What are Order Management Costs?
Order management costs refer to the company’s expenses to create and manage orders, cost of order fulfillment, order paperwork, customer accounts, and payments of an organization. Furthermore, the costs associated with order management governance, risk and compliance, automation, property, plant, equipment, and labor costs are all part of order management costs.
Significance of Order Management Costs in E-commerce Logistics
Order management costs give a brief idea about total annual orders and the total annual supply of a business, all of which help improve the supply chain flow. Here are some significances of order management costs:
- Helps in cost saving: Calculating order management costs help companies understand and evaluate how much they spend to execute every step of the order management process. Therefore, with this, businesses can use their finances more effectively, reducing unnecessary expenditures.
- Gives reliable metrics to assess a business: Order management costs provide an analysis of total cost management and the total revenue generated, which helps any business to invest accordingly.
Pre-requisites for Order Management Costs and How It Works
Specific requirements should be fulfilled in order to get order management costs which include:
- Order maintenance records
- Systematic order paperwork
- Proper record of bills and invoices
- Utilizing order management software
Percentage order management costs can be formulated as follows:
(Total annual order management cost / Total revenue) x 100%
Use Case With Order Management Costs
For instance, a company has calculated a total annual order management cost of 50 million AUD. Their total revenue is 150 million AUD. Therefore, putting these values in the order management costs formula, we get:
(50 / 150) x 100% = 33.3%
Therefore the company’s percentage order management costs were 33.3%.