Welcome to the first chapter of our order management guide. In this chapter, we will start at the very beginning by defining what the term order management means and then explain why it is important.
Confused? Maybe this is too advanced or too basic for you? Head back to the order management guide homepage.
What Does Order Management Mean?
The term order management is made up of two words—‘order’ and ‘management.’ Order refers to what the customer has paid for (it could be one or multiple items), and management refers to how the business handles that order.
Order management refers to the various steps that follow an incoming customer order once payment is received and the seller accepts the order.
Quite simply, you are managing an order—you are responsible for ensuring it completes what is needed to reach the customer at the other end.
Here’s a quick example of how order management works in e-commerce:
- A customer purchases from your business (on your website or a marketplace, like Amazon or eBay), and you log and accept the purchase ideally with order management software (more on this shortly!).
- The customer receives confirmation of their order, usually with an email. The email should confirm that the order has been paid for and confirm the items included in the order.
- The ordered item or items must be designated for the order. This way, they won’t accidentally get sold to another customer, and stock is appropriately accounted for.
- Next, in the warehouse, the items in the order need to be picked and prepared for shipment.
- The customer should be notified of their shipment (again, likely through email) and the time and date of its likely arrival.
- The shipment is sent from the warehouse to the customer.
- At the very end, the customer receives their order.
While this may all seem pretty straightforward, things don’t always follow this linear path.
There’s always the possibility that things will go wrong along the way (the wrong item is shipped, the shipment gets lost, or broken), and the customer may complain or change their order.
In addition, it’s important to note that not every business is the same, and they will have different processes for managing orders. It largely depends on the nature of the business and the scale of its operations.
What Can Order Management Also Be Called?
No other terms can be used in place of order management, though many similar terms almost have the same meaning.
Order management can be confused with ‘order fulfillment.’ The difference is that order management covers the whole ordering process, while order fulfillment is solely about the delivery of orders.
Another closely related term you may confuse with order management is ‘order processing,’ which covers receiving the order and ends at shipping.
Lastly, order management shouldn’t be confused with inventory management, which is solely concerned with managing the products you store in your warehouse.
To learn more about inventory management, check out our complete guide.
Why Is Order Management Important? Top 20 Reasons
Order management is an integral part of running an e-commerce business. Without it, things very quickly fall apart.
1. Get Orders Shipped Quicker
Applying order management to your business operations will make it more organized and help you get orders to customers faster.
This is because a clearly defined process always makes work quicker. When there are steps and a standardized order to do things, it’s easy to follow, and you can process more orders in a timely manner.
Furthermore, when you are organized, you can prioritize important orders.
2. Your Warehouse Operations Will Be Organized
An e-commerce business that doesn’t follow good order management practices will not be organized, and this disorganized way of doing business will spill over into how you manage your inventory and warehouse.
Improving order management in your business will result in fewer issues, such as warehouse mix-ups and accidents.
3. Process Transparency
Order management allows a more transparent process, allowing people to easily see how things work, where things went wrong, solve problems, and answer customers’ questions.
Furthermore, when everything is transparent, teaching new employees and gauging performance. Lastly, when there is transparency in your order management process, you can also mitigate retail theft.
4. Track Orders
This is a big one. With order management, you will always know where your orders are and what stage of the order process they are at.
This can help you solve problems when they occur, like a shipment getting lost or stolen. You can also look for ways to optimize routes so orders spend less time on the road to their destination and get to customers faster and more cost-effectively.
5. Work Is Easier When You Have a Process
Undoubtedly, your employees will be happier when they have a defined order management process to work with.
A chaotic work environment will lose your company employees. However, if employee morale is high, they will deliver better results.
6. Use Order Management Software (OMS) to Simplify the Process Even Further
You can’t really sell stuff online in the modern age without using some kind of OMS to handle orders. (We will mention the acronym ‘OMS’ a lot in this guide, so get used to it!)
Unless you go out of your way not to use an OMS, it’s almost impossible not to. They are extremely beneficial, and it is highly recommended that you use one.
7. Improve Inventory Accuracy
When your orders are a mess, your inventory levels will get hit. Inventory will go missing, and this will cost your business money.
Inventory levels should always be correct if you want your business to grow. Every missing product is a missed opportunity to profit, so you must be on top of your orders.
8. Improve Customer Satisfaction
Getting orders shipped to customers efficiently will positively affect satisfaction, and a happy customer is more likely to return, which is vital for business. Customers want their shipments to be fast and convenient.
Shipments shouldn’t inconvenience customers and cause them hassle, which can happen if there is no organization to how you manage orders.
9. Follow Up With Customers for Post-sale
When you keep on top of your orders, you can go the extra mile and follow up with customers and learn from their experience with you. You won’t have time for such tasks if you struggle to fulfill orders.
Following up with customers like this can also boost customer satisfaction in the short and long term.
10. Reporting and Analytics
When you log and track all your orders using an OMS (Order Management Software), you get valuable reports and insights into how well things are running.
This data is highly valuable as you can learn a lot that might not be initially obvious from the day-to-day tasks.
11. Data-driven Decision Making
Building on the previous point, when you have access to reporting and analytics, you can take your insights, create actionable targets, and plan to improve your processes.
You can then try new things and improve how your business is run instead of making decisions based on a hunch.
12. Manage and Keep Inventory Costs Low
When you keep track of how many orders you handle in a timeframe, those who work in inventory management can be more precise in their purchasing decisions.
This helps you avoid overordering and getting stuck with inventory you can’t sell or have trouble getting rid of. Your business will be more financially secure when less of your business is tied up in inventory.
13. Avoid Stock Outs
Similar to the previous point, when you have accurate order numbers, you can order more when you need to. Reorder points and notifications can be set so you never run out of inventory.
You cannot implement such helpful notifications without proper order management and proper tracking of orders.
14. Improve Order Accuracy and Reduce Mistakes
Mistakes are expensive and recurring when you don’t follow order management principles! When you set up a process to follow to reduce mistakes and improve order accuracy, fewer things will go wrong.
Furthermore, with an OMS, you’ll have all the right information when and where you need it.
15. Connect All Your Sales Channels to a Central Interface
To really succeed as an e-commerce seller, you should sell on more than one channel. However, this makes tasks more complicated and it cannot be done without software.
When you use an OMS, you will get a complete picture of your orders across different channels and be better prepared to handle the load.
16. Prevent Mistakes across Different Sale Channels
Adding to the previous point, when you have several sales channels, it is very easy to get confused and mix up one order with another. Some channels may have certain processes that need to be followed.
An OMS prevents this confusion from happening.
17. Positive Knock-on Effect on Inventory Management
You may have already noticed from this list that inventory management and order management go hand in hand. When there are issues with one it will affect the other.
To prevent inventory management headaches, you must follow proper order management practices.
18. Make Managing Returns Easier
Returns will happen and should be as easy as possible to deal with. With an order management system, you can track these issues and ensure they are properly resolved.
You can also use serial numbers, track RMAs, and ensure returns are not fraudulent.
19. Automate Processes
When you use an OMS, you can automate certain steps of the order management process, which can lower your labor costs.
Furthermore, you will also make fewer mistakes because human error is removed, and your processes will be more streamlined.
20. Save Time to Focus On Business Growth
Following order management principles and using an OMS (especially one that can automate tasks) frees up valuable time.
By spending less time haphazardly handling orders, you can focus on other tasks important for growing your business.
Key Points From Chapter 1
You now have a good understanding of what order management is and why it is important.
- Order management refers to the steps that follow an incoming order once it is paid and accepted by the seller.
- Similar terms to order management include order fulfillment and order processing. They are very similar, but they are not technically the same.
- Many of the top reasons order management is important are interconnected. Proper or poor order management can have knock-on effects on many other areas of how your business operates.
- Order management and inventory management have significant overlap. Your inventory will be better organized when orders are properly handled.
- One of the top reasons order management is important is customer satisfaction. Following order management principles, you can get orders to customers faster with fewer mistakes.
Next up, in Chapter 2, we’ll cover order management terms and basic concepts.