Improve Your Customer Purchasing Frequency With the Best Order Management Strategy
The world of commerce is precisely balanced between the buyer and the seller. But humanity has evolved since the early days of the barter system, and the modern business world is majorly dependent on the network of orders. Almost every company nowadays, irrespective of their stance, works and builds around the functioning of the mechanism of orders and how they are processed.
A company grows based on the number of orders placed in a calculated time and its ability to act on those orders all the way to delivery. The major decisions of any company utilize order management and are largely based on the economic order quantity that is appropriate and necessary. All in all, an order management system is a factor that can make or break a company’s future.
Let us look into the fundamental component of a supply chain process for a more comprehensive understanding of business growth.
What is an Order?
In a supply chain process, an order is a demand made by a customer for a particular or a multitude of products in small amounts or in bulk, depending on the requirement at hand. Order is the fundamental function of an order management system in e-commerce.
In the supply chain process, order processing is an integral element that either makes or breaks the system. The fundamental objective of the supply chain process is customer order fulfillment. Order processing is at the center of the workflow, ensuring that the customer receives what they ordered from the manufacturer. It implements all necessary steps to ensure that a placed order is shipped and delivered to the customer within the minimum or optimal time at disposal.
The general flow of order processing includes six integral steps. But before these steps, order processing stands on the vitality of inventory management. A better and accurately managed inventory makes sure that a company is never stocked out in any aspect.
Although the modernization of industries has made order processing a mostly tech-driven and software-managed operation, the process still requires manual operations and broader warehouse management to function efficiently. Efficient order processing helps the company to curb the unnecessary time it takes to fulfill orders and increases accuracy.
The six main steps in order processing, from order placement by a customer until the order is delivered, are crucial to a company’s growth. They can also determine if there’s a possibility of a return of any products. A detailed breakdown of the order processing workflow is given below :
- Order Received -The first action a company gives after receiving an order from a customer is to log the order’s details in the order management system. In response, the system determines the critical aspects of the order, including the warehouse location, availability of the order in the said warehouse, and the delivery address of the product. An efficient inventory and a smooth order management system ensure lower transit times, reduced shipping and delivery costs, and faster and more efficient delivery.
- Order Processing – The order management system integrates and helps in the smooth transmission of functionality from one part of the process to another.
- Order Picking – The subsequent step in processing an order after receiving it is to locate the product in a large warehouse or storage facility and pick it from the shelves or the pallet. Order picking is a highly prioritized step that impacts order fulfillment in a meaningful manner. The process requires high accuracy and efficiency to ensure that there are no hurdles in completing the entire process.
Order pickers must move around an entire warehouse to locate the product(s). To minimize the time required to locate the product, efficient strategies are used based on the size and capacity of the warehouses. The most used techniques are piece picking, batch picking, and zone picking. Although most budding businesses cannot afford an automated order picking system with scanners and barcodes integrated with software and cloud systems, they are known to work quite hard and admirably with manual sorting, packing slips, and spreadsheets.
- Sorting Orders – After picking an order, it is duly sorted according to the customer’s specifications. A better sorting system ensures accuracy and customer satisfaction and can have a long-standing effect on a company’s reputation.
- Order Packing – Better packaging ensures that an order is delivered in the best condition to a customer. After the item is sorted it is sent to a packing station to get properly packed with dunnage and all other materials relevant to the order before getting ready to be shipped. Once packed, it moves onto the next stage, shipping.
- Shipping – After being properly packed, orders are shipped to the appropriate destinations, either via direct dispatch to the customers or by shipping them to individual distribution centers based on the delivery address. Orders from the same location or region are transported in a consolidated manner to fulfill them all in a single dispatch.
- Order Returns – Sometimes, due to the vast quantity of orders, they are mixed up and misplaced by the delivery systems or even damaged in transit. As a part of order processing, these products are picked from the customers and returned to the inventory for damage inspection or solution of any other discrepancies before being replaced or refunded. Efficient handling of product returns ensures better customer and company relations and better communication for better service. This massive pillar supports a company and ensures growth at every step of its progress.
Order Status and Order Tracking
Order tracking in e-commerce refers to notifying customers and buyers about the purchase order’s current status. Order tracking is an essential element of improving customer service and experience. An efficient order tracking system allows customers to track their online orders along with real-time status updates at any point in time until they receive the product. Order tracking includes shipment tracking, in-depth updates on the package location, and estimated delivery dates. An effective order tracking system allows a business to build up customer trust and loyalty and achieve their expectations. Order tracking does have several benefits that include
- Easy tracking and managing order status
- Removes any form of ambiguity with a clean and streamlined process
- Safe, secure, and effortless service
- Least problematic service
- Real-time monitoring
- Nullifies manual errors
- Increases shopping frequency of the customers
- Builds trust and brand recognition
With the advancement of technology in e-commerce, a customer can now get the comfort of desired updates with the progressing levels of their order fulfillment, without any discrepancies. Automated order tracking systems provide a better understanding and shopping experience and thus allows a customer to increase their purchasing frequency automatically with increased brand loyalty.
A pre-order strategy provides a new path for product advertising and marketing in e-commerce. A business tends to put a pre-order button to increase the excitement for a product yet to be launched or the demand pool exceeds the supply. Pre-ordered items either can be booked for with a later payment date or purchased and paid in advance. However, it is vital to consider the required strategies for the company’s utmost benefit. Some important points to look at while allowing pre-ordering are :
- Creating hype about the product prior to its release – One of the best possible strategies is to run pre-sale campaigns to create hype and become the focal point. This helps in creating a sense of urgency among the customers.
- Helps retain customers – Having a trending product going out of stock at frequent intervals negatively impacts the buyers. Pre-orders might help in altering the losses to retain some portion of the customers. Pre-orders often reduce wait time for high-demand products with ensured product delivery.
- Funding products in development – Companies can opt to lean on pre-order strategies to test new products or validate new product ideas.
- Practice demand sampling – Pre-orders provide a way to plan for purchases prior to each season. The quantity of pre-orders helps a company understand the exact demand for the product, along with a reliable source of sales revenue.
Backorder refers to the order strategy for a specific product that is out of stock for the moment, but the order is already placed with the supplier. Backorders are an excellent strategy for certain businesses as it allows them to acquire the profits from sale with the guarantee of order fulfillment. A backorder is generally issued when the company faces a surge in the product supply or launches an entirely new product to determine the amount to be ordered. Backorder is an alternative to plaguing out-of-stock items.
However, from a logistical standpoint, backorders do have some disadvantages, including:
- Back orders lead to delayed shipping, and customers might not accept the late delivery, losing customer loyalty and trust.
- Backorders often lead to an increased cancellation rate.
- An efficient backorder strategy needs a lot of time and planning. The system needs to be well planned and well constructed to work effectively. A poorly structured backorder system often negatively affects sales and marketing.
Backorders are ideally suited for businesses dealing with high-ticket products as the customers tend to be more committed and wait longer for high-ticket products than low-ticket products.
The collective process of storing, picking, sorting, packing, and shipping the ordered products is known as order fulfillment. The steps in order fulfillment include:
- Receiving inventory from suppliers
- Storing the received inventory. Warehouse organization plays an essential role in the overall order fulfillment process by determining the speed and accuracy of the process.
- Order picking – After an order is placed, the warehouse management system/ team identifies and picks the required product for further processing. The order fulfillment process starts from this point of operation and ends at delivery.
- Order packing – Once the required product is picked and removed from storage, the product is further moved to the parking area for the completion of packing and labeling.
- Shipping and delivery – The products are further shipped to their respective destinations. The shipping process may involve in-home shipping providers or external service providers with different charge bandwidths.
- Product returns or refunds / Reverse logistics – The order fulfillment process also involves product returns. In case of reverse shipments or return orders, the order fulfillment team needs to process them back to the warehouse for further examination.
The best practices for fulfillment strategy depend on various factors, including business size, location, sales, service, and revenue.
Order to Cash
Order to cash defines the totality of an order processing system. The order to cash process is basically receiving and fulfilling customer requests for goods or services. While most companies tend to focus on the resources or inventory for improving the order fulfillment process, an order to cash often plays a significant role in optimizing business-customer relationships. The order to cash (O2C) is affected by nearly every aspect throughout the company, including inventory or warehouse management, supply chain management, etc.
The steps in order to cash process are followed as :
- Order Management – Order management constitutes the first step of the order to cash process. The order management system is responsible for the next course of action once the order is confirmed.
- Credit Management – Order to Cash diminishes the issues associated with credit management. After placing an order, every new customer is automatically sent through a credit approval process where credit is applicable. An automated credit management system simplifies the credit process with strategic credit guidelines.
- Order Fulfillment– Automated order management system software is a required component of the order fulfillment process. Efficient management systems lead to a clear insight into order fulfillment. Software programs with unclear data lead to inaccurate estimations, excessive and expensive operations, and bottlenecks.
- Order shipping – The success of order fulfillment depends largely on product logistics. The Order to cash shipping section demands regular audits to ensure and maintain high performance.
- Customer invoice – Inaccurate or delayed invoicing often leads to several discrepancies in the company’s financial status. Research reveals that businesses practicing effective O2C require only 16.2% of manual input to send accurate and reliable customer invoices for better performance.
- Receivable accounts – Automated accounting systems need to identify outstanding invoices at preset intervals to avoid overdue. Receivable accounts experts review the invoices to determine any sort of apparent errors. In case of any error in the invoice, the representatives must address the problem immediately and take action for the same.
- Payment – Businesses tend to encounter issues with inaccurate payment processing systems. Any discrepancies in payment also lead to inaccurate cash flow with incorrect financial forecasts. All overdue accounts need to be audited on a regular basis to update the payment channels and determine the next steps.
- Data management and reporting – Integrated software programs help in a clear understanding and can track performance data across all the stages of the cash process. In-depth monitoring and analysis of the collected data allow the business to study the overall flow of the order to cash process affecting the organization.
Successful optimization and management of the order-to-cash channel help businesses maximize their productivity and efficiently deliver customer value with improved services.
The order cycle is the total number of days a company needs to use up the overall vendor supply and meet the supplier’s target order requirement. The order cycle includes order, reorder and economic order rates to clearly show a company’s overall inventory turnover ratio. However, the inventory management system’s order cycle is also referred to as the review cycle. The review cycle consists of the total time a business takes to sell most of the supplier products to meet the order fulfillment. The order cycle is calculated as :
- Order Point Formula –
Order Point = Anticipated Lead Time * Demand/Day + Safety Stock
- Reorder Point Formula –
Reorder Point= Average daily usage rate x Lead time + Safety stock
The order cycle is essential for a business to maintain uniform order cycles for multiple suppliers and vendors. Accurate order cycles are crucial to inventory management and ensure seamless supply chain operations.
Order Picking and Packing
Order picking and packing collectively is a system where the ordered products are retrieved from the respective inventory positions, packed safely, and sent for completing the customer order fulfillment. Order picking and packing is one of the most expensive warehouse operations that can either make or break the entire supply chain process.
The steps for order picking and packing are as follows:
- Receiving of Order – After an order is successfully placed and recorded in the warehouse management system, a packing slip is generated for the order pickers to pick up the products from designated inventory shelves.
- Picking – After the packing slip is passed on, a warehouse picker picks the item from the warehouse shelves before passing it on to the packing station
- Packing – Order packing is the process of sorting and packing the picked orders into appropriate packages before carrying out the final shipping process. Generally, the shipping label and invoice for the order are generated and attached to the package in this step.
- Shipping – The last step of the order pick and pack constitutes the arrangement of the designated packages and getting them ready for shipping. The previous inventory operations step directly impacts the order fulfillment speed and accuracy.
Order batching refers to moving and combining one or more customer orders into single or multiple pick orders in a warehouse. All the orders are collected and joined together for further processing of pick orders. Order batching is an efficient warehouse optimization to speed up the overall fulfillment process. Order batching can be controlled and optimized by using an effective and efficient warehouse management system. Order batching is primarily used in the warehouse to minimize the travel distance of warehouse pickers, with strategically planned route methods.
Make to Order
Make to Order is primarily a business production strategy that allows customers to place an order or purchase items customized to their specifications and demand. The Made to order (MTO) is usually started only after the complete customer order is placed. Make-to-order is beneficial for a business as it includes customization for the customers and ensures a reduction in overall stock or material wastage. However, make-to-order products are more expensive and have increased the wait time for product delivery. Make-to-order is a pull-type supply chain operation strategy as the products are only manufactured per customer demand.
Order logistics is the overall organization of order processing, transportation, and delivery to complete the entire order fulfillment. Order logistics primarily focuses more on the integrated management and coordination of the order fulfillment process, whereas order processing focuses more on basic warehouse operations like order packaging or kitting.
Elements of order logistics include:
- Raw materials – The process of order logistics starts even before an order is placed, and various supply chain operations influence the whole process. Therefore, sourcing raw materials or manufacturing items is the primary requirement of order logistics.
- Inventory sourcing – Efficient management of transportation from the suppliers or manufacturing units to the warehouse also plays a vital role in order logistics.
- Inbound inventory – Receiving inventory shipments constitutes the next step in order fulfillment. Inbound inventory receiving is a critical aspect of the supply chain process. Delayed inventory receiving can interrupt the supply chain’s natural flow, which may affect the entire order fulfillment process.
- Storage and warehousing – All the acquired products are contained in the warehouse until sold. Warehouses are the safe space for the acquired goods and the most critical part of a supply chain process.
- Inventory management – Every product, either present in the warehouse stock, inbound, or outbound is listed in an inventory and is updated corresponding to the movement of every individual product. This is an important step that keeps track of inbound and outbound shipments and prevents stock-outs of any sort.
- Order fulfillment – Customer order fulfillment is the most crucial aspect of any business. Delivering ordered products in the minimum possible time enhances customer experience and helps a company’s growth. With effective and efficient supply chain processing, order management, and fulfillment, a company’s future and reputation are secured as a company that values customer needs and satisfaction.
- Shipping – The movement of bulk products or freight using land, air, or sea, to ship products from a warehouse to the nearest distribution center to the customer. Mostly handled by 3PL or 4PL companies, shipping is an essential aspect of the order fulfillment process, that ensures a product is delivered to the customer in the best condition and within a minimal amount of time from the time of ordering.
- Order delivery – The final step of the order fulfillment process is delivery. A delivery executive picks up the product from the distribution center nearest to the customer and delivers it safely.
A business has various needs in a large-scale operation, and order management is a primary necessity among them. The groundwork of the system is laid down by the basic expenses a company faces while preparing to receive the orders. By definition, ordering costs are the various expenses a company incurs to receive the products ordered that are stocked in its inventory. However, the nature of these expenses is not concrete. These costs can include shipping charges, unprecedented transportation costs, inspection charges, and the costs of every other formality in acquiring inventory products.
Freight Order and Costs
The essential operating mechanism in the shipping system of order management is the movement and transportation of freight. Shipping freight is integral to completing the order fulfillment process and effective supply chain management. On a macroscopic level, freight is carriers and bulks of products shipped from one location to another by different transport systems, air, land, and water.
Freight cost is fundamentally the amount a company pays to employ those transport systems. The expenses that go into transporting and managing freight are integral in managing an order process efficiently and need to be monitored accordingly. They also need to be documented to avoid confusion.
To break it down, many steps go into transporting freight from the seller’s location to the customer’s outlet. The freight costs are decided according to those steps, which include:
- Transporting the products to the location of departure of freight.
- Loading the freight onto the vessel using different utilities based on the bulk of the freight and the medium of transport, which are marine in most cases.
- Unloading the fret using suitable mechanisms.
- Transporting the freight to the appropriate location for delivery.
After being dispatched, a product, a freight, or a bulk of both are referred to as shipments. The entire workflow of order management is based on the proper communication of shipments. Products are shipped to their destinations efficiently and with proper care. This confirms the delivery of the product in the best possible state and thus improves customer satisfaction.
Purchase Order Financing
In a case relevant to small businesses and new start-ups, owners do not have the required capital to mass produce goods and do not have the required cash or inventory to fulfill all orders. To get out of this predicament, purchase order financing makes them capable of paying the suppliers for the products needed to complete customer orders.
To elaborate, Purchase Order Financing or PO financing is a variation of a business loan. One lasts for a shorter term, from when a customer orders a product to when he receives it and completes the payment. A PO company lends small-business owners an amount of money, up to 100% of the costs, to pay the third-party suppliers for goods they need to complete the customer order fulfillment process. Once the goods are delivered, the customers are sent an invoice, through which they pay the PO company directly, which later deducts the charged fees and returns the rest to the selling company.
In a Purchase Order Financing system, the working entities are the selling company, the PO financing company, the third-party supplier, and the customer. The system proceeds from the selling company that receives an order from a customer. After analysing the costs, it applies for Purchase Order Financing with a PO company. In turn, the PO company validates and verifies the order, keeping in mind the general estimate of the order and how much it might require to complete the process.
After properly scrutinizing and analyzing the estimated costs and comparing them to the selling company’s capital, they either approve a finance order of 100% or a fraction, based on their analysis. The selling company then purchases the required goods from a third-party supplier and sends them to be shipped and delivered to the customer along with an invoice. After the customer completes the payment, it is directly received by the PO company, which deducts the fees charged and returns the rest of the amount to the selling company.
The fundamentals of a business system are to receive and fulfill customer demands. The most prominent among these demands are orders. A company receives orders and demands from customers to deliver a particular facility, security, or product within a fixed amount of time. Efficient management of said order is essential for the company to maintain its relationship with the customer.
The types of order management are below:
Distributed Order Management
It is imperative in business management that customer satisfaction is never harmed when saving costs. Distribution Order Management ensures companies can fulfill customer demands at the lowest prices possible with rule-based procedures.
E-commerce Order Management
In a global market, e-commerce order management means tracking a shipment and carrying out its logistics efficiently to minimize the time taken to deliver the order and ensure that it is delivered to the customer in the best condition possible.
Multi-Channel Order Management
Multichannel order management is the most efficient way to control inventory and all other aspects of the supply chain system under one roof and at arm’s reach. It is fundamentally an integrated software system that helps business owners track all the sale channels the business is active on simultaneously. If a company uses physical outlets and online platforms like Shopify, multi-channel order management allows them to manage both channels simultaneously and reduces hassle.
Order Management System
The most important factor that either makes or breaks the supply chain system is the quality of the order management system in a company. An efficient order management system goes a long way in securing a company’s future with assured benefits. Some of the most effective ways of managing the system are to have an efficient inventory and warehouse management mechanism and smooth workflow within those bodies. A better shipping system and delivery service also ensure that the order is delivered within the minimum time and in the best condition possible.
The benefits of an efficient order management system are:
- Maximizing customer satisfaction
- Benefitting the company through assured growth.
- Minimal shipping and delivery time.
- Better communication and smooth workflow between different parts of the system.
- Proper shipping ensures that the product is delivered in the best condition possible.
Order Management Performance Metrics
Order management metrics and key performance indicators (KPIs) are used to measure and record sales trends and returns of tangible and intangible orders. The metrics and measurements are taken from when an order is received through any inbound channel active within the company. They help determine the accuracy of cost trends in a fixed time and keep track of customer order processing, from inventory management to customer order refunds; the easiest way to perform these tasks is either using dashboard software or spreadsheets.
Some of the best KPIs that help determine the performance metrics of an ordering system are:
- Total internal cost of each order: The total costs incurred by a customer while making a purchase.
Total Internal cost of each order =(Sum of all the expenses incurred to deliver the orders/ Total number of orders).
- Customer Order Error information rate: Or order accuracy rate is used to determine how many orders were shipped without error.
Customer Order Error information rate=(Number of orders fulfilled accurately/ Total number of orders fulfilled) X 100.
- Cycle Time: customer order to the readiness of shipment: The average time is taken to ship out an order from when it was placed, excluding the actual shipping time.
Cycle Time=(Delivery date-Date of order)/Total orders shipped.
- Rate of customer backorder: The number of orders that can’t be filled when ordered.
Rate of customer backorder= (Number of undeliverable orders/ total number of orders) X 100.
- Cases picked per employee: The average number of cases picked per employee.
Cases picked per employee = (Total number of cases picked/ Total number of employees)