What is Order Management? Systems, Process, KPIs, & Benefits

An expert guide featuring what is order management, its process and best order management system software along with the benefits, metrics, and challenges.

order management

The ultimate objective of any warehouse is to fulfill customer orders in a timely fashion. Every process, operation, and movement inside the warehouse or the distribution center is directed towards achieving that objective. Once a customer hits the ‘Buy Now' button and places an order, the fulfillment process begins.

The order is accepted, items are picked, packed into boxes, containers, and shipped to the customer's address. 

While it all seems straightforward on paper, the size of the warehouse, products ordered, availability of staff, and frequency of orders coming in and going out can make order management a complex endeavor nightmare for warehouse managers.

What is Order Management?

Order Management definition: Order management is the ability to manage every customer order efficiently right from receiving to fulfillment. The objective of efficient order handling is to ensure that customers receive the correct products they have ordered and that too in an undamaged state.

Orders can come in through online or offline channels and managing them efficiently properly is the key for warehouses to ensure flawless order delivery and enhanced customer experience.

Warehouse managers make use of physical ledgers, manual logbooks, or order management systems to stay on top of order status. Knowing the status of the order where an order is in the order throughout the fulfillment journey helps in streamlining the entire complete process and reducing errors.

What is an Order Management System?

Order management system (OMS) is a software used to efficiently organize and automate the order processing, fulfillment, and management process. The order management system provides complete visibility, automation intelligence, real-time tracking, delivery scheduling, fulfillment optimization and more. 

With future warehouses expanding in size and the increased frequency and complexity of online orders with e-commerce businesses experiencing a surge in customer orders in the past few years, it can get quite overwhelming. It's natural for managers to get overwhelmed by the number of orders coming in.

Hence, which is why, it is imperative to have a robust order management system that in place can automate manual processes and provide better visibility and control over every order.

Steps in Order Management Process

There are several basic steps that constitute the complete order fulfillment process in modern warehousing. The smooth flow of these steps is paramount for completing a successful order, improving customer experience and generating more revenue.

1. Inventory Check

Keeping an accurate inventory count and availability is one of the most important steps in order fulfillment. An out of sync inventory count that is not updated can mislead the customers into ordering products that are out of stock. This can result in orders getting canceled and hamper the customer experience.

2. Order Placement

In an omnichannel business, the customer places an order for a product available in the warehouse. Orders can be placed through websites, mobile apps, call centers, retail stores, or marketplaces or other channels as well. Irrespective of the source, every order information makes its way to the fulfillment center through the order management system in use.

3. Verification and Allocation

Next up is order verification. A member from the sales team or an automated system verifies the order with the customer. Verification can be important for some channels as it not only confirms the order, but also captures other essential details like the customer's address, contact number, email ID, zip code, and more. Once the order is verified, it gets allocated to the available inventory quantity.

4. Picking and Packing

The allocated orders are batched and released to the warehouse floor for automated picking, sorting, and packing. Items are picked from the warehouse as per the received order and are subsequently packed as per their dimensions, fragility, packing instructions, and other parameters.

5. Shipping Fulfillment

Packed orders are then shipped to the customer's address through a chosen carrier that was noted during the verification step. Faster shipping methods can follow multiple methods, ranging from local delivery to overseas shipping in containers.

Order Management Challenges

Here is a quick look at some of the challenges that warehouses face during order management.

Fragmented Data

Thanks to advances in technology and different e-commerce platforms, customers are spoilt for choice when it comes to ordering a product. However, a warehouse needs to deal with hundreds of orders coming in from multiple sources, be it online or offline. This creates a large data set that can be overwhelming to manage for a warehouse.

Fragmented and distributed order data affects warehouse productivity as well. Orders can slip through the system, recent orders can get dispatched earlier while older ones keep getting delayed.

Also, incorrect orders can get dispatched, or multiple pickers might end up working on the same order due to miscommunication. Not only does this waste precious time for a warehouse, but also leads to unnecessary expenses.

Standalone Order Management System

Communication among different warehouse processes has a key role to play in improving warehouse efficiency and reaping more revenue. Warehouses that employ a standalone order management system can fail to capitalize on the benefits of having synchronized operations where one process talks to another in real-time.

Order management is completely dependent on the inventory model of ecommerce. An order management system that isn't in-tune with the inventory status of the warehouse is a hotbed for errors and incorrect orders.

Due to this, warehouses can get stuck in a situation where they need to fulfill an order that is not actually available in the warehouse. Inaccurate inventory count also prevents efficient order management as managers don't have complete visibility of the stocks coming in, going out, or just sitting idle on the shelves.

Missing Order Batching

Consider all the metrics that need to be captured for a basic automated order fulfillment process. Warehouse managers need to record the order number, date, customer's details, platform from which it was ordered, estimated delivery date, packaging directions, shipping details, and more. It is easy to lose track of some important metrics in this arduous process.

One such important metric is order batching and grouping. Orders are generally grouped in batches based on their delivery locations, dimensions, shipping channels, and other parameters. So, if manual pen and paper processes are followed, these batch details can get lost or misplaced.

Inadequate visibility of these processes and lack of communication might lead to orders being grouped in different batches or not getting grouped at all. This can delay order delivery to a customer and not only give them an unsatisfactory experience, but also hamper the image of your brand.

Lack of Comprehensive Analytics

In order to improve something, measuring its current performance is necessary. One of the biggest challenges warehouse managers face during order management is the lack of comprehensive analysis at their disposal to warrant any changes.

While fulfilling the order efficiently is important, having performance metrics of the various steps involved is also essential. Data about the receiving process, picking and shipping processes will clearly show which modules are performing on-par or below-par.

This is helpful in not only removing the bottleneck that holds up the whole chain but can also optimize it for future orders. Errors are reduced and managers get a clear view of where the warehouse management needs to improve to get more orders out.

Advantages of an Order Management System

A powerful order management system can take holistic care of a warehouse, which means it can handle order management as well. 

While there are standalone order management systems that are dedicated to managing orders, these sometimes are limited to just one domain and are unable to communicate with different IoT in warehouse operations

Here are a few reasons why investing in a robust order management system that handles order processing and fulfillment can be profitable for your business.

Cross Process Synchronization

Just managing orders efficiently and with reduced errors is not enough to ensure smooth and correct order delivery. There should be cross-process synchronization that allows warehouse managers or the sales team to monitor the picking, packing, and shipping operations as well. 

Any mistakes or hiccups during this process can not only delay fulfillment for a customer, but also affect order management. The fulfillment process is long, time-consuming and complex involving multiple parties. 

Therefore, Cross process synchronization makes the fulfillment process more efficient, communicative, and clear for seamless order fulfillment and processing without any challenges. 

Real-Time Tracking & Visibility

A complete order management system software can be integrated with every warehouse operation, providing real-time updates for everything. The person in charge of managing orders can easily check the inventory count present in the warehouse and accordingly update the availability of a certain product. 

This can prevent the customer from ordering something that is not available in the warehouse but visible on an online marketplace. A proper notification also stops salespeople from taking bulk orders for a product without knowing the actual inventory count.

Additionally, many OMS softwares also feature advanced inventory management and tracking capabilities that can help businesses optimize their warehouse stock levels and avoid over or under stocking items. This helps to reduce unnecessary spending on products that are not being sold.

Multichannel Integration

Customers these days have the option of ordering products from different e-commerce platforms, online marketplaces, offline stores, PoS systems, and more. This creates a multichannel ordering system that warehouse managers need to capture while keeping track of incoming as well as fulfilled orders. 

An order management system software integrates with online and offline channels and seamlessly records orders coming from different sources. This provides greater visibility and control to warehouse managers on every single customer order. 

By automating the manual back-office processes, Order management systems save a lot of time for the sales team, time which they can now spend on making meaningful connections with their customers. Orders will now have fewer chances of slipping through the ranks, as every order, no matter where and how it was placed, gets automatically reflected in the system for every sales team member to monitor.

Machine Intelligence

Manual processes tend to consume a lot of time for completing anything. Humans are prone to committing errors as well and even the most skilled workers tend to make a mistake when orders come rushing in. 

Modern order management systems make use of machine learning algorithms and artificial intelligence to not just take over some of the manual tasks, but also reduce errors.

These intelligent systems create batching algorithms powered by machine learning to reduce the amount of time it takes to input an order, search for the listed products, pack them in containers and place it with other orders of the same batch. 

The complete order fulfillment process finishes quickly, leading to faster deliveries, fewer errors, better use of money and resources, and an improved customer experience.

Customer Service Excellence

One of the major advantages of an Order Management System is its ability to improve customer service. Through OMS, businesses can easily and quickly process orders, provide accurate information on product availability, and track order status in real time. 

This helps customers to be more informed and confident when making purchases, which can lead to repeat business and increased sales. 

Additionally, customers can access their accounts online at any time from any device, allowing them to make changes or check up on the progress of their orders. Having excellent customer service is the cornerstone of a successful business in this digital world. 

Order management system software seamlessly enables your business to deliver customer service excellence at scale to a diverse customer base.

Key Order Management KPIs & Metrics To Track

There are different metrics in the order management process that are crucial to track for ensuring the order management process is seamless and efficient. 

These fulfillment KPIs and metrics are from different stages of the order management process like order placement, order fulfillment, post-delivery services, etc. 

1. Shopping Cart Abandonment Rate

Shopping cart abandonment means when an online shopper adds items to their online shopping cart but never purchases those items. 

Calculation Formula: 1 – (Completed transactions / Number of shopping carts) x 100

2. Customer Purchase Frequency

Customer purchase frequency refers to the number of purchases made by an avg. customer within a defined time frame be it a month, quarter or year. 

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

3. Average Order Value

Average order value refers to the amount of revenue generated from an order. It could be from the complete sales or a particular category or division or location of products. 

Calculation Formula: Total revenue over a time period / Number of orders

4. Cost Per Order

Cost per order basically means the costs you incur to fulfill one order. This does not include the cost of the product itself but rather the labor costs, shipping costs, etc. 

Calculation Formula: Total fulfillment costs / Number of orders

5. Order Picking Accuracy

Order picking accuracy is about delivering the right products as ordered to the customer instead of delivering wrong products. It is about maintaining the best customer experience and brand identity. 

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

6. Order Fill Rate

Order fill rate refers to the amount of orders that can be fulfilled from the existing on-hand inventory as opposed to requiring new inventory. 

Calculation Formula: Orders fillable from inventory / Total orders x 100

7. Order Fulfillment Cycle Time

Order fulfillment cycle is the one of the most crucial KPIs as it is the total time between the order placement and successful delivery of the order

Calculation Formula: Time and Date of Delivery - Time and Date of Order Placement 

8. Order Pick Rate/Hour

Order pick rate per hour is pretty self explanatory as it refers to the total number of orders prepared and shipped from your fulfillment center or warehouse. 

Calculation Formula: Total orders picked and shipped / Total work hours

9. Rate of Returns

Many customers choose to return the products that they ordered. Rate of return measures how frequently the products are returned by customers. 

Calculation Formula: Number of orders returned / Total orders x 100

10. Perfect Order Rate

Perfect order rate refers to the total number of orders which were successfully delivered to the customers without any incident or issues or errors in a given time period. 

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

Hopstack - The Best Order Management System

Hopstack's cloud-based order management system seamlessly integrates with picking, packing, and shipping processes. Not only does it help you manage customer orders efficiently, but also eliminates errors.

Speed up your fulfillment cycle, serve more customers, and never miss an order, with Hopstack's AI-driven order management system. It helps you measure performance metrics, take orders from multiple channels, cut down on operational costs, and improve the overall warehouse efficiency.

Start your 14-day free trial of Hopstack now and never miss out on a customer order again.