Order fulfillment is in the most general sense the complete process from point of sale

Point of sale

Point of sale or checkout is the location where a transaction occurs...

s 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.

Options

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
• 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
  Digital master
  A digital master is an image, PDF file or another digital asset created for the purpose of reuse and re-expression. For images it is the digital analogue to a photographic negative. It is the master from which variations for specific uses can be derived....
  
  . Copies are created on-demand, downloaded and saved on customers' storage devices.

Process

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
  Sales quote
  A sales quote allows a prospective buyer to see what costs would be involved for the work they would like to have done. Many businesses provide services that cannot have an upfront price, as the costs involved can vary. This can be due to the materials that would be used , and the manpower that...
  
  - 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
  Purchase order
  A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services...
  
  )
• 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
  Change order
  In project management, a change order is a component of the change management process whereby changes in the Scope of Work agreed to by the Owner, Contractor and Architect are implemented....
  
  - Changes to orders, if needed
• Order Processing
  Order processing
  Order processingOrder processing is a key element of Order fulfillment. Order processing operations or facilities are commonly called "distribution centers". "Order processing" is the term generally used to describe the process or the work flow associated with the picking, packing and delivery of...
  
  - Process step where the distribution center
  Distribution center
  A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products to be redistributed to retailers, to wholesalers, or directly to consumers. A distribution center is a principal part, the order...
  
   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
  Delivery (commerce)
  Delivery is the process of transporting goods. Most goods are delivered through a transportation network. Cargo are primarily delivered via roads and railroads on land, shipping lanes on the sea and airline networks in the air...
  
  - 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

Advantages

The order fulfillment strategy also determines the de-coupling point in the supply chain, which describes the point in the system where the "push" (or forecast-driven) and "pull" (or demand-driven see Demand chain management

Demand chain management

Demand chain management is the management of upstream and downstream relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. The term demand chain management is used to denote the concept commonly referred to as...

) elements of the supply chain meet. The decoupling point always is an inventory buffer that is needed to cater for the discrepancy between the sales forecast and the actual demand (i.e. the forecast error

Forecast error

In statistics, a forecast error is the difference between the actual or real and the predicted or forecast value of a time series or any other phenomenon of interest....

). It has become increasing necessary to move the de-coupling point in the supply chain to minimize the dependence on forecast and to maximize the reactionary or demand-driven supply chain elements. This initiative in the distribution elements of the supply chain corresponds to the Just-in-time initiatives pioneered by automobile manufacturers in the 1970s.

The order fulfillment strategy has also strong implications on how firms customize their products and deal with product variety . Strategies that can be used to mitigate the impact of product variety include modularity

Modularity

Modularity is a general systems concept, typically defined as a continuum describing the degree to which a system’s components may be separated and recombined. It refers to both the tightness of coupling between components, and the degree to which the “rules” of the system architecture enable the...

, option bundling, late configuration, and build to order

Build to order

Build to order and sometimes referred to as make to order , is a production approach where once a confirmed order for products is received, products are built...

 (BTO) strategies—all of which are generally referred as mass customization

Mass customization

Mass customization, in marketing, manufacturing, call centres and management, is the use of flexible computer-aided manufacturing systems to produce custom output...

strategies.