The Forrester Wave™: Order Management Systems, Q2 2023

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8 Stages of Order Management

How does an order get from point A to point B?

Packing, routing, tracking, follow-up—read on for a full view of the process

Reviewed By Michelle Soriano

Apr 22, 2024

Generally, order management begins when customers place an order and ends when they receive it. As easy as that sounds, the process involves many steps. Packing, routing, tracking, follow-up—all these steps and more comprise order management.

These various steps stress the importance of a well-organized order management process. The following are just some benefits retailers and brands experience:

  • Increased efficiency
  • Insight into areas of improvement
  • Reduced errors
  • Forecasting demand to avoid under/overstocking
  • A more effective budget
  • Greater customer satisfaction

How can businesses know if they have an effective order management process? Understanding the stages of order management helps answer this question. Learn more about these stages and how order management works.

Pre-sale order management

1. Inventory management

While it can start when the customer places an order, an efficient order management process actually begins before the customer places an order, with inventory control. Accurate product availability will impact order fulfillment and delivery time—aspects customers care about. This means frequent monitoring of inventory levels to calculate the number of items in stock, in near-real time, are imperative. Many businesses have several warehouses, distribution centers and may also stock items in stores, so it also involves finding out where these items are and how many are truly in stock.

2. Order placement

Also called receiving, this is when a customer places an order. It involves accepting customer orders and collecting payment. The order information goes to the warehouse/fulfillment center to prepare items for shipment.

In today’s world, most e-commerce businesses allow customers to place orders through multiple sales channels. So, retailers want an omnichannel or multichannel fulfillment tool up to the task. This tool will move order details from the sales channel to the order management system automatically.

3. Order fulfillment

Picking, packing, and shipping comprise the order fulfillment process.

4. Picking

Picking begins the order fulfillment process. It happens when warehouse staff retrieves products for shipment. Warehouse management is crucial at this stage. Retailers want to organize products on warehouse shelves by type or SKU. This makes it easier for warehouse teams to locate items quickly, reducing pick time. Once all items are ready, they go to the packing center for the next stage.

5. Packing

Packing goes beyond putting items in a box or bag for shipment. There’s a reason some colleges offer packaging science as a major. This process requires considerable planning. Packing teams must choose the right materials for each item to ensure safe shipment. They also want to reduce waste by using only the packaging materials needed.

6. Shipping

With picking and packing done, the order is ready for shipment. The shipping stage involves three main steps:

  • Attaching the shipping label and invoice to the order
  • Marking the order as “shipped” in all sales channels
  • Sending a confirmation email to the customer with tracking details

Order fulfillment is only possible with available inventory. This is why inventory management is such an important preliminary step. Customer experience suffers if you cancel an order because there are not enough products in stock.

External factors like issues with the supply chain can sometimes affect inventory. So, canceling orders isn’t always a practical option. Instead, retailers can consider two alternatives — backordering and dropshipping.

With backordering, the retailer notifies the customer an item is out of stock. Then, it orders more products from the supplier. The supplier provides an expected date for new stock to arrive. This allows the retailer to estimate a delivery date for the customer. With dropshipping, the retailer sends the order to the supplier. The supplier delivers the items directly to the customer.

Post-sale order management

The final stages of order management occur after shipping. This is where retailers can excel with the customer experience, as it’s when most requests and concerns arise.

7. Tracking

Once the order leaves the distribution center, you begin tracking orders. Tracking offers two benefits. It enhances the customer experience by providing buyers with updates on order status. It also allows businesses to catch errors sooner, sometimes before order delivery. This increases the likelihood the order meets customer expectations.

8. Following up

Following up ensures customer satisfaction. It also allows customers to request returns and refunds. For the retailer, following up matters because it provides data for a key metric — customer lifetime value (LTV). So, retailers may want to ask for feedback in follow-up emails. The best part? With the right platform, this can be a 100% automated process.

The following are some questions to ask customers:

  • How would you rate the overall ordering experience?
  • How easy was it to find the products you were searching for on the e-commerce platform?
  • How easy was it to place your order on the platform?
  • Did the order come within the expected timeframe?
  • How would you rate delivery speed?
  • Did the order meet your expectations?
  • Is the product(s) accurate? (i.e., right size and color)
  • How would you rate the packaging?
  • Did the product come in the right condition?

Measuring performance with order management

No order management process is perfect. That’s why businesses use key performance indicators (KPIs) to identify areas of improvement. These metrics can also help retailers understand the issue behind a bad customer experience, increasing costs, and other concerns.

KPIs to track performance with order management include: 

Accuracy in order picking

What’s the condition of the item when it reaches the customer? This metric measures the accuracy of order preparation. A low value suggests areas for improvement at the picking stage. This may include having a quality assurance practice between picking and packing.

Formula: Number of orders accurately prepared to ship / Total orders picked x 100

Average order value

AOV is the amount of revenue the average order generates. Retailers can calculate AOV for all sales or a specific product. It provides insight into customer behavior to enhance sales and marketing strategies.

Formula: Total revenue over a period / number of orders

Cost per order

How much labor, shipping costs, and other expenses go into fulfilling an order? This metric helps you find out. A high cost per order may mean it costs more to fulfill the order than the product’s price. This calls for a restructuring of labor/shipping costs.

Formula: Total fulfillment costs / Number of orders

Internal order cycle time

Also called lead time, internal order cycle time is the period between order placement and shipment. It provides insight into warehouse efficiency and communication between different teams. A high internal order cycle time suggests a need for improvement.

Formula: Time and date order shipped – Time and date order placed

On-time shipping rate

On-time shipping rate is the number of orders that ship on time. This metric helps retailers compare the differences between planning and execution of order management to identify inefficiencies.

Formula: Orders shipped on time / Total orders x 100

Order fill rate

This metric considers the number of orders you can fill with available inventory. It helps retailers maintain a balance between having enough stock to fill orders quickly and avoiding the high costs of overstocking.

Formula: Orders fillable from inventory / total orders x 100 

Order fulfillment cycle time

How long does it take for an order to reach the customer? Order fulfillment cycle time combines internal order cycle time and shipping time to find out. This metric can reveal gaps in the order fulfillment process slowing down delivery.

Formula: Time and date order reaches customer – Time and date order placed

Orders picked per hour

This metric calculates the number of orders prepared and shipped from the warehouse in a single work hour. Orders picked per hour is an important metric because it indicates cost efficiency, which affects the bottom line.

Formula: Total orders picked and shipped / Total work hours

Order placement percentage

An omnichannel sales model is common for retailers. This metric calculates the percentage of orders from each. It helps determine which sales channels to prioritize.

Formula: Number of sales via one channel / total sales x 100

Perfect order rate

Are your orders “perfect”? This means orders that are picked, packed, shipped, and delivered with no errors. Retailers can pat themselves on the back — most orders go through with no issues. The standard is 90%, meaning 10% of orders are less-than-perfect. Still, even for the 10%, companies can evaluate strategies to do better.

Formula: Orders delivered without incident / Total number of orders x 100

Purchasing frequency of customers

Purchasing frequency is the number of purchases the typical customer makes during a month or year. It shows the amount of repeat business that occurs during this period. Retailers use this metric to boost customer lifetime value.

Formula: Number of purchases in period / number of unique customers

Rate of returns

As it sounds, the rate of returns considers how often customers return items. In addition to diminished customer satisfaction, returns usually mean refunds. A high rate of returns suggests a problem with production or marketing. How is the product quality? Is inaccurate marketing giving a false impression of the item?

Formula: Number of orders returned / Total orders x 100

Scrap rate

Retailers can sometimes resell returned items if they’re in good condition. If not, these items get scrapped. A high scrap rate increases the cost of product returns. So, calculating the scrap rate can encourage retailers to change processes to ensure product quality. For example, packaging certain items better to prevent breakage or spoilage.

Formula: Number of scrapped orders / Total number of returns x 100

Shipping cost per order

This metric measures the cost of delivery to a single customer during a set period. It reveals cost inefficiencies and where to make improvements.

Formula: Total shipping cost for the period / Number of successful deliveries

Shopping cart abandonment rate

E-commerce businesses can calculate the number of items a customer places in their virtual shopping cart but doesn’t purchase. It highlights areas for improvement in the checkout process.

Formula: 1 – (completed transactions / number of shopping carts) x 100

Qualities of effective order management

How an ecommerce business approaches order management looks different, depending on its business model and goals. That said, some characteristics appear in every efficient order management process. These include:

  • Agility: Order management processes are flexible to produce similar results across sales channels.
  • Delivery optimization: Increase efficiency with insight into inventory and resources to meet delivery requirements.
  • Customer engagement: Sales and marketing teams leverage customer data to provide a better experience.
  • Order management intelligence: Ensure order management processes align with strategic goals and comply with business standards.
  • Order fulfillment optimization: Use data analytics to determine customer preferences for order delivery.
  • Real-time inventory management: Retailers have more control over stock levels to maintain the correct inventory.
  • Visibility: Gain oversight of the entire supply chain. Be proactive by developing solutions to potential problems before they occur.

Why consider an order management system?

Retailers often have manual order management when the business starts. As the business grows, manual processes become insufficient. Many retailers rely on an order management system (OMS) to streamline the process. This software automates the order management process and centralizes key information.

The following explains how your business can benefit from order management software for ecommerce:

Automates business processes

An OMS boosts the efficiency of order processing. Most OMS solutions integrate with other management tools like customer relationship management (CRM) and enterprise resource planning (ERP) platforms. This provides greater oversight into the supply chain and inventory levels. It also enables better tracking throughout the order management lifecycle.

Enables remote order management

Business owners can oversee the order management process even if they aren’t at the warehouse. Many OMS platforms are mobile-friendly, making remote management possible. This is especially beneficial given the recent shift to remote/hybrid work situations across industries.

Enhances inventory management

Inventory management is all about being “just right” with stock levels. If you have too much, it’s overselling. Not enough and it’s understocking. An OMS uses real-time data and automated inventory control to ensure accurate stock counts. It also connects to multiple sales channels for maintaining inventory control in multi-distribution environments. These features help reduce backorders or shipment delays.

Reduces errors with order management

Human error is bound to affect order management when relying on manual processes. Any mistake with order fulfillment can hurt your reputation, making order accuracy critical. OMS software fulfills orders quickly and ensures accuracy to deliver customer satisfaction.

Speeds up order deliveries

An OMS allows for the optimization of picking, packing, and order routing. The result is faster deliveries, which creates a better customer experience. It also frees up time to spend on more productive tasks.

Boost the order management process with an OMS

The first step toward a more effective order management process is understanding the key stages. Make your second step partnering with Fluent Commerce for an OMS that drives business growth.

Fluent Order Management is a distributed OMS empowering your organization to achieve digital agility and profitability. It enables you to scale with confidence, grow through acquisition, and expand globally. Consider the following use cases and benefits:

From retailers to distributors to DTC brands and luxury brands — many industries rely on Fluent Order Management. Contact us to learn more about our solutions. You can also request a demo today.

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