Order 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 the packed item(s) to a shipping carrier. The specific order fulfillment process or the operational procedures of distribution centers are determined by many factors. Each distribution center has its own unique requirements or priorities.
Order fulfillment (in BE also: 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 how 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,how long customers are willing to wait for the order to be completed.
The order fulfillment strategy also determines the de-coupling point in the supply chain (Olhager, 2003), which describes the point in the system where the push (or forecast-driven) and pull (or demand driven see Demand chain management) 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).
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. 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 (goods) to be re-distributed to retailers, wholesalers or directly to consumers.
A distribution center is a principle part, the order processing element, of the entire order fulfillment process. Distribution centers are usually thought of as being demand driven. A Distribution center can also be called a warehouse, a DC, a fulfillment center, a cross-dock facility, a bulk break center, and a package handling center.
This list is only a small sample of factors that influence the choice of a distribution centers operational procedures. Because each factor has varying importance in each organization the net effect is that each organization has unique processing requirements. The effect of Globalization has immense impacts on much of the order fulfillment but its impact is felt most in transportation and distribution.
The name by which the distribution center is known is commonly based on the purpose of the operation. For example a retail distribution center normally distributes goods to retail stores, a order fulfillment center commonly distributes goods directly to consumers, a cross-dock facility stores little or no product but distributes goods to other destinations, Another way to look at a distribution center is to see it as a production or manufacturing operation. Goods arrive in bulk, they are stored until needed, retrieved and assembled into shipments. The efficient processing of a distribution center can greatly impact the final price of product as it is delivered to the end user.
Efficient processing not only directly impacts the cost of goods through reduced labor it indirectly impacts the cost of goods through reduced inventory. Inventory represents an investment with its associated investment interest or inventory carrying cost. Reducing the processing time of order processing can directly reduce the amount of inventory necessary to be stocked in the operation. See the related Wikipedia article on Demand chain management.