order fulfillment process is not without its challenges. Here are some of the most common fulfillment processing challenges brands face:

Inventory management:

It’s a fact of life: Products occasionally run out of stock. Although once might not be enough to turn buyers away from a brand, if that brand’s warehouses are consistently understocked, its customers will lose faith and take their business elsewhere. Maintaining optimal inventory levels is a top priority for brands, as is distributing those inventory levels evenly across warehouses in order to provide fast delivery on eCommerce orders.  

Demand planning:

For brands, having too much product on hand is just as much of a risk as having too little, as it can lead to costly markdowns. Traditionally, brands have relied on historical data and limited predictive capabilities to forecast demand, which can prevent them from getting an accurate view.

In order to regulate their inventory levels, brands need to rely on a wider pool of data for forecasting, including market and product trends, consumer demographics, social media sentiment data, data from sensor tags on products as they move through the supply chain, and more. Brands can then use this information to create data visualizations and forecasting models to make more informed demand-planning decisions.

Supply Chain Visibility & Traceability:

Brands have historically struggled with supply chain visibility and traceability, lacking insight into the status of orders once they leave the warehouse. This lack of visibility creates quality control issues, as well, as brands cannot guarantee the quality of goods when they arrive at customers’ facilities or end consumers’ doorsteps.

Brands can use internet of things sensor technology and radio frequency identification tags to track items in transit. With this newfound visibility and traceability, brands can hold downstream supply chain partners accountable and identify which products are best-sellers and need to be restocked.

Brands can take visibility one step further by drawing upon external data sources, such as weather forecasts, global news reports, and social media feeds, and using that information to run simulations and predict potential disruption. By forecasting disruption, brands can strategically plan for worst-case scenarios, reducing risk and avoiding added costs in the process. 

4 Best Practices to Optimize Order Fulfillment

In order to solve for the challenges listed above and ensure a seamless order fulfillment processes, brands are advised to:

Find Out What Works for You.

Assess the fulfillment strategies you currently use and see where you could make changes or improvements. For instance, could you optimize eCommerce fulfillment to increase lucrative direct-to-consumer sales, while also gathering data that helps improve your demand planning for outsourced order fulfillment?

Use Data to Make More Informed Decisions.

Be mindful to gather data from a wide variety of internal and external sources, including:

• Market and product trends
• Real-time material and partner data
• Sensor-tagged raw materials and goods as they move through the supply chain
• Continuous updates on throughput and conditions from IoT-enabled equipment
• Consumer demographics
• Smart product interactions
• End consumers’ past search and buying histories
• Social media sentiment data
• Carrier data
• Last-mile delivery service data
• Weather and traffic data
• Commercial development data

When combined with predictive analytics and data modeling capabilities, the data aggregated from these and other sources can yield valuable insights into how you might optimize existing order fulfillment processes and reveal new fulfillment models and opportunities.

Communicate with Customers Early & Often

Inventory shortages and shipping delays can and do happen, sometimes despite careful planning. Sharing updates with customers and consumers as soon as issues arise creates transparency and helps instill trust in your company, even if an order can’t be fulfilled right away. By tagging goods with RFID or IoT-enabled sensors, brands can recognize prospective issues early on and alert customers and consumers accordingly.

Embrace Automation

Demands for rapid delivery on all orders has placed strain on the warehousing component of the order fulfillment process, requiring brands to lean operations and optimize for efficiency at every turn. Warehouse automation in the form of automated picking systems, autonomous mobile robots, autonomous guided vehicles, and cobots — which work alongside human laborers — has become essential to fast and efficient order fulfillment.

Automation not only supports fast order fulfillment, it also allows for increased supply chain visibility. Certain supply chain management solutions incorporate automated workflows that enable brands to collect partner, supplier, and service provider data and update their records, all in real time. By storing this data within a centralized location and applying analytics to it, firms can trace inventory, identify potential bottlenecks within their supply chains, and gain both upstream and downstream visibility.

Last, but certainly not least, AI-driven OMSes can provide brands with automated insights into where they should fulfill orders from for faster delivery.

6 Ways to Reduce Supply Chain Costs

Optimizing your order fulfillment process is only the beginning — by making smart, data-driven choices and gaining visibility throughout the supply chain, brands can actually reduce costs in the long term. Here are some additional cost-saving tips:

Fulfill Orders Strategically

With the growth of DTC sales channels comes increased demand from end consumers for rapid delivery. Next-day and even same-day delivery have become increasingly commonplace in the CPG space, forcing brands to be more thoughtful about how they fulfill eCommerce orders — or, to put it more accurately, where they fulfill eCommerce orders from.

Thanks to IoT technology, it’s now possible to have an accurate view of what inventory you have on hand at various warehouse locations. Rather than pay exorbitant prices to expedite orders across the country — or even international borders — you can simply pull products from the warehouse located closest to the end consumer, allowing for an abbreviated delivery window.

In addition to IoT, an OMS can also aggregate inventory data from across multiple systems in order to provide brands with an accurate view of inventory availability across all channels and throughout the supply chain. Armed with this information, brands can make strategic, data-driven decisions about how best to fulfill orders, and where to fulfill them from.

Don’t Be Afraid to Re-evaluate Your Supply Chain

Picking suppliers that can deliver faster isn’t always a positive — if you’re encountering a lot of returns because of faulty products, that speedy delivery is costing you in the long run. Consider diversifying your supply chain if it will guarantee higher-quality products, more visibility into the shipping timeline, and better communication. Having multiple suppliers in different regions of the globe will help protect you against changes to tariffs, disruption from natural disasters or geopolitical events, and labor shortages.  

Understand That Disruption Is Inevitable

Disruption happens, no matter how well-oiled your order fulfillment process; it’s how you respond to that disruption and mitigate its impact that really counts. Collaboration tools, digital twins, AI, and advanced analytics enable brands to access up-to-the-minute insights and engage in “what-if” scenario modeling. This, in turn, empowers brands to expect the best but plan strategically for the worst and support timely communications that mitigate the effects of disruption.

Create a Fit-for-Purpose Supply Chain Process

Just as you can utilize a hybrid order fulfillment strategy, you can also take a hybrid approach to your supply chain. If it costs less for one product to be shipped directly to the consumer, you don’t need to overhaul your entire fulfillment process; mix and match supply chain solutions to regulate costs and satisfy the largest number of consumers.

Introduce Warehouse Automation Wherever Possible

Are there warehouse tasks that could be performed faster, easier, or in a safer way by a robot? Instead of using manpower to count and categorize products, have robots collect real-time updates by using RFID tags affixed to product packaging. Likewise, IoT sensors can monitor changes in the environment that might negatively affect a product — changes that may go unnoticed by a human.

Although warehouse automation is a significant investment, it’s proven to reduce costs in the long run, empowering brands to drive throughput, reduce error, and scale with volume spikes, seasonal demand, and ongoing growth.

What’s more, brands that use warehouse automation are able to take advantage of warehousing spaces that use taller shelves to reduce their physical footprint. Rather than have a human worker risk pulling items down from shelves for order fulfillment, robots can safely retrieve goods. This space-saving trick can actually reduce warehousing space requirements by up to 85% and help brands save up to 65% on operational costs.

Re-evaluate Transportation Costs

Most brands pay a flat rate to send a single truckload of product to a distribution center or retailer, which can end up costing more than it should if the truck isn’t full. If multiple partially-full trucks are headed to different locations, would it be more cost-effective to fill up one or two and send them to multiple stops? Consider alternative transportation methods such as rail, air cargo, or even using smaller, local carriers to deliver your goods.

For an even more innovative take, some brands are looking to moving companies to help them transport inventory. Strange though it may sound, brands have an opportunity to use vacant space within moving trucks and pods — a win-win for both brands and moving companies, as it enables moving companies to avoid deadheading and provides brands with an alternative (and potentially lower cost) way to transport goods.

Finally, placing IoT devices on freight trucks (or moving trucks, for brands that choose to go that route) can offer valuable insight into whether routes are optimized to reduce fuel costs, drive time, downtime, and so on.

Looking for even more insights on how to enhance order fulfillment? Download our free eBook to learn more about how to create operational agility through analytics, automation, and new delivery models.

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