Order fulfillment can entail a variety of wholesale and retail manufacturing strategies. The bare basics of order fulfillment include customer order processing and distribution from a supply chain. In other words, a customer places an order for a product or service with a supplier. When the supplier delivers the product or service, this is called order fulfillment.
From the manufacturing and industrial standpoint, order fulfillment strategies may include assemble-to-order, build-to-order, engineer-to-order, and make-to-stock strategies. Each of these offers its own advantages and disadvantages. The individual strategies all carry one central theme in that a supplier is providing a product to a customer.
The most common fulfillment strategy is make-to-stock, in which the manufacturer determines an estimated number of units to create as in-stock items. This estimation is calculated using the economic laws of supply and demand, sometimes called the P:D ratio, to figure consumer demand for a product. The manufacturer then creates these in-stock units, which are available for immediate shipment. The advantage of this strategy is the ready availability of units for sale. The disadvantage is the possibility of a miscalculation of public interest, which may leave the manufacturer with a warehouse full of unsold products.
Assemble-to-order strategies are formulated to help eliminate the possibility of large amounts of unsold stock. Unlike make-to-stock products, the component parts of these products are not assembled into a finished product until an order is placed. Using this strategy, the manufacturer has the advantage of flexibility to use the components for other products and a lower labor in unsold products. The strategy offers a distinct disadvantage, however, in that it can increase product delivery times and may also result in the possibility of excess parts inventory.
Some manufacturers choose a build-to-order strategy. This is similar to assemble-to-order, as the product is not built until orders are placed. Unlike the assemble-to-order strategy, however, even the component parts are not made prior to order placement. This can result in much slower product delivery times and back-ordering, a term used to describe a product which is unavailable at the time of the order. The assemble-to-order strategy offers advantages in the fact that no excess inventory is kept on hand, and the only investment prior to sales is in the actual engineering process and manufacturing equipment purchases.
Engineer-to-order strategies are the least common among order fulfillment. This method is usually reserved for manufacturers who deliver custom-made prototype products. Engineer-to-order products are often not even designed prior to a customer order. This method of order fulfillment offers the longest product delivery time and is not generally a multiple sale scheme. The redeeming factor of this strategy lies in the fact that there is no excess inventory or investment in products prior to order placement.