Guide to order management

Order management is an important part of the overall customer experience of your business. The process typically starts right from when a customer places an order and continues until it is fulfilled.

But what does order management mean for subscription-based businesses? Though it is the oldest and most basic cycle of commerce, managing orders in a subscription economy can be a surprisingly complex challenge.

Already, 75% of traditional businesses are jumping to a subscription-based model. A solid order management system ensures efficient management of recurring orders, accurate billing, on-time delivery, and seamless customer experiences.

This article covers the basics of order management for subscription-based businesses and how you can optimize your order fulfillment processes.

What is order management?

Order management is the collection of processes and actions that make up a company’s inventory lifecycle, from customer order placement to order fulfillment.

The bulk of the typical order management process lies in the background: from when a customer lands on your website (warehouse for most businesses) to customer relationship and receipt and delivery (shipping). It also includes enterprise resource planning (ERP) systems, third-party logistics, and software.

For a business to have a seamless, end-to-end order management process, it needs to fulfil customer orders without overwhelming its capacity. This requires understanding its capacity in the first place.

Generally, small businesses can make do with spreadsheets and pen-and-paper inputs, while larger enterprises require a more extensive and sustainable order management system.

Order management is about improving the efficiency and accuracy of order fulfillment.

What is an order management system and how does it work?

An order management system (OMS) is software that helps businesses streamline their operation by enabling them to track orders, inventory, and sales accurately and efficiently. Practically, it collects information from all sales touch points, both online and physical, to help businesses deliver orders to their customers.

With OMS, companies can reduce their manual process and automate repetitive tasks. It also goes beyond tracking order fulfilment. They include features that prevent stockout, manage customers’ databases, and ship goods faster.

An order management system can help boost sales, meet customer expectations, and provide insights into order fulfilment.

The evolution of order management

Digital shopping windows

There are now more online store versions of physical stores as many buyers want their entire order to be fulfilled with a click. To meet these customer expectations, businesses need to have an effective website that’s clean, fast, and simple to navigate. Website problems can derail order management before it begins.

Revenue collection

Most businesses now use third-party payment services for billing and payment collection. This payment process must be both secure and user-friendly.

A difficult-to-navigate payment process could lead customers to abandon their transactions, while a security breach has the potential to damage a business’s reputation and scare customers away.

Transition from on-premise to a cloud-based system

The evolving business landscape now means businesses must choose between cloud-based and on-premise order management systems. Cloud-based systems are faster to deploy, scalable, cost-efficient, and provide disaster recovery and security compared to on-premise-based order management software.

Cloud-based systems are globally hosted, while on-premise systems require installing and maintaining software and hardware locally, often leading to extra costs and limited scalability. Businesses wishing to streamline their operation, improve their customer experience, and benefit from the latest innovation choose cloud-based systems.

Adoption of omnichannel order management for seamless customer experiences

The rise of omnichannel e-commerce businesses has mandated adopting omnichannel order management systems. Consumers now interact and make purchases from brands across multiple channels.

Omnichannel order management includes synchronising inventory, product information, pricing, and customer data across all channels. This enables customers to browse products, place orders, track shipments, and return or exchange, regardless of their chosen medium.

Delivery

Due to various sales touchpoints between customers and businesses, the delivery system has undergone a transformative shift from a basic logistical step to a strategic and customer-centric process.

The new landscape goes beyond the physical transportation of goods. It prioritizes real-time tracking, diverse delivery options, and last-mile efficiency at the forefront.

Key components of order management

The following are the components of order management:

1. Order capturing

At the start of any order management process, you have order capture, or acknowledging a customer’s order for the first time.

Order capturing is a component of order management that encompasses order creation and validation. While it might seem to be the first part of order handling, order capturing transcends the entire process, starting at the creation of the customer order and terminating when it is shipped.

Think of it this way: an order can’t get captured if the product isn’t ready to ship. Order capturing is more like the “initialization” component of order management that prompts a business to check and activate the other components.

2. Order processing

Order processing is another key component in order management that encompasses the workflows that verify customer orders and ensure they get them at the right time and place. Generally, order processing happens in the back office, distribution center or warehouse, with people sorting, packing, and labeling each order to proceed to fulfillment.

3. Inventory management

Companies generally consider inventory management a component of their end-to-end order management processes. It involves processes that let businesses check and monitor their stock levels against their ability to fulfil customer orders.

Beyond that, inventory management lets you streamline the level of raw materials and finished products to avoid surpluses and shortages in your order management pipeline.

Popular inventory management techniques are Just-In-Time (JIT) management and Day Sales of Inventory (DSI).

4. Fulfilment and shipping

When the product is ready to leave the company’s warehouse and head to the customer, fulfilment and shipping are the next step in your order management pipeline. In this step, the company ships out the product and sends the customer an automated message to inform them it’s in transit.

5. Order tracking

When the customer receives the product, your order management is complete. For that to happen, you need one last piece—order tracking. Order tracking is an automated process that lets the company and the customer monitor the package in transit every step of the way.

Benefits of effective order management

Order management, done correctly, will boost sales and customer satisfaction. Below are some of the notable benefits:

1. Improved customer experience

Improving the customer experience is a major benefit of perfecting your order management process. When a customer gets their order at the right time, with the right amount of information and notification at every step, they have a more positive impression of your company and better experience overall.

2. Increased efficiency and productivity

Orders are completed faster with an order management system in place. Considering 22% of customers abandon shopping due to slow shipping, order management saves the company time and resources since they can optimize, scale, and integrate each order management component.

These days, you can field automated order tracking and fulfilment systems in your order management system for the most productive order output.

3. Reduced errors and returns

Brands will readily tell you how stressful it is to misplace a customer’s order. Just as challenging is having customers return their orders because they received the wrong items. Order management can help to prevent these mistakes.

With tracked orders from start to finish, there’s a much less chance of losing them in a system error. Order management ensures customers get precisely what they ordered at the delivery point.

By helping to ensure a positive customer experience every time, order management helps subscription-based businesses reduce their churn rate and retain subscribers.

4. Enhanced supply chain visibility

Order management gives businesses better visibility into their warehouse and supply chain. Order management features like location management, capacity mapping, and inventory tracking, give you a more transparent and less error-prone supply chain as well as help to anticipate potential problems.

5. Increased revenue and profitability

With the stacked benefits in supply chain and customer experience, it’s only a matter of time until order management starts lining your bottom line. For one, a more streamlined pipeline of order-to-the-customer’s-doorstep means you get to retain them.

A repeat customer or a recurring subscriber has great potential for your business’s revenue.

Related: Expanding beyond order to cash (O2C) for recurring revenue businesses

Challenges of order management

Order management isn’t without its drawbacks, as you might expect from any business operation. Below are a few order management challenges:

1. Order errors and inaccuracies

Sometimes, an order management system will inadvertently make the same order errors it’s intending to fix. And in that case, those errors may be more difficult to detect, which also makes them more difficult to solve.

For instance, a recurring order can get deleted from the order management database during a system update. Unless you’ve got a mechanism to notify you of such an event, you’ve lost the customer behind that order. What’s worse, the customer may not know they’re out of the system until much later.

Related: Manage subscription transactions and orders

2. Order tracking and delivery issues

A problem with inventory monitoring is likely to cause an order management system to have issues with order tracking and delivery. Should the system no longer have a customer on record, there’s a high chance their order won’t get delivered as it should.

Depending on your integrations between your customer relationship management (CRM) and order management system, there might be a break in the order tracking sequence initialization. That might cause the system to validate an order late or not at all.

3. Excess maintenance costs

There’s an attendant cost to running and maintaining an order management system for your business. Maintenance costs will always be a priority since you’d have to scale your order management system as your operations grow.

Yet, there’s the possibility that the cost increase rate will supersede the business capacity for recurring customers. When that happens, you’d have an excess maintenance cost with few options to scale down.

4. Complexity as you scale

With an order management system, you’d always have to worry about its complex features. You have the recurring task of simplifying your order management. As your customer base grows, that can become quite a challenge.

With highly complex systems, you might need to hire more technical hands to ensure full functionality. That’s going to raise implementation costs, undoubtedly.

4 best practices for order management

As the dynamics of order fulfilment change, here are some best practices for order management to consider:

1. Implement automation and AI

With more businesses transitioning into a subscription-based model, it’s important to consider how to implement certain layers of automation and AI into order management.

With subscriptions, the customer life cycle is shorter, and every single order will potentially lead to a recurring relationship. Automation and AI can help to cut down on order-capturing time and save costs. That’s not to mention the boost in customer experience.

Automation and AI can fit into your order management system through third-party AI-powered virtual agents. These services connect with a company’s CRM or inventory management system through APIs. They’d access the order management data like a live agent would, automating order placement, returns, etc.

2. Streamline order workflows

Optimizing your workflows helps to stop waste and remove redundancies along your order management system. This requires taking a thorough audit of your existing order management processes.

Workflow visualization tools can help with this. You can use process mapping services, flowcharts, or visual stream mapping to gain more insights into your order workflows and how their changes will affect customers.

3. Integrate CRM and ERP systems

A thriving business is one that balances high customer demand with a close-to-perfect order performance. Businesses can integrate ERP software into their CRM system to achieve this balance. With this integration, you can manage a single data stream in your order management, making automation less error-prone.

Since every company’s order management, CRM, and ERP system are unique, it’s best to implement an integration that’s customized to yours. Try investing in third-party integration systems that have a universal ERP-CRM connector.

Alternatively, you can choose an integration platform supporting your business’s electronic data interchange (EDI) and non-EDI data formats.

Related: 10 things you should know about your ERP revenue module

4. Monitor key performance indicators (KPIs)

Monitoring KPIs ensures your order management system is performing as well as it should. Regularly reviewing key metrics helps to identify and seal leaks and streamline your workflows.

KPIs to consider are: order cycle time, fulfilment rate and time, customer lifetime value, and churn rate.

Best practices for the post-sales experience

Order management processes are more cyclical rather than linear. Customers will likely order again if they have a positive first experience. This is what makes the post-sales customer experience so critical.

1. Order confirmation email

Customers need to know that you’ve received and are processing their orders. That gives them a sense of reassurance. An order confirmation email should include the product ordered, the sum paid, and the payment method. It should also carry the order number, delivery address, and status.

2. Shipping information

When the order is ready to leave for the customer’s destination, email the customer with the shipping information, which typically includes the recipient’s name, shipping address, and quantity of product units.

3. Delivery information

The delivery information should include the delivery date and any special requests the customer might have along with the order.

4. Thank you email

Customers will appreciate a thank-you-for-buying-from-us email right about when they receive the product. It doesn’t have to be flashy or too elaborate — if it’s short and sincere, it will do.

5. Check-ins and request for feedback

Businesses will do well to check in with the customer after they have received their order. Customer feedback lets you know how the customer feels about the product. More importantly, feedback should be a KPI for your order management system.

6. Customer support channels

Customers often have enquiries about their orders and responsive customer support is an important part of the order process. Multiple customer support channels, such as social media support handles, live virtual chat agents and ticketing systems are great ways to make sure it’s easy for customers to get in touch when they have a question or problem.

 Order management FAQs

Are order management and order fulfillment the same?

No they’re not. Order fulfillment defines the specific processes around completing a customer’s order, while order management is the general lifecycle of a business’ inventory. Order fulfillment is a subset of order management.

What are the two types of order management?

We have the supply chain and bundled order management. Nowadays, you can also opt for the enterprise or custom management type.

What’s order management in the supply chain?

Order management in the supply chain focuses on how order management fits within the larger supply chain operations. The key components of order management in the supply chain include:

1. Order placement,
2. Order processing,
3. Entire order fulfilment,
4. Inventory management
5. Shipping and logistics
6. Communication
7. Returns and exchanges
8. Integration with other systems
9. Data analysis

What’s the difference between order management and the supply chain?

Order management is a component of supply chain management. Order management involves the process of managing individual customer orders and ensuring they’re fulfilled accurately and timely. The supply chain covers all the activities involved in the production, distribution, and delivery of goods and services.

Supply chain includes order management, as well as procurement, production planning, distribution network design, and optimization.

What are the six steps in the order management process?

The six steps in a typical order management process are order placement, processing, inventory management, shipping, tracking, and delivery.