Order Processing: What Does Order Processing Mean?

By
Joshua Weatherwax
Table of Contents
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    Businesses can be made or destroyed by their order management and order processing. 

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    In fact, more than two thirds of customers say they are less likely to shop with a business if delivery is late by only two days. 

    It's clear that you need to understand and control order management and order processing, but where do you start?

    Read on to learn the basics of order management and order processing and how you can make them work for you.

    What Is Order Processing?: What Does Order Processing Mean?

    Order processing is the workflow that takes place between a customer placing an order and the order getting delivered. This includes product picking and batch picking, sorting, packing, tracking, and shipping and handling.

    There are three main ways that order processing takes place:

    First, through internal warehousing fulfillment. Here, your employees pick, pack, and ship orders directly from your warehouse to the customer. You control all aspects of the process, but you also take responsibility for issues and cover costs. If you choose this solution, make sure to invest in eCommerce product liability insurance to protect your business.

    Second through dropshipping. In this model, you sell online products through your ecommerce website, but don't hold them in a warehouse. Instead, you pass the order along to your supplier who packs and ships the product to the customer. This is a great option for a new business owner as it cuts overhead expenses and lets you focus on selling.

    Third, using a 3PL fulfillment company. This method of order processing is sometimes confused with dropshipping. They both involve sending customer orders to a third-party company that will fulfill orders, but there's one major difference. Here, you own the products that are being shipped, they're just held in another company's warehouse. This is good if you produce your own products, but don't have the space or money for a warehouse.

    What Is Order Management?

    Order management is the process of receiving, tracking, and fulfilling customers’s orders. The process starts when a customer places an order and does not end until the order is delivered.

    A good manager knows that the way you manage orders has a major impact on the success of the business, this includes restaurant success. Automated and streamlining this process is needed to avoid overwhelming your eCommerce fulfillment team as you scale. It's also vital to know a thing or two about inventory cycle count.

    Importance of Order Management

    Order management is an incredibly important part of the sales and order fulfillment process. Here’s why: 

    First, it lets you avoid issues with stock levels. The two biggest being overstocking, which leads to dead stock (see dead stock meaning), and understocking, which causes a backorder. Both issues can result in lost sales and even customer churn.

    Second, it prevents shipping errors. Your eCommerce shipping team may be delivering the wrong orders, shipping to incorrect addresses, or just operating slowly. By taking control of your order management, you can avoid these issues and increase customer satisfaction.

    Third, it saves your business time and money. When you don't streamline your order management, you're wasting resources. Your team will spend more time than necessary on fulfillment and you'll foot the bill. Invest in a 3PL fulfillment company or order management system to limit this waste.

    Order Management Process

    The order management process flow, sometimes called the sales order management process, involves six steps that a customer's order goes through.

    Order Processing Steps

    The six steps in the order management process or flow are:

    1. Order placed. Orders from customers may come in several ways. They may be over-the-phone, in person, through an eCommerce marketplace, or somewhere else.
    2. Order received. After the order is placed, it has to go to your fulfillment team. Often this is down automatically in real-time, but there may be reasons for a delay between these steps.
    3. Products Picked. Once the fulfillment team has the order, they need to locate the products. A proper inventory management process will ensure that no time is wasted looking for items spread throughout the warehouse.
    4. Products Packed. With the products collected, they are then assembled and placed in eCommerce packaging. This packaging should keep the products safe in transit and have branding to help promote your business.
    5. Order shipped. Once packaged, the products are now ready to be sent to the customer. Carriers used and transit time will vary, but keep the customer informed along the way. Unless you're using bulk shipping, customers expect products within a few days.
    6. Order delivered. Finally, the products are delivered to the customer. As long as you're on top of your order management, they'll have received the right items on time. Otherwise, there's work to do to get your system functioning as needed.

    Distributed Order Management

    Distributed order management is a fulfillment method used to optimize delivery time while keeping costs low. This is done by combining orders made through various channels into one place. For example, many eCommerce businesses have their own online store but also sell through various marketplaces.

    These orders need to be processed but come in through completely different systems. A distributed order management system (DOM) can eliminate this problem by receiving all orders from the various platforms and then sending them to fulfillment. It can even collect manual orders made in a brick-and-mortar store.

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    eCommerce Order Management

    eCommerce order management is the process that takes place after receiving an order through your online storefront. This includes everything from inventory tracking to printing labels with a shipping label printer to subscription payment management.

    eCommerce order management is done using eCommerce software or through a marketplace with integrated order management capabilities. These systems generally receive the orders, update inventory levels, send the orders to fulfillment and track the shipment. They lower the risk of making mistakes in the fulfillment process, decrease delivery time, and grow with the business.

    Multi Channel Order Management

    Multi-channel order management is the process of controlling orders that come in through different sales channels.

    For example, you may receive both online marketplace and direct to consumer orders at the same time. These orders will likely be very different in nature. The wholesale order will be much larger and have a longer fulfillment time than the DTC order. Payment terms and pricing  will be different as well.

    The best way to handle these orders is to use a DOM system or to sell through an all-in-one marketplace like BlueCart eCommerce. It lets you sell and manage B2B and B2C orders in a single platform. It's also built to scale with your business and comes with more useful features than any of the competitors.

    Order Management Performance Metrics

    The best way to measure the success of your order management program is to establish performance metrics. These order processing metrics, also called KPIs, are intended to identify weaknesses and optimize your process.

    The most important metrics to track orders lead time, order accuracy, and rate of returns. This include the perfect order rates you strive to have.

    Order Lead Time

    Lead time identifies the average length of time that an order takes between being placed and being delivered. The shorter this is, the happier your customers will be.

    Use this formula to determine your lead time:

    Order lead time = Average time taken for all orders / total orders

    Order Accuracy

    Order accuracy is a measurement of errors made by your fulfillment team during the picking process. Ideally, your team will have 100% accuracy.

    Use this formula to determine your order accuracy:

    Order accuracy = (Total orders – number of returns/ total orders) x 100

    The lower this number the more work you have to do to ensure your customers will get what they order. It is one of the most important KPIs you can track.

    Rate of Returns

    Returned orders are common in all industries and for businesses of all sizes. They chew into your profits and stick you with products that are difficult to sell. Reducing this number ensures your bottom line stays green.

    Use this formula to determine your rate of returns:

    Rate of returns = Products returned/ Products sold

    Luckily for BlueCart customers, it has a very easy returns and refunds/credits system built into the platform. That avoids the headache of returns and let’s you keep your customers happy.

    Small Business Order Management

    Order management for small businesses is the same as for any other business. Orders are placed, picked, shipped, and delivered. However, small businesses have fewer resources to allocate to this function of their business. These are part of the order processing steps.

    The biggest tip for small business owners is to invest in order management software. This will allow you to automate various functions of the order process like sending orders to fulfillment and tracking inventory levels. Pair this with other eCommerce software, and you can streamline your business operations without taking on additional staff.

    You can also contract with a 3PL or dropshipping vendor, including dropshipping vendors, to lower costs more and avoid handling fulfillment at all. If this model works for your business type, it's great for letting you focus solely on growing sales.

    Supplier Order Management

    On the other side of the coin is supplier order management, where you are looking to control the orders you place with your own suppliers. This is more difficult than regular order management since much of the process is controlled by your suppliers.

    There are two ways to conduct efficient supplier relationship management. First, stay in contact with your suppliers regularly. This will ensure they understand any pain points you may have and keep them informed of any upcoming orders. This way you don't run into issues with meeting demand. Hiring a dedicated order management specialist to take charge of these relationships is a great idea.

    Second, use software or a marketplace that automates your orders and allows for recurring purchases. These come with robust reporting tools that can give both parties insight into any issues or delays. BlueCart Wholesale is a great option for suppliers to connect with buyers and lets them stay in contact throughout the purchasing process.

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    Can You Manage That?

    Order management plays an important role in ensuring your business can grow. Improperly done, it can eat up your profits and lead to unhappy customers. Invest in the tools and team you need to ensure your customers receive their orders quickly and in a good condition.

    Make sure to pair your order management with a focus on inventory control. If you don't have the products your customers want, you won't have any orders to manage in the first place. You may want to consider investing in inventory management software and procurement software. This is essential for efficient purchase order processing through eCommerce platforms.

    Frequently Asked Questions About Order Processing

    What is Order Processing Software?

    Order processing software is used to store and share data on customer orders, track order deliveries, and check stock availability. This increases the reliability and accuracy of the data while increasing customer satisfaction resulting in more sales. This is also useful for drop shipping companies.

    Such software provides insight into the total number of orders and order cycle time. An example of order processing software is Zoho Inventory and demand planning software. Using this software will allow you to keep track of the cost per order, average order number, and the amount of time it takes to fulfill and deliver the order.

    What Is an Example of Order Processing?

    An example of order processing is when a customer orders a pair of headphones from a particular brand. The order includes information such as the delivery location, order management options, and supply chain systems. This information allows both ends of the transaction to locate the order and order status at all times.

    What Are the Stages of Order Processing?

    The stages of order processing include the following six steps: 

    1. Order placement
    2. Order received
    3. Product picking
    4. Product packing
    5. Order shipping
    6. Order delivery

    This also applies to multichannel order management, warehouse management processes, sales order processing, and the procurement process.

    What is Distributed Order Management?

    Distributed Order Management (DOM) use rule-based procedures and makes it possible for retailers to get the most out of their order fulfillment processes while keeping costs low and meeting customer expectations. This is essential for the ordering process.

    What is an Order Management System?

    An Order Management System (OMS) allows retailers to manage the lifecycle of orders through digital processes. This system tracks order information and processes such as order entries, inventory management process, order fulfillment, and post-sale services. Keep in mind the best inventory management techniques, inventory management tips, and inventory management KPI. A purchase order management system is essential to have for eCommerce businesses.

    What Is the Order Management Process?

    The order management process keeps track of customer orders and allows retailers to handle all steps involved within the order fulfillment process. This involves accepting the order, picking the order, packing the order, and shipping the order. Tracking the order is also included until it is delivered. These processes are part of company order management KPIs.

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