At the heart of digital commerce is the order. But what organizations use to manage the order lifecycle can vary wildly. From commerce platforms and ERPs to customer service applications, sales portals, and clienteling apps. But once an organization reaches a certain size, maturity, or level of complexity, they quickly outgrow them. Common challenges include:
- Out of date / out of sync inventory availability due to too many siloed systems which results in canceled orders and disappointed customers.
- High delivery costs due to efficient order sourcing and routing.
- Long order processing times due to too many manual and / or paper based processes.
- Too many customer service calls due to inefficient order processing or canceled orders
- Long call resolution times because reps have to access too many systems to service a single customer.
That’s when a dedicated order management system (OMS) makes sense. Why? It ensures efficient business operations, from accurate inventory availability through full order lifecycle processing. Let’s take a deeper look, starting with the basics.
What is order management?
Order management is the process of routing, fulfilling, and tracking customers orders. The order management life cycle begins once a customer places an order. And may include many steps like payment authorization, picking and packing the order, shipping, drop shipping or pickup. It also includes shipment tracking, and managing returns. While ecommerce platforms, ERPs and traditional customer service applications can be used to support some of these steps, they often fall short as organizations grow. That’s where a dedicated Order Management system shines.
What is an order management system?
An order management system (OMS) serves four main functions. And the first three start before an order is placed.
Unified view of inventory – First, it provides you with a unified view of all your stock, across all systems and locations. Particularly helpful if you have multiple ERPs, or receive inventory updates from 3PLs and drop ship vendors. This lets you show both customers and your staff an accurate view of what you have Available to Promise (ATP). It can even factor in future inventory. And a modern cloud OMS should be able to process hundreds of millions of inventory updates per day with no issues.
Inventory segmentation and allocation – Second, an OMS lets you virtually segment your stock and apply safety stock buffers so you can control what you sell in each channel, market, or region.
Provides ATP data to all digital channels at scale – Before a customer can place an order they need to know if an item is in stock. So the third role of an OMS is to surface inventory data to all digital channels at scale. Whether via live API calls (when up to the minute accuracy is essential), or pushing data to other systems. An OMS designed for modern digital commerce should be able to handle thousands of stock availability checks per second. Handle spikes in demand due to promotional events or influencer campaigns. And tens of thousands per minute. With a response time measured in milliseconds, not seconds.
Order lifecycle management – An OMS manages the full order lifecycle across multiple systems, locations, and sub-processes. This includes managing sourcing logic that ensures you fulfill orders from the best location every time. It also includes tracking order status, managing exceptions, and triggering customer notifications. While in the old days an order management system’s scale was based on the volume of orders it could process, today the volume of inventory updates far exceeds orders. So a system that can handle large inventory loads should be able to process orders no problem.
In short, an order management system serves as the single source of truth for inventory availability and customer orders. So how does it actually work?
How does an order management system work?
Let’s look at how it works based on the core capabilities it provides.
Ingests inventory data – An OMS consumes inventory data from all back end systems and locations, and should support both batches of data (to support legacy applications like ERPs), flat files (from suppliers), and live stream of Point of Sale (POS) transactions from stores and branches.
Calculates ATP for each channel – Once it knows what you have in stock, the OMS calculates what is available for each sales channel or customer based on how you’ve configured your inventory segmentation rules, including what locations you want to fulfill from, and any safety stock buffers or exclusions you want to apply.
Shares ATP with sales channels – This can be done in different ways depending on where in the buying cycle a customer is, and the sales channel. Let’s take a look.
Pushes ATP data to third party systems – This is typically used earlier in the shopping journey where a strong promise isn’t quite as critical, or digital channels that don’t support live availability. For example:
- Search engines – You may need to push inventory data to Google to support showing pickup and delivery options, or ‘available near me’ search results.
- Commerce search – Making ATP available to your commerce search engine can help improve conversion rates by ensuring only in stock items are returned in search results.
- Marketplaces – This includes any third party marketplace platform you might sell on. Or a retail media network.
Respond to live API calls – Live API calls are used for all the places where accurate inventory counts the most. What’s more, this method uses sourcing logic to ensure the pickup and delivery promises you make to the customer are as accurate as possible. Such as:
- Product Listing Page (PLP) and Search results – Showing accurate pickup and delivery availability across multiple products on the PLP, to increase conversion rates.
- Product Details Page (PDP) – Showing accurate pickup and delivery availability, including pickup availability across multiple nearby locations.
- Cart and Checkout – Showing accurate pickup and delivery availability for the entire cart. This includes supporting different pickup and delivery options by line item.
Processes the order – Once an order has been placed, the OMS consumes that order, then revalidates the sourcing logic to figure out the optimal way to fulfill the order, before routing it to the appropriate fulfillment location. Its workflows can also be configured to manage other internal processes (e.g., fraud checks) by triggering notifications to staff or triggering events in other systems (e.g., sending customer notifications). And when it receives a user input or receives a response from another system it will update the order status and trigger the next step in the order process. What’s more an OMS can be used to manage pre-orders and backorders too. So you’ll never miss a sale.
Manage in-store pick / pack / ship / pickup – An OMS also provides stores or branches a way to manage the in-store picking and packing process. Printing of shipping labels. Staging orders for pickup by a customer or carrier. And managing the pickup process.
Manage exceptions – If an order can’t be fulfilled from a location, the OMS will automatically reroute it to the next best locations, and trigger customer notifications if required. It can also be configured to notify staff about orders at risk, for example, an order that has been in the same status for too long.
Manage returns and exchanges – Not all purchases work out. So an OMS can manage the return or exchange process, trigger refunds and customer notifications, and manage the reverse logistics process. You can even create different processes based on product or inventory attributes.
How did order management systems come to be?
The big driver for dedicated order management systems started with the internet.
Suddenly customers could place orders online. Which was great! But retailers wanted to give customers more options. And better utilize their stock across all locations rather than having a single siloed pool of inventory set aside in a distribution center. Earmarked for online orders only. The problem?
Neither ERPs, Warehouse Management Systems, nor commerce platforms were designed to manage lots of fulfillment locations and route orders to the best one. And traditional Warehouse Management Systems were too complex for managing store fulfillment. So the order management system—sometimes call the distributed order management system (DOM) because it was designed to manage orders distributed across locations—was born. What are some key milestones?
In 2006, Best Buy rolled out the first large scale Buy Online Pickup In-Store program using store inventory to fulfill orders. And in 2009, Nordstrom rolled out its Ship from Store program. It wasn’t long before more retailers and brands followed suit. The result? Today there are several order management systems on the market. And an OMS can provide great benefits to an organization as described below.
What are the key benefits of an OMS?
The great thing about an OMS, is that it provides significant business benefits across the customer journey. This includes:
- Making more inventory available to digital channels so you can increase sales
- Showing accurate delivery and pickup options to increase conversions and reduce canceled orders and reduce call center inquiries related to canceled orders
- Optimizing sourcing logic to maximize inventory turns, reduce markdowns, and reduce delivery costs
- Optimizing fulfillment processes to increase your On Time In Full (OTIF) rate and customer satisfaction
- Optimizing reverse logistics to maximize resales and make reverse logistics more efficient to reduce costs.
What industries benefit most from an OMS?
Businesses across many industries use an OMS to their advantage, including those in:
- Retail
- Direct to Consumer
- Wholesale Distribution
Key categories, include:
- Luxury Goods
- Spare parts (including automotive spare parts)
- DIY
- Electronics
- Homewares
- Sporting goods
- Pharmacies
- Speciality Retail
- Alcoholic beverages
- Grocery
Just to name a few.
What stakeholders would benefit from using an OMS?
An order management system touches many parts of the business. As a result it can provide a lot of benefits across an organization. Typically, key stakeholders include:
- Chief Information Officers (CIOs)
- Head of Ecommerce
- Head of Logistics/Distribution
- Head of Customer Service
- Chief Marketing Officers (CMOs)
- Head of Store Ops
But the best part about a modern OMS, is you can roll it out in phases. Target your biggest pain points first–whether increasing inventory accuracy or your OTIF rate. So you get a faster ROI. So don’t forget to include your Chief Financial Officer (CFO) in the conversation too.
There are so many options to choose from—how do I find an OMS that’s perfect for my business?
Identify your biggest pain points – What will drive the biggest uplift in sales or reduction in costs. Fixing your inventory data? Or optimizing sourcing?
Identify your top 6 to 10 use cases – While asking vendors to fill out lists of feature/function spreadsheets is common, it’s not an ideal RFP process. So identify the top use cases you’ll want to support – including a few that you know will be unique to you.
Ask vendors to demo your use cases – Every business is different. No one ever uses an order management system without having to extend some capabilities. Which means, how quickly a vendor can demo a unique use cases is one of the best ways to figure out if a vendor can support your needs⸺both now and in the future.
Ask vendors for a rollout plan – The most expensive system is one that never goes live. So ask vendors for a proposed rollout plan. And look for vendors who recommend a phased approach. One that gets part of the solution live as quickly as possible. That way you can demonstrate project success, and get an early Return on Investment (ROI), something CFOs love.
Getting started with an order management system
To succeed in digital commerce you need to get the fundamentals right. Show customers accurate delivery and pickup promises. And make sure they get their order on time. Because it doesn’t matter how great the buying experience was, if the order is delayed or canceled, you’ll end up with an unhappy customer, who probably won’t want to buy from you again. ERPs and commerce platforms are great. But that’s not their wheelhouse. So invest in your success. Get a dedicated OMS for your business.
To learn how Fluent Order Management can help you increase inventory turns, improve your OTIF rate, and reduce canceled orders and delivery costs, Contact Us today.
