What is an Order Management System (OMS)?
You should see by now – if you didn’t know already – that modern order management is no straightforward task. The days of buying the correct products, marketing them, and letting everything else take care of itself are long gone.An OMS is a method by which firms handle this vital business process. It can be any tool, platform, or structure to track and control all the elements of the process detailed earlier.
Your OMS often handles sales, inventory, and fulfillment. That’s why an order management system is so critical. Now that you understand the basic order management system definition, we’ll dig into the details of what it does. This will help you answer that nagging question: What is order management system software used for?
How does an Order Management System (OMS) Work?
An Order Management System (OMS) starts by offering comprehensive visibility into available inventory across your warehouses, brick and mortar stores, and third-party suppliers, such as 3PL (third-party logistics) firms and drop-ship locations. This visibility allows for efficient inventory planning and management.Once an order is received, the OMS facilitates the entire fulfillment process. It captures, validates, and releases orders, ensuring accuracy and completeness. The OMS includes pick, pack, and ship functionality, including support for drop-shipping. It generates shipment confirmations and facilitates customer communication to keep them informed about their order status.
Furthermore, a robust OMS seamlessly integrates with payment systems, making it easy to process payments and synchronize data with financial systems. This integration ensures smooth financial transactions and accurate accounting.
In the event of a product return, a comprehensive OMS streamlines the process. It establishes rules for handling returns from all channels, facilitates exchange requests, credits the customer account, and manages the entire dispositioning process.
By encompassing these functionalities, an OMS enables businesses to efficiently manage the entire order lifecycle, from inventory planning to fulfillment, payment processing, and returns management.
Features of Order Management Software
From real-time inventory visibility to efficient order capture and validation, seamless integration with sales channels, and streamlined returns management, an OMS offers a wide range of key features that empower businesses to optimize their order management processes. Let’s explore the key features of an OMS in more detail:
- Comprehensive Inventory Visibility
An OMS provides real-time visibility into available inventory across multiple warehouses, stores, and suppliers, ensuring accurate inventory tracking.
- Order Capture and Validation
The OMS captures and validates orders from various sales channels, ensuring order accuracy and completeness.
- Efficient Fulfillment
With pick, pack, and ship functionality, the OMS streamlines the fulfillment process, including support for drop-shipping and generating shipment confirmations.
- Seamless Integration
An OMS integrates with online sales channels, allowing businesses to engage in multi-channel selling. Whether you have brick-and-mortar stores or an e-commerce presence, your OMS needs to seamlessly integrate with Point of Sale (POS) systems and payment gateways. This integration ensures smooth and secure payment processing, inventory synchronization, and accurate data synchronization with financial systems.
By enabling seamless integration across various platforms, an OMS centralizes and harmonizes data, providing businesses with a unified view of their operations. This integration capability facilitates efficient order management and enhances customer experiences across all sales channels. In a nutshell, an OMS seamlessly integrates with e-commerce platforms, marketplaces, shipping carriers, and accounting software, creating a unified ecosystem.
- Reserving Goods
One essential feature of an Order Management System (OMS) is the ability to reserve goods. With this feature, businesses can allocate inventory for specific orders or customers, ensuring that the requested items are set aside and not available for sale to other customers.
- Update Shipping Preferences
An advanced feature offered by an Order Management System (OMS) is the ability to update shipping preferences. This feature empowers businesses to customize and optimize their shipping processes according to their specific needs. With the OMS, businesses can easily manage and modify shipping preferences such as preferred carriers, shipping rates, and insurance options. This flexibility allows businesses to choose the most cost-effective and efficient shipping methods for different orders and destinations.
- Track Orders from Quotes to Delivery
A comprehensive feature offered by an Order Management System (OMS) is the ability to track orders throughout the entire order lifecycle, from quotes to pickup, invoicing, and delivery. The OMS enables businesses to create and track quotes, converting them into orders seamlessly. It tracks the order fulfillment process, including inventory allocation, picking, packing, and shipping. The OMS also generates and manages invoices, ensuring accurate billing and timely payment processing. Furthermore, businesses can track the status of each order, monitor shipment progress, and provide customers with real-time updates.
- Returns Management
The OMS establishes rules for processing returns, facilitating exchange requests, crediting customer accounts, and managing the dispositioning process.
- Reporting and Analytics
A robust OMS provides comprehensive reporting and analytics, offering insights into order and inventory performance, enabling data-driven decision-making.
These key features make an OMS an essential tool for businesses to efficiently manage their orders, inventory, and fulfillment processes, ultimately improving operational efficiency and customer satisfaction.
Benefits of Order Management System
No matter the size or nature of your business, an OMS must fulfill certain functions. How complicated it is to do so depends on your firm and the level at which you operate. That’s why some companies need a more comprehensive system than others. But we’ll talk more about that later.
- 1. Track All Orders
Tracking and monitoring orders is perhaps the most fundamental aspect of any OMS. Once an e-commerce brand grows beyond the smallest size, it needs some kind of system to handle orders. Even the most proficient, on-the-ball worker can’t keep all order details in their head.
At heart, an OMS is about making life easier for both a brand and its customers. The correct system can create a more seamless customer experience. It can also make inventory management, logistics, and more processes far more intuitive. In order to do so, such a system must do all of the following:
An order management system becomes even more vital for firms that sell via many channels. The best OMS will track and record orders through your webstore, marketplaces, and other platforms. Centralizing and unifying sales in that way can make a real difference to efficiency and productivity, as well as eliminate errors.
It’s not all about digital channels, either. An OMS will also record and handle orders placed over the phone or in-store if you have such a presence. All details of all orders, therefore, become available in one place. You and your staff can check order statuses, make relevant changes, or reach out to customers with greater ease.
- 2. Monitor & Manage Inventory
The placement and handling of orders impact many other elements of your business. Every order placed and fulfilled, for instance, affects your inventory. Getting inventory management correct is vital for any e-commerce brand.
If you don’t have an accurate measure of your inventory, a range of issues can arise:
- Overselling – Accepting orders for products of which you don’t have adequate stock to fulfill. Doing so leads to canceling those orders and disappointing customers.
- Overstocking – Thinking you’re short of a product and over-ordering replacement inventory. This means you waste valuable warehouse space and could get left with dead stock.
- Inaccurate Forecasting – If you don’t have accurate inventory figures, it’s harder to understand customer demand. You may miss when there’s an uptick in desire for a particular product. That could see you run out of stock when you might have pre-empted the increased demand.
An order management system will simplify the inventory tracking process. The best software will update your inventory levels in real-time. That means they change with every order that’s placed. That’s regardless of the channel by which the purchase gets made.
- 3. Facilitate Order Fulfillment
So far, your OMS has recorded the orders placed and helped you track the inventory required for them. There’s more to e-commerce operations than that, however. Namely, you also must get the ordered products to your customers. An OMS helps in this regard, too.
The best order management system will streamline many logistics processes. Those can include routing orders to the right warehouse, auto printing shipping labels, and much more. Such efficiencies can make a real difference to your warehouse management and overall productivity.
Having the correct OMS in place is especially helpful for firms that use 3rd-party logistics (3PL) providers. If your OMS integrates with a 3PL’s system, order fulfillment is faster and more intuitive. It makes life easier for your firm and the provider you’re working with. That’s a win-win, or a win-win-win when you consider the benefits delivered to customers.
- 4. Encompass Reverse Logistics
All e-commerce businesses know that returns are an inevitability. Approximately 30% of products bought online get returned. That’s as compared to less than 10% bought in-store. Handling returned items and dealing with the customers who sent them back is vital to order management.
With the right OMS, reverse logistics becomes much more straightforward. A top-class system gives you many options in this regard. You may, for instance, be able to clone an original order to create a credit instantly. That makes it more straightforward to manage refunds, replacements, or reorders.
An OMS, too, makes it more intuitive to fold reverse logistics into inventory management. Depending on what’s returned, the system can give you various options. It may write off stock that’s sent back, quarantine it, or add it back to your inventory on-hand.
Challenges of an Order Management System
Challenges of an Order Management System (OMS) can arise despite advanced software solutions. Here are some common hurdles and advice on how to address them:
- Lack of Integration
For optimal efficiency and customer service, it’s crucial that your OMS integrates with other essential areas of your business, such as online and offline sales channels, finance management, CRM, and supply chain. Seamless integration enables data synchronization, streamlines workflows, and avoids data silos.
- Missing Features
A user-friendly interface with clear and concise information is vital for OMS usability. Ensure that the OMS provides key features like inventory monitoring, returns processing, fulfillment automation and advanced reporting with easily understandable dashboards. Look for additional functionalities such as POS integration, robust customer support, and the ability to prioritize orders for shipping or in-store pickup.
- Lack of Configuration
Customization is crucial to tailor the OMS to your specific business needs. Choose a platform that allows you to customize data access, reports, and other information. This ensures data security while empowering employees at different stages of the customer lifecycle to perform their tasks effectively.
- High-volume order processing
As businesses grow and experience increased order volumes, the OMS may face challenges in efficiently handling large quantities of orders. The OMS must be equipped to handle simultaneous order processing without performance degradation or system slowdowns.
- Complex Automation
Some OMS platforms require customized development or extensive configuration to enable workflow automation, which can be time-consuming and costly. Custom development or configuration for automation can result in delays in system implementation, as well as increased costs for hiring developers or consultants. Moreover, the complexity involved may require ongoing support and maintenance, adding to the long-term expenses.
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Order Management System Examples
So far, we’ve outlined the functions and benefits of order management systems, and taken you through a few examples of software solutions in this area.
By now, you’re thinking, “This all sounds great, but how does an OMS actually work?”. Before you allocate any budget to OMS investment, you want to understand what you’d actually be paying for. Plus, you’ve got to justify to finance managers that order management spending is a better way forward than simply improving existing manual processes or re-allocating staff, for instance.
There are actually a few different types of order management systems, so we’ll take a look at how each one works individually:
- B2B Order Management System
B2B stands for “business to business”, so B2B order management systems refer to software solutions that specifically cater to this kind of commerce.
Whereas B2C (business to consumer) order processing can be relatively straightforward, the B2B order management process is generally more complicated. One reason is that the buying cycle tends to be longer than B2C. On top of this, quantities are larger and different paperwork is involved.
Your B2B order management system needs automation software for each stage of the purchasing and fulfillment processes. The stages in each business transaction are tracked, with the next stage triggered after the previous one is marked complete.
Here is an example of a typical business order cycle:
- A client places an order directly through your e-commerce platform or a sales representative.
- The order is received and logged into your OMS.
- Order confirmation and invoice or alternative payment request are sent to the client.
- A notification is sent to your warehouse to reserve the products ordered.
- The inventory is automatically checked and the products are marked for picking and packing.
- Picking and packing take place.
- Items are marked for dispatch.
- Couriers/freight channels are notified of items ready for dispatch.
- Items are collected and a dispatch notification is sent to the client.
- Products are delivered and the order is marked as complete.
- Delivery notification is sent to the client.
To avoid man-made slip-ups that cause delays and order failures, your B2B OMS should include an EDI system. EDI is short for “Electronic Data Interchange;” a software service that digitizes the paper trail for business to business purchases.
Rather than relying on error-prone humans to send out transaction papers on time, the EDI automatically processes the documents involved. Instead of printing out and mailing (or faxing) invoices, the EDI systems of two companies simply connect and send digital copies of these documents as needed.
If you intend to do business with larger corporations, you’ll absolutely need an EDI software system in place because this is the industry standard for enterprise B2B purchasing.
Thankfully, an EDI takes a heap of stress off your plate because of its superior ability to handle POs and customs and inventory documents from one centralized place. More organized document handling means you can look forward to more streamlined B2B order management. Your accountants and operations managers will thank you for the investment.
- Cloud-Based Order Management System
With a digitized order management process, it stands to reason that all that digital paperwork will need storage somewhere. If you’re operating a smaller business, local storage (i.e., saving files on your office computer) plus backing up on external hard drives works just fine. But such a system won’t scale up all that easily. When warehouses, freight shipping, and back-orders are involved, it’s time to upgrade to a cloud-based solution.
A cloud-based order management system is an OMS backed up to an external cloud-based server. If you’re paying for a cloud OMS here are some benefits you’ll likely enjoy:
- Real-time updates: Clients will receive timely updates on their order status as cloud computing tends to enjoy close to 99.98% uptime.
- Reliable shipping notifications: Cloud computing ensures powerful data processing, meaning less likelihood of delayed notifications.
- Free up staff time: While manual OMS systems require constant updating or maintenance by human staff, cloud systems can execute functions without supervision.
- Subscription payments: Cloud computing tends to run on subscription-based models, meaning your company can choose to invest in more or less service provision as your operations scale.
So, it’s not hard to see why cloud-based order management can lead to improved customer happiness. The key is regular, accurate, and personalized updates, which have become minimum expectations in today’s competitive B2B and B2C markets.
- Multichannel Order Management System
According to recent research, a startling 70% of brands intend to add new sales channels to their portfolios in 2022. More sales channels mean more complexity in order fulfillment logistics and a greater propensity for errors to creep in. When the scope of your operation broadens, accuracy and attention to detail become increasingly important.
A multichannel order management system can solve the complex processing challenges of diverse sales platforms.
Here are some examples of the range of channels consumers purchase through:
- Supermarkets and other bricks-and-mortar locations
- Amazon Marketplace, eBay, and Google Shopping
- Television shopping channels
- Catalogs, newspapers, and magazines
- Facebook, Instagram, and other social networks
- E-commerce sites managed by retailers
With multichannel OMS, you can streamline order processing from several sales channels, both online and offline. It updates your inventory stock levels as soon as orders are placed. An integrated POS system ensures physical purchases feed into e-commerce inventory updates.
If you’ve got software linking all your sales channels to a centralized platform, that’s called an omnichannel order management system.
Whether you’re selling B2B, B2C, or even D2C (direct to consumer), no doubt offering a variety of sales channels increases your competitiveness.
Since the COVID-19 pandemic and the subsequent boom in e-commerce, retailers learned just how crucial digitization of their sales channels was. In fact, multichannel online retailers in the US are expected to grow their revenue by 64% to £575bn by 2023, compared with 2020.
Statistics like that leave no room for doubt about the importance of an OMS, particularly for e-commerce retail. But how do you know exactly which type is best for you? Read on to find out.
- Retail Operating System
Retail Operating System is an advanced and comprehensive alternative to simple order management system, specifically built for retailers and wholesalers.
Ideal for retail, e-commerce, and wholesale businesses, a Retail Operating System goes beyond order management and encompasses a wide range of functionalities and capabilities to streamline and automate various back-office operations. It provides integrated solutions for order and inventory management, warehouse operations, shipping and fulfillment, accounting, purchasing, and more.
With comprehensive features and automation capabilities, a Retail Operating System offers a holistic solution to handle the complexities of retail and wholesale operations, resulting in improved productivity, customer satisfaction, and profitability.
Introducing Brightpearl: The #1 Retail Operating System
When it comes to Retail Operating Systems, one solution stands out above the rest: Brightpearl. As a purpose-built Retail Operating System, Brightpearl is specifically designed to automate and streamline all aspects of back-office operations. From inventory and order management to warehousing, fulfillment, shipping, purchasing, and accounting, Brightpearl handles it all. Here is how Brightpearl fuels your business growth.
How to Choose Order Management System
Considering all the above, you’re ready to select your order management system software. Precisely how, though, do you go about doing so? If you follow these straightforward steps, you won’t go far wrong:
- 1. Define Goals & Objectives
Talk to all stakeholders about implementing a new OMS. That will include:
- Team members
Find out from them what your aim should be in upgrading your system. Doing so will help you ID the functions that are a must to meet your goals and those you can do without.
- 2. Create a Proposal
Creating such a document will help organize your own thoughts. It will also show vendors what you’re asking of them.Use what you learned in step one to draft a comprehensive proposal. It must detail exactly what you need from a new OMS. Incorporate things like order volumes, sales channels, and plans for the future.
- 3. Research & Reach Out to Vendors
Look at the present order management system marketplace. What vendors are out there that may be able to meet your needs? Draw up a shortlist, and then reach out to the best options. Send them the proposal you created and invite them to open a dialogue.
- 4. Evaluate & Compare Your Options
Once you’ve heard back from different vendors, you can compare their offerings. Think about your company’s needs and the functions you decided were essential. Keeping that top of mind should help you choose the best possible OMS option.
- 5. Work With the Vendor to Implement
Any order management software vendor will want your implementation to succeed. Often, they will provide guidance and assistance throughout the process. It’s in their interest too, after all, for you to get the most from their software. The closer you work with a vendor at the outset, the more likely that is.
OMS – The Key Takeawaysm
So, there you have it. You now know everything you could possibly need about order management systems. We did warn you that it was going to be a definitive guide! Just in case you didn’t read every single word, here are the key takeaways:
- The order management process is a long and complicated one. It encompasses a sale, warehouse management, inventory, shipping and fulfillment, and more.
- Businesses have lots of OMS options. They include manual order management, standalone software, or a more comprehensive platform.
- Companies can choose between manual order management, standalone software, or a more comprehensive platform.
- Getting the right OMS in place delivers many benefits. They include better scope for automation, fewer errors, and superior customer experience.
- As long as you understand what you need from an OMS, it’s easy to find the right one for you. Define your objectives at the outset. Then, work closely with your chosen vendor throughout implementation.
Frequently Asked Questions
- 1. What is the order management system?
An order management system (OMS) is a method by which firms handle the process of taking, tracking, and controlling orders. It can refer to any tool, platform, or structure used to manage all the elements of the order process, including sales, inventory, and fulfillment. An OMS is critical for businesses to ensure efficient order processing and customer satisfaction.
- 2. What are the examples of order management systems?
There are several examples of order management systems that businesses can choose from based on their specific needs and requirements. Here are some popular order management systems:
a. Brightpearl: Brightpearl is a comprehensive Retail Operating System designed for e-commerce brands, multi-channel retailers and wholesalers. It offers features such as order management, inventory management, inventory forecasting, purchasing, warehouse operations, accounting, and reporting. Brightpearl is known for its scalability, automation capabilities, and robust integrations with various sales channels and marketplaces.
b. Extensiv Order Manager: Previously called Skubana, Extensiv Order Manager is specifically designed for e-commerce order fulfillment. It provides tools to manage inventory, order processing, shipping, and fulfillment. Extensiv Order Manager offers integrations with popular e-commerce platforms.
c. Cin7: Cin7 is an inventory management and order management system suitable for retail, wholesale, and distribution businesses. It offers features like inventory tracking, order processing, fulfillment, and warehouse management. Cin7 provides multi-channel selling capabilities, and integrations with e-commerce platforms and marketplaces.
d. Linnworks: Linnworks is a multi-channel order management system that allows businesses to manage orders, inventory, and shipping across multiple sales channels. It offers features like order processing, inventory management, shipping label generation, and reporting. Linnworks integrates with various e-commerce platforms and marketplaces.
- 3. What is ERP vs OMS?
An enterprise resource planning (ERP) system is a comprehensive, integrated solution that can be configured to manage various back-office operations, including supply chain management, accounting, manufacturing, reporting, HR, and more.
In contrast, an order management system (OMS) is specifically designed to handle customer orders within the supply chain. It focuses on order taking, order tracking, order splitting, inventory updates, and shipping.
While an ERP offers more functionality and can be customized to work for any business, it is important to note that ERP customization and deployment can be costly and time-consuming. Additionally, more than 50% of ERP implementations fail to meet expectations.
- 4. What makes a good order management system?
A good order management system should have several key features and capabilities:
- Seamless integrations with multiple sales channels and marketplaces
- Real-time inventory visibility and management
- Efficient order processing and tracking
- Robust reporting and analytics for insights into sales and inventory performance
- Automation of manual tasks, such as order fulfillment and invoicing
- Integration with shipping carriers for streamlined shipping and tracking
- Scalability to support business growth and increasing order volumes
- Responsive customer support and ongoing system updates
- 5. What is the difference between OMS and CRM?
While both order management systems (OMS) and customer relationship management (CRM) systems play a role in managing customer interactions, they serve different purposes.
An OMS focuses specifically on order processing, inventory management, and fulfillment. It tracks orders from placement to delivery and manages the logistical aspects of the supply chain.
On the other hand, a CRM system is designed to manage customer relationships and interactions. It stores customer data, tracks communication, and helps businesses enhance customer engagement and retention.