What is Order Management? Guide to Increasing Supply Chain Efficiency

Introduction to Order Management

As soon as a shopper makes a purchase on an online retail website, the process of picking, packing, and shipping begins on the company's end. To ensure items are correctly and promptly delivered to consumers, an order management system must be put in place.

Especially once sales begin to accumulate and new channels are developed, the brand will need to establish processes that will increase supply chain management efficiency and streamline customer service.

What is Order Management?

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Order management is the process of receiving, fulfilling, tracking, and shipping a customer's order. This process begins as soon as an online shopper places an order and ends when they receive their package.

It also entails communicating with customers in the case that an interruption occurs during the order fulfillment process, such as out-of-stock items or product unavailability. Additionally, an effective order management system will ensure that the right goods are shipped out and delivered to consumers in a timely manner.

Importance of Order Management Accuracy

Businesses need accurate order management processes to make sure that they are keeping pace and fulfilling every customer order correctly. Prioritizing accuracy when overseeing orders will enable companies to accomplish the following.

Prevent Over-Stocking and Under-Stocking

Over-stocking and under-stocking can negatively impact a brand's bottom line, in which the former will result in surplus inventory becoming obsolete and unmarketable. Also, the excess products will take up valuable warehouse space and will incur carrying costs.

Under-stocking, on the other hand, will lead to the loss of potential sales or increased backorders, which is when customers have to wait to purchase a product because it is temporarily out of stock.

With an error-free order management system, business teams can access precise metrics about their sales and identify trends in inventory levels. They can then determine the most opportune quantities of stock they must keep on hand and guarantee customers' expectations are met.

Eliminate Mistakes in Order Fulfillment

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Mistakes, such as selecting the wrong product or putting an incorrect address on the shipping label, can happen, especially if the business is experiencing high order volumes coming from multiple sales channels. Businesses can safeguard their reputation and guarantee the right goods are correctly sent out to customers with an efficient order management system.

Have Reliable Data

A dependable order management system will allow business teams to have reliable data on hand, which they can use to promptly generate informed decisions, whenever necessary.

Many companies are optimizing their systems with inventory management software that has ordering simplifying capabilities. These solutions collect data and provide reports regarding sales and customer demands.

Teams that are equipped with these insights will be able to identify inefficiencies in real time and can quickly take action to protect their profit margins.

Enhance Productivity and Time Management

Business owners that have an accurate order management system will spend less time troubleshooting issues in their order fulfillment process. Instead, more time and focus can be allocated towards fostering the company's growth, such as building the brand and strategizing product development.

5 Steps in the Order Management Cycle

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The order management cycle starts when a purchase is made by a customer and ends when the products are delivered. Sometimes, the process will entail processing refunds, returns, and exchanges.

Typically, the order management cycle has 5 key steps.

1. Receive Customer Orders

Once a customer places an order online, the business must confirm the order and process their payment.

If, for example, a product is out of stock, the company must either cancel the order or save it as a backorder. When there is a backorder, business owners should quickly purchase new inventory from their supplier and inform the customer when they should expect to have their order.

2. Picking

At this stage, the order is received by the warehouse and is ready to be fulfilled. Staff members will first begin the fulfillment process by picking the items from the warehouse facility.

It is imperative that employees responsible for retrieving the goods understand the warehouse floor plan and are able to pick the right products accurately and quickly.

3. Packing

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When all items in an order are picked, it is then packed into boxes or mailers. Employees should make sure they are using appropriate packaging materials to ensure that the product will safely reach the consumer in its expected condition.

For example, fragile goods, such as glass, should be packaged with bubble wrap to prevent them from becoming damaged during their transport.

4. Shipping

Finally, after the order has been correctly picked and packed, employees will ship it out to its end destination. This process entails printing a shipping label with the customer's address and attaching a sales invoice to the package.

Employees must also indicate that the order is shipped on all sales channels so that the company can confirm that the order was fulfilled. It is also important that the brand sends a shipping confirmation and order tracking information to the customer through email.

5. After-Sales Processes

Once the customer's order is fulfilled and delivered, the company should reach out to the shopper and ask for feedback about their service or purchase. By understanding why the customer was satisfied or not, the brand can make the necessary improvements.

In some cases, the company may have to process returns or refunds. In order to improve the customer's experience, employees should remedy these issues as soon as possible.

Order Management Process Metrics

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Monitoring key performance indicators (KPIs) enables business owners to have full visibility into their order management process. With metrics, it will be easier to identify weak or inefficient parts within the operation and to make data-driven improvements.

Additionally, by regularly tracking these metrics, businesses can better understand their customers and strategize new ways they can increase satisfaction.

Some of the best KPIs that executives should track include the following.

Rate of Return

The rate of return indicates how often products are returned by consumers. It can be calculated by dividing the number of units returned by the number of units sold.

  • Rate of Return = No. of Units Returned / No. of Units Sold

It is recommended that executives categorize the results based on the reason why the product was returned. This will help with identifying the exact cause of dissatisfaction and what can be done to improve the item.

Picking Accuracy

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Goods that are consistently picked inaccurately can lead to an increase in unhappy customers, refunds, and costs to remedy errors.

To keep track of the percent of picking accuracy, the total number of orders should be subtracted by incorrect item returns. The result of this should be divided by the number of orders and then multiplied by 100.

  • Picking Accuracy = ( ( Total No. of Orders - Incorrect Item Returns ) / Total No. of Orders ) x 100

Order Lead Time

This refers to the length of time from when an order is placed by a customer to when it is finally delivered. Having a shorter lead time can increase customer satisfaction and can maximize the number of orders fulfilled.

Executives can calculate their order lead time by dividing the lead time for each order by the total orders fulfilled.

  • Order Lead Time = Lead Time for Each Order / Total Orders Fulfilled

Although reducing lead time can positively impact a shopper's experience with the brand, management should make sure that they are not sacrificing the quality or accuracy of their order fulfillment. Therefore, metrics, such as picking accuracy, should be monitored along with order lead time to ensure efficiency.

Purchase Frequency

Purchase frequency is the measure of how many times a customer places an order during a given period. Typically, companies will calculate this metric by looking at purchases throughout the year.

The formula for quantifying purchase frequency is the total number of orders divided by the number of unique customers.

  • Purchase Frequency = Total No. of Orders / No. of Unique Customers

Understanding this metric will help give businesses insight into their customer's experience with the brand and whether their marketing and advertising campaigns are working as intended.

It will also allow managers to see if they are effectively targeting their consumer's demographics and whether they need to make adjustments to their operations or inventory.

4 Tips for Order Management

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Organizations can improve their order management process by implementing these best practices.

Have a Proactive Messaging System

Customers prefer transparency and honesty when it comes to their purchase orders. In the case that items are out of stock, shipping is delayed, or orders become lost in transit, the company must promptly inform the shopper.

Customer service representatives should reach out to the consumer through email and update them about the status of their order. This will give them an understanding of when they should expect their purchase and will promote trust between them and the brand.

Employ Order and Customer Segmentation

Segmentation is the process of grouping certain orders and customers based on their location, order history, or current shopping cart. This will help businesses understand the different demographics of customers and each of their preferences.

With this information, marketing teams can strategize campaigns and create personalized messages that target their different categories of customers.

Ship Goods Out as Soon as Possible

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Businesses should prioritize shipping orders out as quickly as possible. Not only would this boost consumer satisfaction, but the company will also be able to increase its workflow and fulfill more orders.

To monitor the speed of order fulfillment, managers should set goals and track how many orders are shipped each hour as a key performance indicator. If the measurement shows that employees are not meeting the shipping objective, training can be implemented or new procedures should be strategized to improve productivity.

Track the Process in Real Time

Tracking the order management process in real time will give managers the ability to have a clearer overview of their operations. They should regularly monitor when orders were created, how the order is processed, as well as when the products were picked, packed, shipped, and delivered.

These insights will allow executives to understand what stage the order will go to next and how they can effectively prepare.

Order Management - Key Takeaways

  • Order management is the process of receiving, tracking, and delivering orders made by customers.
  • An effective order management system is necessary because it helps the company maintain optimal stock levels at all times, eliminates inaccuracies with order fulfillment, ensures that data is reliable, and improves operational efficiency.
  • There are 5 key steps to the order management cycle. These stages include order reception, picking, packing, shipping, and after-sales procedures.
  • To proactively monitor how productive a company's order management process is, executives should track specific key performance indicators. The most common metrics to keep an eye on are the rate of return, picking accuracy, order lead time, and order frequency.
  • Businesses that want to improve their system should implement practices that focus on customer needs, ensure quick delivery, and promote full procedural transparency.