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Order Management System

What is an Order Management System?

An Order Management System (OMS) is a digital tool used in eCommerce to streamline the order processing cycle, from receipt of order to delivery. It manages the lifecycle of an order by tracking all information and processes, including order entry, inventory management, fulfillment, and after-sales service.

What are the Challenges in Order Management?

Order management includes a range of challenges that need to be addressed in order to successfully convert clicks into satisfied customers. One of these challenges involves aligning inventory and orders across multiple channels. With businesses selling products through different platforms such as online marketplaces, brick-and-mortar stores, and social media, it becomes crucial to have a system that can effectively synchronize inventory levels and customer orders.

Another challenge is managing complex shipping schedules and order profiles. Each customer may have unique requirements for delivery, including specific timeframes or special instructions.

Tracking fulfillment is yet another issue that arises in order management. Businesses need to keep tabs on the status of each order, from when it is placed to when it is shipped and delivered. Without efficient tracking mechanisms, errors can occur, leading to delays, dissatisfied customers, and potential revenue loss.

Today, order management requires a comprehensive system that covers various aspects of business operations.

What Can the Order Management System (OMS) do?

A full-featured Order Management System (OMS) typically offers the following capabilities:

  • Track inventory levels by channel: Helps retailers manage inventory across multiple selling channels.
  • Automate the order fulfillment process: Facilitates payment acceptance and sends order information to distributors or third-party logistics providers (3PLs) for fulfillment. Additionally, it can automatically print shipping labels for in-house order fulfillment.
  • Manage customer information: Acts as a customer relationship management (CRM) platform, providing access to customer data such as previous orders, lifetime value, and location. This enables personalized marketing messages to customers.
  • Handle reverse logistics: Supports return management by automatically printing return labels, facilitating quick refunds, and providing online tracking information for customers' return status.

How Does an OMS Work?

An OMS helps you keep track of your inventory in different locations, such as warehouses, stores, and suppliers. It lets you know what's available and helps you plan and manage your inventory efficiently. When a customer places an order, the OMS takes care of the entire fulfillment process. It makes sure that the order is captured, checked for accuracy, and then processed for shipment. The OMS also handles tasks like picking, packing, and shipping, including support for drop-shipping.

This is the complete process of a series of operations performed by OMS on orders:

  1. Order receipt: The OMS captures and verifies order information from various channels such as email, phone, or website. It records customer order details, laying the foundation for subsequent stages.

  2. Order processing: This stage involves fulfilling the order by picking items from inventory, packing them, and dispatching them to the customer. The OMS sends order information to the warehouse/distribution center, tracks order status, and provides updates to the customer. An automated OMS improves accuracy and speed of order fulfillment.

  3. Order reconciliation: After order fulfillment, the OMS reconciles inventory levels, ensuring accuracy. It records the order in the accounts receivable ledger, sends a receipt to the customer, and updates stock availability.

  4. Order shipment: The OMS sends the order to the shipping carrier for delivery. It tracks delivery status and keeps the customer informed. After-sales activities like returns handling, refunds, and exchanges are also part of order shipment. The OMS can efficiently handle returns and provide refunds when customers are unsatisfied.

Types of Order Management Systems

In the past, companies used different methods to manage orders. However, order management systems have evolved to become more advanced, efficient, and helpful.

  • Individual and enterprise systems: You can choose to purchase OMS software as separate modules that don't connect with other parts of your business. Alternatively, there are more comprehensive platforms available that integrate your OMS with other software modules. This integration allows all your data to be stored in one digital location.
  • Cloud-based options and on-premises: OMS systems can be either onsite software or provided through a SaaS cloud model. With SaaS, deployment is quicker and easier, offering "pay as you grow" options for scalability. It also provides access from anywhere with an internet connection, using a browser or mobile app.

Here are 4 of the most common types:

  1. Manual order management: Suitable for small companies but time-consuming and error-prone due to manual recording in ledgers or spreadsheets.

  2. Standalone order management software: Runs alongside other business systems and includes essential components for order management, customer data tracking, and optional inventory and warehouse management. Integration capability may limit scalability.

  3. eCommerce platforms: Used to process online customer orders, particularly for smaller brands without aggressive growth plans. Requires close integration with the warehouse and basic order fulfillment processes.

  4. ERP (Enterprise Retail Platform) software: Integrated solution covering various business functions such as inventory management, accounting, warehousing, logistics, CRM, HR, and payroll. Scalable but often challenging to implement.

Why is Order Management System Important?

An OMS is essential because it impacts various systems and processes within the supply chain. It helps automate manual tasks, reduce errors, control costs, and generate revenue. Additionally, it enhances the customer experience by providing a seamless journey, boosting retention and revenue. OMS platforms also offer features such as fulfillment reporting and insights, enabling businesses to track KPIs and identify inefficiencies for improvement.

With an OMS, orders can be processed more efficiently, enabling quicker fulfillment and delivery to customers. By using the same information throughout the sales and fulfillment process, less data entry is required, reducing the potential for errors. Overall, an OMS streamlines operations enhances efficiency, and contributes to the growth of businesses.

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