Different Types of Inbound Orders in Fulfillment

By
June 27, 2024
5 min read
Different Types of Inbound Orders in Fulfillment

Inbound fulfillment refers to all activities involved in receiving, processing, and storing inventory that arrives at a warehouse or fulfillment center. Inbound operations kick off when a business places an order for materials or goods and end when the items are safely stored and recorded in the inventory management system, ready for use in production or for further distribution.

Five Types of Inbound Orders

There are different types of inbound orders, each with unique workflows and requirements. Efficient management of inbound orders not only enhances inventory accuracy but also strengthens supplier relationships and boosts operational efficiency

Purchase Orders (POs)

A purchase order (PO) is a legally binding document issued by a buyer to a supplier detailing the specific quantities and qualities of goods or services to be purchased. The vendor accepts the purchase order if they have enough inventory to fulfill the orders within the specified date. A typical PO includes:

  • Header Information: Company details, purchase order date, and PO number.
  • Vendor Information: Supplier's name, contact details, and address.
  • Shipping Information: Delivery address, shipping method, and terms.
  • Order Details: Line items with product codes, descriptions, quantities, unit prices, and delivery dates.
  • Summary: Subtotal, discounts, taxes, shipping costs, and grand total.

For example, consider a retail business placing a PO with a clothing manufacturer for 500 t-shirts. Let’s see how a PO would look in this instance.

Buyer Information:

  • Company Name: Retail Fashion Inc.
  • Address: 123 Retail Avenue, Suite 100, New York, NY 10001
  • Contact Person: Jane Doe
  • Email: jane.doe@retailfashion.com
  • Phone: (123) 456-7890

Vendor Information:

  • Company Name: Quality Clothing Manufacturers
  • Address: 456 Industrial Road, Los Angeles, CA 90001
  • Contact Person: John Smith
  • Email: john.smith@qualityclothing.com
  • Phone: (987) 654-3210

Purchase Order Information:

  • PO Number: PO-2024-001
  • PO Date: June 10, 2024
  • Delivery Date: June 30, 2024
  • Shipping Method: Standard Ground Shipping

Order Details:

Item Number
Description
Quantity
Unit Price
Total Price
TSH-001
Crew Neck T-Shirt (Medium)
200
$5
$1,000.00
TSH-002
Crew Neck T-Shirt (Large)
200
$5
$1,000.00
TSH-003
Crew Neck T-Shirt (Large)
100
$5
$500

Total Order Quantity: 500 T-Shirts

Total Order Value: $2,500.00

Additional Details:

  • Fabric: 100% Cotton, Single Jersey, 160 GSM
  • Color: Solid Blue (Pantone#19-4052 TPX)
  • Printing: Logo print on chest (Logo design attached)
  • Packing: Single-piece packing
  • Shipping Address: 123 Retail Avenue, Suite 100, New York, NY 10001

How Are POs Received and Processed?

Receiving and processing purchasing orders while maintaining compliance and real-time visibility requires businesses to adhere to a strict workflow.

  1. The buyer creates a PO based on organizational needs and gets it approved internally. This step often involves multiple levels of approval to ensure budget compliance and necessity.
  2. The approved PO is sent to the supplier, who reviews and confirms the order. This confirmation transforms the PO into a legally binding contract.
  3. The supplier sends a shipment notification, including tracking details, to inform the buyer of the impending delivery.
  4. Upon arrival at the warehouse, the goods are unloaded, inspected for quality and accuracy against the PO, and recorded in the inventory management system.
  5. The received goods are matched against the PO and the supplier's invoice to ensure consistency in quantity, type, and price. This step is crucial for verifying that the order is correct and complete.
  6. Once the three-way match is confirmed, the invoice is approved, and payment is processed. The PO is then marked as closed, completing the transaction
purchase orders processing workflow

Inbound Consignments

Inbound consignments represent the most basic type of inbound order – goods are sent by a supplier or manufacturer to a business's warehouse or fulfillment center, but the ownership of these goods remains with the supplier until they are sold or used. 

Inbound consignments are common in industries such as e-commerce, manufacturing, retail, and wholesale, where the need of the hour is to minimize inventory costs and risks.

For any business, processing inbound consignments involves several key steps:

  1. Purchase Order: The business places a purchase order with the supplier, specifying the quantity and type of goods required.
  2. Advanced Shipping Notification (ASN): The supplier sends a shipment notification, often with a tracking number, to inform the business of the impending delivery.
  3. Receiving and Inspection: Upon receiving the goods at the warehouse, they are unloaded, inspected for quality and accuracy against the purchase order, and recorded in the inventory management system as consigned stock.
  4. Putaway Stage: During this stage, the consigned goods are stored in designated areas within the warehouse, with their status clearly marked to indicate that they are supplier-owned.
  5. Inventory Management: The business tracks the consigned inventory, ensuring it is available for sale or production while maintaining accurate records of stock levels and movements.

This process, while seemingly straightforward, can pose several challenges for the uninitiated. For starters, manual data entry and tracking can lead to a cascade of errors in order fulfillment, including incorrect inventory counts, misplaced items, and delays in processing. These errors can lead to longer dock-to-stock cycle times, which is the time it takes for inventory to move from the receiving dock to its designated storage location.

Dock-to-stock cycle time is critical — higher cycle times not only delay inventory availability for outbound orders but also hold up delivery vehicles, leading to high detention charges for trucks or demurrage for ships and containers.

Moreover, a lack of real-time visibility into inbound shipments can make it difficult to anticipate inventory needs and allocate resources accordingly. This can result in stockouts, overstocks, and inefficient use of warehouse space, further impacting profitability and customer satisfaction.

To address these challenges, modern order fulfillment software offers a range of features designed to streamline inbound consignment processing. These features include:

  • Real-time inventory tracking to ensure accurate stock levels and reduce the risk of stockouts or overstocking.
  • Automated inspection and quality control to identify and address defects promptly.
  • Integrated communication tools and supplier portals to simplify supplier collaboration.
  • Seamless data integration with existing systems to offer a unified view of inventory and inbound operations.
  • Financial management with order fulfillment software to manage payment terms, track inventory carrying costs, and optimize cash flow.

Return from Customers

Return orders come into the picture when customers return products they have purchased. These returns can occur for several reasons, such as defects, incorrect items, dissatisfaction with the product, or simply a change of mind. It’s necessary today for businesses to be prepared to handle returns from customer orders, especially in e-commerce and retail sectors where return rates can be high. According to the National Retail Federation, total returns for the industry amounted to $743 billion in merchandise in 2023. 

Efficient returns management is crucial for several reasons:

  • Customer Satisfaction: A smooth and hassle-free return process can significantly impact customer loyalty and repeat business. A study by IMRG reveals about two-thirds of shoppers regularly look at returns policies before completing a purchase.
  • Cost Recovery: Prompt processing of returns can help businesses recover value from returned items through restocking or refurbishment.
  • Inventory Accuracy: Efficient returns management helps businesses quickly process and restock returned items, minimizing the time products spend out of circulation.

Processing returns from customer orders involves several key steps:

  1. The process begins when a customer initiates a return request, often through an online portal or customer service. The business must verify the return request against its return policy to authorize the return.
  2. Once authorized, the customer ships the product back to the warehouse. Upon arrival at the warehouse, returned items are scanned and logged into the inventory management system. This includes verifying the return label, updating return details, and assigning a return merchandise authorization (RMA) number if applicable.
  3. Returned items undergo a thorough inspection to assess their condition. This involves checking for damage, defects, or signs of wear and tear. Based on the inspection, items are sorted into categories such as "restockable," "refurbishment," or "disposal." 
  4. Items deemed restockable are prepared for return to inventory. This may involve cleaning, repackaging, and updating inventory records to reflect the returned quantity. Items are then placed back on shelves or in designated storage areas.
  5. Items requiring minor repairs or refurbishment are sent to a designated area for processing. This may involve cleaning, fixing minor defects, or replacing missing parts. Once refurbished, these items are treated as new inventory and restocked.
  6. Items that are damaged beyond repair, unsellable, or fall outside the return policy are disposed of according to company procedures.
  7. Maintain accurate documentation, including records of inspection results, restocking details, and disposal actions. Regular reports on return rates, reasons for returns, and associated costs help identify areas for improvement and optimize the returns process.

Stock Transfer Orders

A stock transfer order (STO) is used to move inventory from one location to another within the same organization. From the perspective of inbound orders, a stock transfer order involves receiving goods from another internal location. This is typically done to:

  • Rebalance inventory: Address discrepancies in stock levels between warehouses.
  • Meet regional demand: Ensure sufficient inventory is available in locations with high customer demand.
  • Consolidate stock: Reduce storage costs by consolidating inventory in fewer locations.

Due to the nature of STOs, businesses experience challenges due to poor visibility, gaps in communication, and lapses in compliance, both during inbound and outbound order processing. However, modern warehouse management software goes a long way to alleviate these pain points. It can:

  • Generate STOs based on predefined rules and inventory levels across locations.
  • Provide real-time visibility into the progress of each STO, from initiation to completion.
  • Recommend optimal inventory levels for each location based on demand patterns and historical data.
  • Simulate the impact of different inventory allocation strategies on warehouse performance.
  • Manage complex transfers involving multi-carrier shipping and several warehouses.
  • Streamline the process of returning excess or unwanted inventory to suppliers.

Cross-Docking Orders

Cross-docking orders refer to the process where products are directly transferred from inbound transportation (such as trucks or containers) to outbound carriers with minimal or no storage time in between. This method involves unloading goods from incoming vehicles, sorting them based on their destinations, and immediately loading them onto outbound vehicles for delivery.

Cross-docking is particularly beneficial for the following types of businesses and industries:

  • Retail Industry: Retailers, especially those dealing with fast-moving consumer goods (FMCG), benefit from the timely delivery of products to stores, reducing inventory holding costs.
  • E-commerce Sector: E-commerce companies use cross-docking to expedite order fulfillment and meet customer expectations for fast delivery. According to a 2022 Oracle Retail survey, 51% of people expect delivery within two days when shopping online.
  • Food and Beverage Distribution: Perishable goods such as fresh produce, dairy products, and beverages require quick turnover to maintain quality and reduce spoilage.
  • Pharmaceuticals: The pharmaceutical industry uses cross-docking to ensure that medications and medical supplies are delivered on time – critical for patient care and regulatory compliance.
  • Automotive Industry: Car manufacturers and parts suppliers use cross-docking to support just-in-time (JIT) manufacturing processes and reduce inventory costs.

Hopstack for Inbound Operations

Optimize your inbound operations with Hopstack's comprehensive inbound module. Our platform streamlines processes, significantly reducing dock-to-stock time, minimizing errors, and optimizing inventory placement to align with your specific business requirements. Hopstack's data-driven approach ensures unparalleled efficiency in your warehouse operations.

Want to see how Hopstack can transform your inbound operations? Contact us today to schedule a demo.

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