What Is Order Management?
In ecommerce, we focus a lot of resources on attracting customers to our online stores and getting them to purchase our products. But this is just the start of your relationship with the customer.
Once the product is picked, packed, and sent to the customer, the inventory needs to be updated and the customer needs to be contacted.
On top of this, you probably want to be able to track the order and request customer feedback too. This is relatively straightforward when you only have a few products, but what happens when you start selling through multiple channels?
Managing your orders across different channels can be quite complicated, especially when it comes to making sure your stock levels are accurate.
You don’t want customers purchasing a product that later turns out to be out of stock. Yet, for many retail businesses, the stock levels are accurate only 63% of the time!
That is a lot of potentially unhappy customers.
Without a process in place, managing your orders will eventually become impossible. In this article, I will break down all the steps in the process so you can remove any friction and give your customers an amazing experience.
We’ll cover:
- What is order management?
- Why is order management important?
- What are order management systems?
- The order management process
Let’s dive in.
What is Order Management?
Order management is the process of a customer placing an order and receiving the products. This sounds simple, but there are a lot of steps involved and a lot of space for mistakes to be made.
Order management includes:
- Placing an order
- Payments
- Inventory checking and inventory management
- Picking and packing
- Shipping and label printing
- Tracking
- Customer returns and refunds
- Feedback and reviews.
The number of different steps in your order management process depends on the size and complexity of your business.
When I started selling online, I used a spreadsheet to track my orders from Shopify and Amazon and update my stock levels. I would then manually package up the products and send the parcel to the customer through Royal Mail.
This worked great when I had one or two sales a day. But once you start having multiple orders from different sources, it can become a full-time job just to keep your stock levels up to date.
On top of this, making mistakes can damage the reputation of your business. This is why growing eCommerce businesses use Order Management Systems.
Related Read: Ecommerce Warehouse Process: Turn It Into A Competitive Advantage
Why Is Order Management Important?
Accurate order management is vital for your business, as it can affect every part of your supply chain and, most importantly, your customer lifecycle.
This is especially true if you have a complicated supply chain involving multiple manufacturers from various countries, multiple warehouses and SKUs, and a global customer base. It is difficult to manage all this effectively without a solid order management process in place.
On top of this, a top-quality order management process will save your business time and money, and make it more efficient.
Having efficient processes and Standard Operating Procedures (SOPs) are particularly valuable if you decide to sell your business one day, as many investors are looking for businesses that are easy to manage, as well as have good profitability.
Let’s have a look at how a good order management process will improve your business.
Help To Ensure You Have Just the Right Amount of Stock
Inventory is the most expensive part of an eCommerce business.
If you have too much stock, the storage fees can become unmanageable. On top of this, there could be a risk of the stock going out of date or becoming unfashionable.
On the other side of the coin, not having enough stock can leave your customers waiting. Now if you are a world-famous brand such as Apple, then your customers may not mind joining a waiting list for a new product.
But for most brands, a long delivery time or out-of-stock products can really turn off a customer. Since Amazon has introduced Prime shipping, customers expect have become used to very fast shipping. So if you can’t stay in stock, and the delivery time starts to exceed 3-5 lead time maximum, your customer could end up shopping elsewhere.
That is why it is so important to have your stock always moving through your warehouses and avoid overstocking. Having a good order management process will help you with forecasting just the right amount of inventory levels so you aren’t spending more on stock and your customers are kept happy.
Make Data-Driven Business Decisions
When you have a lot of information about customers and their orders, you have real-time data with which to improve your business.
There are a lot of potential pinch points in your order process that can cause the customer to have a bad experience. Tracking these and improving on them can help you stay ahead of your competition and delight your customers.
Some important points we track in our order management process are
- Expected vs actual delivery time
This can help you to understand the performance of your delivery partners. If the shipments are taking longer than expected, is the warehouse at fault, or is there a shipping issue?
- Stock levels per location
Keeping your stock geographically close to your customers is really important, especially if you are shipping internationally or in a large country such as the US. If you know all your customers are in the US but your stock is based in the UK, should you consider keeping more stock in the US?
- Time of the order
Do your customers always order during their commute? This can help you plan your advertising spend. Do you sell a lot of products around Mother’s Day? Make sure you have enough stock for these periods.
Avoid Mistakes and Keep Customers Happy
If you are an Etsy seller with one or two orders a day, it is straightforward to ship all your items and ensure an amazing customer experience. But there are a lot of potential issues that can happen once your orders start increasing.
These mistakes can cost you money and your reputation.
When a customer places an order, it’s your job to make sure that the customer is getting the right product at the right address. If you are manually processing each order, there is a good chance that there could be a human error.
This is where an Order Management System can help you. There are different systems for different sized businesses, in the long run, they are going to improve order accuracy and save you time, money, and stress.
What are Order Management Systems (OMS)?
Order management systems (or order management software) are tools that help you to organise customer orders and align your stock across multiple sales channels and fulfillment warehouses.
They can also help you build customised automation and other functionality specifically for your business. This becomes more important and more complex as you start to grow.
For example, if you are selling handmade products that you make on Etsy, it is relatively straightforward and you don’t need an expensive system to track your orders and stock. A manual process is more suitable for you.
When you get the notification that a new order has come in, you make the order and ship it to the customer. You can track the shipment using the postal site and share that with the customer. Then you can manually ask for a review.
However, if you are a multichannel or omnichannel brand that has stock held in multiple countries or states, you need to know how much stock you have for the customer. On top of that, you might sell your products on your own website, Amazon, wholesale, and B2B.
You need to try and stay in stock but, if you do go out of stock and your website still shows stock available because your systems haven’t updated, you might have some unhappy and confused customers. Plus you might have tens or hundreds of orders a day, which is a lot of review request emails to send.
Order management systems help to manage this whole process for you in one place and help you to track a customer’s order from when they click buy, to when the products arrive at their home.
The best order management solutions collect all your orders and inventory data into one place, so you can keep on top of all your stock in one system. This is great when you have multiple different sales channels, as you can track a customer that paid in-store using a Point Of Sale (POS) device or paid online through your store.
They also provide you with powerful analytics and reports that can help you understand the performance of each channel and make business decisions.
Once your business to a big enough size, you can also connect your OMS into your wider Enterprise Resource Planning (ERP) Software, to bring order management into your wider business technology system.
The Order Management Process
Different businesses will have different processes and systems that they use to streamline orders, but all eCommerce orders will go through the same basic 8 steps.
1. Placing the order
As discussed, customers can place their orders from many different channels. The customer needs to have inventory visibility for their location, and the stock level and pricing need to be correct.
2. Receiving the order
When the customer places the order, the fulfillment team (the individual or team responsible for packing and sending out orders) needs to be sent a notification that the order has been placed.
This process will change based on where the order was placed. For example, if you are using Amazon FBA, then the notification will be sent to the Amazon warehouse.
But, if you are fulfilling or dropshipping the orders from a Third Party Logistics (3PL), the order information will need to go to their warehouse management system.
3. The warehouse pick and pack the order
The fulfillment team needs to go to the shelf and physically pick up the products and pack them ready to be sent to the customer.
They also need to print out the shipping label with the address and name of the customer so it can get to the right place. The order fulfillment process is an integral part of the order management workflow.
4. Shipping the order
The fulfillment team will ship the order to the customer. This could involve using a third-party carrier, such as Royal Mail, Hermes, or UPS, or it could involve an internal team such as Amazon FBA.
Either way, the parcel then gets delivered to the customer and a tracking number is created. This number is shared with the customer and the business, allowing everyone to track the order.
5. Delivering the order
This is possibly the first time a customer has had a physical interaction with your company. The customer will expect the parcel to arrive on time and in good condition.
The tracking information for the order status should now be updated to show that the order has been safely delivered.
6. Getting feedback and building the customer relationship
At this point, the customer can give feedback on the product and the delivery. Getting feedback is important for building customer satisfaction and trust and attracting new customers.
Asking a customer how everything went is also a great way to improve the Customer Lifetime Value (CLV), as you can stay in touch with them and build a rapport.
It will also help you to spot problems in your process so you can improve upon them in the future. Any feedback should be captured in your marketing database or CRM (Customer Relationship Management) system.
7. Returns
No business likes giving money back, but returns are an inevitable part of eCommerce.
A customer is often going to find that the product they ordered isn’t quite what they were expecting, or it doesn’t fit as well as they hoped.
Having a quick and easy return process is, counterintuitively, a great way to increase your revenue. If you have a transparent and user-friendly returns policy, customers are much more likely to place an order and even increase their basket size.
In fact, 85% of online shoppers checked the returns policy before buying a product.
8. Reporting
Knowing what went well and what didn’t go so well with your order process is important if you want to improve.
Obviously, you never want to make mistakes. But when things do go wrong with your orders, it’s important to understand the root causes so they can be fixed in the future.
You also want to know what is going well, so you can keep doing it and stay ahead of your competition.
Wrapping up
Order management is everything that happens in between a customer placing an order, receiving the product, and managing returns and feedback.
Nearly every part of the supply chain has an effect on the order management process and has an impact on your reputation with your customers.
Whilst there are a lot of pinch points where errors can happen, there's also an opportunity to provide an excellent customer experience and improve customer loyalty and revenue.
By having a good order management process in place you can really stand out from your competitors, and make sure your customers keep coming back.
Most businesses now outsource many parts of the order process such as warehousing and distribution, so there are a lot of points in the process where the business owner doesn’t have full control.
This is why having an Order Management System is so important to help you keep on top of your orders.
I really recommend you check out this list of the top 10 order management systems, as it will help you understand how the technology can help you, whatever size of business you are.
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