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Chapter 2

Order Management System

The modern business world is a complicated one. Processes that used to be straightforward, today include a range of extra challenges. Even something as seemingly simple as making a sale and getting the product to a customer is far more complicated than ever before.

Retailers and businesses must consider a multitude of factors when selling their wares:

  • The channels through which consumers are buying

  • Shipping options & fulfillment challenges

  • Third-party logistics

  • Analytics & business intelligence

It’s no surprise that many brands need a little assistance. Fortunately, the help that’s needed is close at hand in the shape of order management systems (OMS). An OMS is a vital part of operations for ecommerce and other businesses. If you’re not up to speed on what an order management system is, it’s time to learn.

Read on, and you’ll find out everything you need to know. We’re going to cover all the following – and more – in this definitive guide:

  • What an OMS is

  • What it does

  • What types of OMS there are

  • How an OMS could benefit you

  • How you can choose the right system for your business

Let’s get started.

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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 the 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.

Sales, inventory and fulfillment are often handled by your OMS. That’s why an order management system is so critical.

What Must an OMS Do?

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 ecommerce 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:

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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 ecommerce 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 ecommerce 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 not only to your warehouse management but your overall productivity.

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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 with which you’re working. That’s a win-win, or a win-win-win when you consider the benefits delivered to customers.

4. Encompass Reverse Logistics

All ecommerce 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 a range of options. It may write off stock that’s sent back, quarantine it, or add it back to your inventory on-hand.

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Types of systems for order management

As we mentioned earlier, different businesses have different needs for an OMS. Smaller, simpler brands can get by with a less comprehensive system. The more complicated your business gets, though, the more you need a wider-reaching OMS. The following are five of the most common alternatives to choose from:

  • Manual order management

  • Using an ecommerce platform

  • Standalone order management software

  • Enterprise retail platform (ERP) software

  • A Digital Operations Platform for retail

1. Manual Order Management

Tracking and managing orders manually is inadvisable for all but the smallest companies. You can, however, record all order details yourself in a ledger or via spreadsheets. Doing so will often involve building a comprehensive sheet in Excel or a similar program. That way, you might be able to keep pertinent order details together and up to date.

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Such manual order management, though, is labor-intensive. It will take a significant number of staff-hours just to keep a system updated. That’s time you could be spending on other things. What’s more, there’s a high potential for human error. Record an order incorrectly, and issues may swiftly snowball.

There are two principal arguments against a manual system. The first is its lack of scalability. Once order volumes increase, manual order management becomes increasingly less viable. When you add extra sales channels, too, aligning everything by hand is tough. You need some help from technology.

A complicated master spreadsheet is also far from intuitive. Its creator may find it straightforward to keep it up to date. If they leave the business, though, a new starter may struggle to make head or tail of it. That’s not a good recipe for efficiency or productivity.

2. Using an Ecommerce Platform

If you sell online, you’ll use an ecommerce platform. It’s the solution by which you’re able to accept orders from customers who visit your website. Smaller, younger brands also utilize their ecommerce platform as an order management system.

Doing so can be effective in limited circumstances. Such platforms do record order details, which are accessible by your sales or customer service team. There’s often also a facility to track order statuses, and even update inventory. Relying solely on an ecommerce platform is only an option when the following is true, however:

  • All your orders come through your site. There are none via third-party channels.

  • Your website and office are closely linked to your warehouse, allowing you to keep inventory and fulfillment details up to date.

  • Your customer service staff have full access to the ecommerce platform.

  • You don’t have any significant growth plans.

  • You only need simple order fulfillment processes

Leaning on your ecommerce platform for order management is less viable, if:

  • You use more than one sales channel.

  • Your logistics is more complicated. If, for instance, you have more than one warehouse or sometimes utilize dropshipping.

  • You plan to scale your brand without compromising your customer experience.

3. Standalone Order Management Software

When looking for a more effective OMS, many firms turn to standalone order management software. This software becomes a part of the firm’s retail tech stack and works alongside other solutions. That means things like their ecommerce platform, accounting systems, and more.

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Such a standalone tool introduces all the fundamental elements of order management. It lets firms centralize and track order data and makes details of customers and purchases readily accessible. Some of the better solutions, too, have extra functionality. That includes inventory management and warehouse management.

The primary limitation of standalone software comes in the area of integration. As mentioned, the software must work alongside many other solutions. It can be tough to align your order management with shipping, accounting, inventory demand planning, POS and other platforms. The result can be miscommunication, data siloes, lack of scalability, and other unwanted issues.

Enterprise Retail Platform (ERP) Software

Firms that run into the constraints of standalone solutions often turn to ERP software. This type of system unifies far more business operations and departments. Rather than being specific to order management, ERP software spans many areas. They can include all the following:

  • Inventory management

  • Warehousing & logistics

  • Customer relationship management (CRM)

  • HR & payroll

The principal aim of ERP software is to integrate the many strands of any ecommerce business. It works to break down barriers between different business departments and operations. With an ERP system, a firm suffers less from siloed data. More info is readily accessible to a higher number of people across the organization.

Such systems do still have their downsides, however. For one thing, they’re typically complicated to implement, configure, and learn. Gartner estimates that 55% to 75% of all ERP projects fail to meet their objectives. What’s more, ERP software is often somewhat generic. It’s not tailored to specific industries, let alone individual businesses. You may end up, therefore, with a raft of functions you don’t need.

Digital Operations Platforms Tailored
to Retail

A digital operations platform tailored to retail is the option for brands that are serious about order management and other back office operations. These systems encompass all aspects of the order process that we discussed early. That means both the ecommerce process and the so-called ‘order to cash’ process.

These platforms centralize and unify all company data and operations. They connect all the following spokes of your business:

  • Multichannel order management

  • Inventory management

  • Warehousing & logistics

  • Controlling supply chains

  • Reverse logistics

  • Shipping & fulfillment

  • CRM

  • Accounting

  • Business reporting & intelligence

  • Forecasting & inventory planning

The best digital operations platforms also provide a further advantage, alongside company-wide unification. That is flexibility and agility to your business changes and growth. You can easily adapt your back office workflows to fit your business needs – whether you’re enabling a new sales channel or switching to a new business model such as wholesale or DTC.

forrester digital operations platform

Benefits of an Effective OMS

You should now have an idea of what an order management system is. We’ve also touched on what functionality the different types of solutions provide. What we haven’t discussed enough is the benefits that choosing the right OMS can have for your brand. Let’s remedy that right now.

1. Automation

We’ve all heard the phrase ‘time is money’. In the modern ecommerce niche, that adage has never been more accurate. Companies must work harder than ever to acquire and retain customers. Consumers have never had more choice, and it’s never been easier to switch brand loyalties. Your firm must spend as much time as it can on winning new customers and serving existing ones.

The back-office processes involved with order management are often time-consuming. With the right OMS, a business can automate a great many of those. With software handling data entry and more, your staff are free for more complex tasks.

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The benefits of workflow automation are becoming apparent across niches. The best software now incorporates AI for supply chain, logistics, and inventory automation. That lets you automate the entire order to cash process. Your team can then work with customers rather than crunching numbers.

2. Reduction of Human Error

Where there are humans, there’s human error. Even the most diligent and skilled employee will occasionally slip up. When they do, it can cause significant issues, even if the original mistake was small. Consider the scenarios outlined below:

  • You receive an order through your website for five items. A staff member mistypes when sending the order to the warehouse and records it as 50 items. You send out ten times the number of items needed.

  • One of your warehouse team starts to pick an order and marks the order as shipped prematurely. They then get distracted and never actually pick, pack, or ship the order. Your system records the order as complete when it’s not.

  • A customer places an urgent order on a third-party platform. Your team member responsible for the platform forgets to check it for two days. Due to the delay, you can’t fulfill the request in time.

With the right OMS, many of the above tasks get handled automatically. There’s less opportunity for a simple error to create a much more significant problem.

3. Accurate, Real-Time Reporting

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Even when your staff get it right, processing orders and updating systems takes time. That’s especially true when you have many pieces of software, rather than a unified solution. Therefore, the data your business will have to hand may not always be entirely up to date.

That’s not the case when you leverage an efficient OMS. The right system provides real-time data regarding orders, inventory, customers, and more. That’s the kind of information you need for smarter analytics and decision-making.

With accurate, real-time reporting, you can get a jump on your rivals. You can track product performance and customer behavior to ID patterns and trends. That’s how you make the correct decisions for the present and the future.

4. Superior Customer Experience

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The correct OMS can aid customer experience in a range of ways. They include:

  • Allowing customer service agents to reply to queries about order status more easily.

  • Providing more accurate shipping and delivery information.

  • Ensuring all products are always marked in or out of stock correctly.

Choosing the Right OMS

Now that you know all the advantages of having the correct OMS, you’ll want to know how to find it. There’s no one-size-fits-all solution. Businesses are unique, and so each will need something slightly different from an OMS. There are some standard criteria to consider, though, for all ecommerce brands.

Vital Considerations

Whether your firm is large or small, there are a few areas to focus on when comparing OMS options. The following are six considerations to keep in mind before choosing the system to handle your company’s orders:

  • Integrations

  • Impact on Supply Chain

  • Reporting & Analytics

  • Customer Experience

  • Scalability

  • Service

1. Integrations

No matter the type of OMS you adopt, you’ll need it to integrate with other aspects of your business. Standalone OMS software must work alongside accounting and inventory management tools. Even a complete digital operations platform needs to integrate to some degree. For instance, with your site and third-party sales or marketing platforms. One important thing to consider is how the integration was built, whether it’s direct or indirect integration, built and managed in house or outsourced. This makes a real difference to the integration’s reliability and efficiency.

Before choosing the right system for you, think about the other apps and services with which it must mesh. They may include separate sales channels, marketing tools, and more. The correct OMS for your brand is one that doesn’t require you to change your whole setup to use it.

2. Impact on Supply Chain

Your business doesn’t exist in a vacuum. Retailers – online and otherwise – are part of broader supply chains. You’ll buy either stock or raw materials from a collection of suppliers. You then might send some or all of it onto distributors or 3rd-party logistics companies. They would then be responsible for getting products to consumers.

Impact_on_Supply_Chain

When choosing an OMS, you must also think about how the system may impact your supply chains. Could adopting a particular solution make processing orders from some suppliers more difficult? Does choosing one OMS alternative preclude you from using a favored 3PL provider? If the answer to either question is yes, you’ll want to look toward a different system.

3. Reporting & Analytics

Order management systems aren’t purely for tracking your present circumstances. As well as keeping tabs on current orders, they should also help you understand broader patterns and trends. That understanding is what then facilitates accurate forecasting and planning for the future.

When choosing an OMS, look into the reporting capabilities on offer. Ask yourself the following questions:

  • Does the solution let you monitor product and channel performance over time?

  • Can you generate and view reports on customer demographics?

  • Can you otherwise track your sales to get a complete picture of business performance?

  • Do you have a real-time overview on your profitability?

  • Can you make data-driven demand forecasting?

Getting accurate, varied data from your OMS can help many areas of your business. Customer information will help you better target marketing campaigns. You can improve inventory management with access to accurate sales figures. Profit and loss reports, meanwhile, let you drill down on your overall financial health. If a system doesn’t allow for this depth of reporting, you’re missing out.

sales channel performance insights

4. Customer Experience

While not designed to be customer-facing, an OMS can have an impact on customer experience. We discussed earlier how the right system could ensure that the impact is a positive one. An inadequate system, meanwhile, may have negative implications.

Take, for instance, an OMS that’s designed to handle only one sales channel or currency. If you sell via many platforms or have customers abroad, adopting the solution will hurt your business. Make sure any OMS you choose covers all the bases needed for your business.

5. Scalability

Ecommerce brands – like all small businesses – often have lofty plans for the future. No company dreams of standing still; they all want to grow and develop. A key consideration when choosing an OMS – or any other tech – is whether it can scale along with the business.

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Consider where you want your brand to be in five years. Will you be selling on far more platforms? Will your order volume double or triple? Will you consider a new business model, such as DTC? Might you have adopted new tech such as AI or Edge Computing? Then ask yourself, can this OMS handle those changes to my operation? If the answer’s yes, you’re onto a winner.

6. Service

An OMS vendor isn’t a company from which you buy a product and then forget about. Or at least they shouldn’t be. Adopting a company’s order management system should mark the beginning of a relationship. When choosing a solution, therefore, you also need to think about the service on offer.

First, look into how much help a vendor offers with implementation. Are they going to be on hand to assist you in defining the scope of that process and manage your switchover? Do they also offer training for all your team members who will need to learn the new setup? If the answer to either query is no, you may wish to explore a different option.

You’ll also want to consider what help a vendor will offer over the longer-term. If anything goes wrong with your OMS, it’s invaluable to have 24/7 support available. Equally, ongoing consulting to help optimize workflows and teach best practice for your system can make a real difference.

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Step-by-Step Guide to Choosing the Right OMS for You

Take all the above into consideration, and you’re ready to choose an order management system. 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

  • Suppliers

  • Distributors

  • Customers

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

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. Creating such a document will help organize your own thoughts. It will also show vendors what you’re asking of them.

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 worth their salt 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 Takeaways

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.

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