What is Order Management? Definition, Processes & Systems

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Order management plays a significant role in any successful business, and is a critical part of good supply chain management. In this article we explain what order management is, and why it’s important for any growing business to have effective order management systems and software.

We also explore the different forms that order management systems can take, and how they can cater to different relationships including business to business (B2B) and business to consumer (B2C). We also cover what to look for in order management software, and why choosing the right system will help your business step up its growth.

What is order management?

Order management is the process of keeping tabs on what customers have ordered and ensuring all steps are taken to deliver on the sale as outlined in the sales order. It consists of multiple steps, starting with the order being taken from the customer, and going through the process of getting it ready for delivery. This includes the product being picked and packed from the stock available, then delivered to the customer. It will also need to be tracked to ensure the order is delivered as requested.

An efficient order management system is particularly important as businesses upscale. In these circumstances the process needs to be streamlined so it can handle increasing numbers of orders without staff and systems being overburdened and becoming inefficient, costly or frustrating to customers.

sales order management

Good internal sales order management is key to ensuring customers get what you promised.

To recap: What is a sales order?

A sales order is the central document of an order management process. The sales order contains all the information about a purchase including the product that has been purchased, the number required, when and how the order can be delivered, and at what cost. It is prepared by the seller as an internal document to track what orders have been received and need to be fulfilled as expected by the customer. It is also used within the company as an auditing tool to ensure the order is delivered on time and as ordered.

Who issues a sales order?

A sales order is issued by the seller of the product, after an order has been made by the customer. The process starts with the buyer considering the purchase of a good, and requesting details such as its cost, availability, when it can be delivered and at what price. Once the seller has responded to those queries – typically in the form of a sales quote – the buyer makes a decision on whether or not they will advance the purchase or look elsewhere for a different provider. If they do indeed decide to purchase, the sales order is generated within the business to ensure requirements of the purchase are met. The process of ensuring delivery of the product to the customer is then started.

What is the order management process?

  1. The order management process starts when a purchase order is received from a customer. Internally, a sales order is then generated which includes all details of the order for the seller to satisfy.
  2. The seller needs to know it has sufficient product in stock to satisfy the order – or, if not, how the product can be supplied. For some businesses it makes sense to have stock on hand to fulfil sales immediately. While others, such as make-to-order manufacturers, will need to action purchases of their own to satisfy the sales order.
  3. If no assembly is required, the next step is picking out and packing the product for delivery to the customer. The seller’s warehouse should be arranged so that this process is easy and efficient. The warehouse should be clean, tidy and well laid out, with inventory accessible and changes easy to track. Products with the highest turnover should be stacked in the most accessible place while those with lower turnover will be placed deeper in the warehouse.
  4. The packing process should also be optimised for efficiency and minimal waste. The packing process will depend on what is being sold, as some products will require more intensive packing management than others. This step will most likely require boxing the product with cardboard and / or putting in protective bags before being moved to the next step.
  5. The product is then checked against the sales order to ensure all requirements have been met, before being delivered to the buyer. Generally products are tracked to ensure delivery is completed on time and as ordered.
  6. Once the order has been fulfilled and shipping is complete, the seller may follow up with the buyer to ensure they are satisfied with the process and the product is as expected.
  7. The seller may also offer ongoing, after-sales care, depending on the product purchased. This could consist of the servicing of the product or, more simply, keeping the customer informed about the business through communication channels such as direct mail or newsletters.

What is multichannel order management?

Businesses that are upscaling will almost inevitably look to increase the channels through which orders are made, but this can be a challenging process. It is important that any business looking to do this can maintain its levels of customer service and care, ensuring standards don’t slip while it expands its buyer base.

Businesses will generally implement multichannel order management software so the orders can be streamlined and processed through a central system. Such systems increase the efficiencies and timeliness of order management, and minimise costly errors.

Ecommerce order management can be a vital part of backend systems. Such order management systems have superseded the need for spreadsheets and manual oversight of orders being placed.

ECommerce order management allows the business to automate the process of receiving multiple purchase orders from different channels, and brings all the information together on a single interface that can be easily managed.

Such systems minimise inefficiencies and the need for human intervention through the process. They also ensure auditing processes are far easier, with issues able to be identified with near-instant operational reports, and quickly rectified.

There can also be particular needs in order management systems, like those for B2B customer service. B2B order management is used for on-account customers, and may offer particular features such the ability to offer volume discounts and have increased transparency over stock levels and lead times.

B2C order management, meanwhile, is often run through ecommerce platforms such as Shopify which simplify the process. Apps likes of Shopify are able to host a business’s online purchasing experience, and process the payment of orders. Sales data is then passed through to the company’s inventory management system, ensuring the stock levels are tracked and maintained.

B2B order management systems

B2B order management systems are increasingly similar to typical B2C tools.

What is an Order Management System?

An Order Management System is, as the name suggests, the system through which order management is run.

The systems ensure the various elements of taking and delivering a customer’s order are streamlined and managed cost-effectively. This entails the tracking of orders, the management of inventory to satisfy the sales, and the delivery to customers within the timeframe outlined.

There are many software options on the market for order management and it is important for any business, big or small, to find one that meets their needs. Order management can be a complex process, with many moving parts, different channels and specific customers needs. Any business investing in order management systems should also be aware of the need for flexibility, should the business expand further, need to pivot should its industry change, or find new pockets of customers with specific needs.

Generally, as businesses start to grow, manual systems strain under the weight of increased orders and the need for efficient electronic systems becomes increasingly apparent. Before making the leap to spending hard-earned investment funds, however, business owners and managers should consider their current state, and desired future state.

A first step would be to ensure any new systems integrate with existing systems, or that the older system can be retired to make way for the new with reasonable ease. Without proper analysis of existing systems, the introduction of a new system can cause chaos.

Other key questions to consider are what the order management system will be used for. As systems become more sophisticated they can track more than simply orders and deliveries. For example, some are able to offer business intelligence and datasets that can improve ongoing management of the sales process.

What are the benefits of an Order Management System?

The benefits of an order management system are severalfold. Many businesses that have been built from the ground up find themselves struggling under the weight of manual systems, which are vulnerable to human error. Moving to an automated order management system is key to enabling the business to expand and move into its next stage of growth.

The central benefit to having a system in place is simply that the businesses can easily track its sales and deliveries. This increased transparency enables the business greater insights into its financial stability, lets it identify opportunities and, on the flip side, stamp out problems.

Further, with greater visibility over sales flow, the business can better track its inventory, and align its order management system with its warehouse management. This ensures there is minimal over-supply or undersupply of inventory, which can create significant issues of its own.

Having a good order management system in place also inevitably delivers cost savings. An effective order management system should accurately track orders made, match it with inventory available and identify the best way to deliver the product to the customer. At scale, these efficiencies save considerable time and money.

For customers, an order management system can also provide transparency into the progress of their order. This creates a high level of customer satisfaction, encouraging the customer to return again and again.

In turn, all of this can lead to an improved financial situation and the ability for a business to invest and expand.

inventory and accounting tools

Order management systems should work hand-in-hand with your inventory and accounting tools.

What order management software features should you look for before investing?

Each business looking to invest in an order management software system will have specific needs, and as such should be looking carefully at the various offers in the market before making a decision.

Broadly, however, effective order management software is designed to maximise efficiencies and minimise waste, by shifting away from manual systems.

Therefore, the key features to look for in any system are:

  • The ability to track orders without error
  • Integration with warehousing and inventory systems
  • The ability to enable the most effective delivery to the customer

It is also important the software can integrate with different sales management platforms to ensure multiple channels are in place for customers to make their orders.

More about the author:

Greg Roughan - Unleashed Software
Greg Roughan

Article by Greg Roughan in collaboration with our team of inventory management and business specialists. Greg has been writing, publishing and working with content for more than 20 years. His writing motto is 'don't be boring'. His outdoors motto is ''I wish I hadn't brought my headtorch', said nobody, ever'. He lives in Auckland, New Zealand, with his family.

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