The Forrester Wave™: Order Management Systems, Q2 2023

See the Results

Everything You Need To Know About Order Management Systems

Be empowered to transform your business for the better.

Woman recieving shipping notification
Whether you're a beginner or seasoned professional, discover the significance and evolution of order management systems.

Reviewed By Michelle Soriano

Jan 25, 2024

Embarking on the journey of efficient business operations requires a fundamental understanding of Order Management Systems (OMS). In this comprehensive guide, we delve into the intricacies of OMS, shedding light on their significance and evolution in the modern business landscape. From the basics of what an OMS entails to the pivotal role it plays in streamlining order processes, inventory management, and customer satisfaction, this guide serves as a gateway for both beginners and a valuable knowledge refresher for seasoned professionals alike.

So rest assured that by the time you’re finished reading our guide, you’ll be empowered with the knowledge you need to transform your business for the better.

Many businesses struggle to keep up with the demands of running a company. Having the right systems and technology in place can change the way a business runs. It can also make it more convenient and easy for businesses to predict stock, monitor supply chain, track orders, fulfill customer purchase orders, and process returns. Learn more about order management systems, what they do, and the benefits they can provide your business through dashboards, workflows, and more.

What is order management?

Order management is the process of filling, shipping/dropshipping, and tracking customer orders through physical stores and online sales. It is what keeps goods and orders organized, allowing processes to be efficient and easy for all involved. The order management process begins once a customer places an order at the point of sale (POS). It then follows the order through shipping and notes routing and tracking information. Sometimes, order management may also involve the return of a good or product.

What is an order management system?

How order management remains organized relies on the systems they use – order management systems. This term can be abbreviated into OMS (pronounced oh-em-es). Order management systems keep track of orders and their statuses throughout their lifecycles. This allows businesses to focus on other aspects. They also automate order entries and processing, making operations smoother and more efficient. Order management systems organize all customer orders. This gives business owners a centralized location to look at orders and fulfillment.

Order management systems is equipped to ingest a wealth of information including:

  • Customer database: This gathers information about customers, including contact information and order histories.
  • Sales channels: Businesses can track their multichannel order through online stores, such as Amazon or eBay.  
  • Suppliers: If a business has many suppliers, OMSs can make product fulfillment easier.  

Order management systems track both online orders and in-store orders.

How does an order management system work?

Sharing and organizing accounting data

Dealing with accounting while running a business can seem like a difficult task. Order management systems take out an extra step in the accounting process. Oftentimes, business owners must enter accounting data from their orders into their accounting software, like QuickBooks. OMS can connect to the software through cloud-based technology, downloading ordering information into your accounting spreadsheet. This reduces errors, as companies don’t need to re-enter information into accounting software. Instead, it is automatically uploaded. This gives businesses peace of mind knowing their information is correct. It can also save time from having to re-enter data into various order management software.

Sharing a complete, real-time inventory breakdown

Business owners know how difficult real-time inventory tracking can be, regardless of the industry. Overstocking can lead to unpurchased products. This can be wasteful and cause a loss in income. Under-stocking products can also be an issue, as it can leave customers unsatisfied. Order management systems can take the guesswork out of stock, giving an accurate number for available-to-promise (ATP) inventory. By looking at past purchasing trends, OMS can accurately predict the ATP rate for a business. In turn, they can always ensure stock is plentiful and available for customers.

Tackling reverse logistics

Order management systems can also take care of reverse logistics. Reverse logistics are any returned or refunded orders. For example, if a customer purchases shoes from a company but finds that they are not the right size. In this case, the customer would request a return and begin the process of receiving a refund or reorder.

Having the right order management system can add convenience to handling reverse logistics. In a single platform, the OMS automatically provides refunds to customers. It then selects the best carrier to process the return through. It will also make up a return label and tracking number.

Order processing

With so many sales orders coming in and potential backorders, it can be a hassle to keep track of them and complete the necessary processes. Order management systems can track and fulfill customer orders for businesses, especially helpful in preventing overselling or stockouts. They receive the order, process the payment, and send confirmation emails to customers. While this can seem simple enough, it can actually make the ordering process efficient for both businesses and customers. With order management systems, customers can receive timely, prompt communication following their orders. Additionally, businesses can have this tedious task taken care of.

Channel tracking for inventory levels

Oftentimes, businesses sell their goods using multiple providers. For example, if a company sells health-conscious snacks, they will want to sell through many platforms. This helps to make their product more widely available. This can include channels like Amazon, Walmart, or others. However, dealing with multichannel platforms can come with many challenges. This is where order management systems come in.

Order management systems can track a business’s inventory across many different ecommerce platforms. This can help businesses by providing accurate data for inventory. The OMS collects a business’ historical data, using it to come up with seller analytics. In turn, businesses can review their data in an organized, central location. They can keep up with customer expectations, accurately forecasting selling trends that may hit.

Automating the order fulfillment process

Ensuring orders are filled promptly and correctly is a huge part of the distribution process. Luckily, order management systems are ready to tackle many aspects of order fulfillment. Along with processing payments and orders, the OMS can handle each stage of order fulfillment. This includes shipping, picking, and packing. The OMS also updates business owners on the order status, from the point of sale to the time it is delivered. It can also send customers notifications for shipment and tracking numbers. 

How did order management systems come to be?

Order management systems were created from the dire need for easier ways to process and fulfill orders within a company. In the beginning (before the Industrial Revolution), companies had to track their inventory through traditional means – classic pen and paper. They used a tally system to determine the number of each product in a company. However, this system was inefficient, as many mistakes were made. Additionally, unless companies were constantly counting their inventory, they couldn’t achieve an accurate number of stolen goods.

Herman Hollerith began to change inventory processes in 1889 with the invention of the first machine-readable punch card and automatic computation machine. He found that placing holes in specific areas of the punch card allowed machines to read it and record data. This is the same machine used for time clock punching in and out. In the 1930s, Harvard took Hollerith’s idea and altered it to accommodate business practices. However, this machinery was not widely available, as it was costly to produce and not fast enough for the ever-changing business industry.

Reaching the 1960s, a few grocery store retailers got together and created a new means for tracking and processing inventory. This is where we see the modern barcode arise, invented by Norman Woodland. Since then, this method has been the most efficient for tracking inventory, with many businesses still using these bar codes throughout the U.S. In 1974, they standardized the barcodes to align with the Universal Product Code (UPC) standards we see today.

It wasn’t until the 90s that many companies started utilizing UPC technology, as the rise of computers and radio frequency identification (RFID) began. They developed the technology to record business data as the products were scanned. In the 2000s, official inventory management systems were widely available and cost-efficient. Now, even smaller businesses can use this important technology.

What are the key benefits of an OMS?

Implementing the right order management system can provide businesses with many advantages, including:

Improving customer satisfaction 

In today’s world, customers have many options when it comes to finding items. They can shop around from store to store looking for the best product at the most affordable price. With the rise of the internet, customers also have easy access to this information. This means companies must keep up with the demand to stay relevant in the market and provide customer support.

Having an OMS can make the customer experience even better. For starters, it provides speedy status updates to customers who have placed an order. Additionally, it ensures a business’s stock levels are accurately displayed. It can also organize orders for those who sell products from different platforms. This allows customers to be more satisfied with their purchases.

Order fulfillment efficiency

When a customer orders a product, they expect to receive their item quickly. This means businesses must have an efficient means of filling customer orders. Customers also want the ordering process to be simple. This allows them to enjoy their new product even sooner. Implementing an OMS can make order fulfillment easier and more convenient, accounting for:

  • Shipment and returns
  • Order capture
  • Fulfillment optimization
  • Order configuration
  • Accurate  inventory

Easy handling of returns

In recent years, many retailers have had issues with returns and the volume of returns. According to Teamwork Commerce, $761 billion worth of sold products were returned to retailers in 2021. This is not projected to change. To keep up with demand, companies must find convenient and efficient ways to handle returns.

An order management system can make returning products easier for customers and businesses. It can handle many aspects of the return process, from creating shipping labels to distributing tracking numbers to finding the most efficient carrier. It can also take note of restocks, which can help to keep inventory numbers more accurate.

What is a distributed order management system?

A distributed order management (DOM) system uses more specialized processes to keep ordering information organized and business practices efficient. This is especially true for businesses with more complex selling requirements, like those with omnichannel ordering. DOM systems use a set of rules to determine how to fill customer orders best. They are also a more cost-effective option for many businesses.

What is the main difference between an OMS and a DOM system?

The main difference between OMS and DOM systems is how they process and fulfill orders. With traditional OMSs, this technology generally tracks and controls the entire order process. DOM systems use advanced processes to make ordering easier and more efficient. For example, businesses can set delivery criteria, which DOM systems adhere to when processing orders and returns. In turn, DOM systems can determine which storage location is most efficient to ship products out of. This means shipping times and ordering processing can be even faster.

What industries benefit most from an OMS?

Businesses across many industries use an OMS to their advantage, including those in:

  • Wholesale
  • Direct to Consumer

CPG:

  • Retail
  • Distribution
  • Luxury Goods
  • Grocery

What stakeholders would benefit from using an  OMS?

Many roles in a business can use OMS and other order-tracking software, such as:

  • Head of Store Ops
  • Chief Information Officers (CIOs)
  • Head of Customer Services Representatives
  • Chief Marketing Officers (CMOs)
  • Head of Logistics/Distribution Representatives
  • Head of E-commerce Representatives

I already have an ERP or commerce platform – why do I need an OMS?

ERP or commerce platforms can be efficient in the business process. But they may not keep up in the ways businesses need them to. ERP or commerce platforms can orchestrate orders using basic configurations and technologies. However, if a company expands to sell through different channels or order volumes have increased, these traditional systems will not cut it. Businesses must have access to more advanced, specific technologies that can help streamline the ordering process and keep it organized. This is where order management systems come in. Modules can give businesses inventory control in order splitting and routing while taking data about sales patterns throughout different regions. They can also give businesses more customization in their sourcing logic.

There are so many options to choose from – how do I find an OMS that’s perfect for my business?

Before starting research:

  • Assess your business needs: Business owners can assess their business needs by making a list of their current pain points. This can narrow their potential partners so they can find one that provides what they need.
  • Define objectives and limitations: Companies should make note of their long- and short-term goals, as well as their timeline and budget. This can help them pick a partner that works well with their business more quickly.

When beginning research:

  • Look at the industries and clients they work with: Business owners can benefit from working with partners that work with the same industries and clients, as they will have specialized knowledge of the field. Businesses can typically find this information right on their website.
  • Read through case studies and testimonials: Case studies and testimonials can help businesses narrow their options by selecting a partner who can produce the results they are looking for. If they do not have testimonials, you may want to reconsider.
  • Prepare a list of questions: Having a list of questions ready before speaking with their sales team can help speed up the decision-making process.
  • Request a draft proposal (RFP): Receiving a draft proposal can help businesses see how a partner will optimize their business practices and what they must do to achieve them.

Getting started with an order management system

Practices in the business industry are always changing, and demands must be met to keep up in the marketplaces. Affecting enterprise resource planning, order management systems can allow companies to adhere to customer requirements while controlling customer relationship management. Because of this, businesses can improve profitability and keep customers wanting to come back for more. 

Our product specialists are here to help, offering order management solutions to companies across the globe. We work with retail customers and other e-commerce businesses to help them control their inventory, giving them scalability, added time and resources, and savings from time-consuming, costly inventory management practices. Schedule a free demo to learn more.  

This site is registered on wpml.org as a development site. Switch to a production site key to remove this banner.