What is Order Processing? How it Works & Key Methods

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Order processing is what happens behind the scenes when a customer places an order. It’s the journey that order takes from the second they click ‘Buy’ to the moment all the goods are delivered to your customer’s doorstep.

Optimising your order processing workflows ensures customers receive their products quickly. This means better customer satisfaction, a healthy brand reputation, and more sales.

This guide breaks down the order processing steps and definition, and then explores a few helpful strategies for improving it.

What is order processing?

Order processing is the order management workflow associated with accepting, managing, and fulfilling customer orders. It can be described as a series of steps that begin the moment a customer places an order and end with the final delivery of goods.

The first step in a standard order processing system is the verification of a customer order which often includes a check to confirm there is sufficient inventory available to fulfil the order.

Once confirmed, the ordered items are picked from your inventory, sorted, packed, and shipped to the customer. Throughout the order processing process, order tracking and updates are given to the customer to provide transparency and enhance customer satisfaction.

After delivery, customer service plays a vital role in addressing any returns, exchanges, or feedback, which can also provide valuable insights for improving future order processing.

order processing

Order processing refers to both the physical and digital aspects of ensuring a customer’s order is fulfilled on time and accurately.

What’s the difference between order processing and fulfilment?

Order processing and fulfilment are both order management processes that deal with two critical stages in the journey required to get a product from the seller to the customer.

Order processing begins when a customer places an order and involves the administrative tasks of verifying payment, updating inventory levels, and ensuring the order details are correct. Order fulfilment, on the other hand, is the physical process of preparing and delivering the product to your customer.

For example, when a customer buys coffee beans online, order processing would include confirming the payment, updating the stock count of the coffee bean units, and preparing the order for shipment.

Conversely, the order fulfilment process in this example might include picking the packets of coffee beans from the warehouse shelf, packaging them securely with the correct shipping label, and dispatching them for delivery to the customer’s address.

While order processing ensures the accuracy and efficiency of the sale transaction, order fulfilment focuses on the logistics needed to physically deliver the product to the customer, on time and without errors.

How the order processing process works

The order processing process begins when a customer order is placed and verified – in person, via email or telephone, or online – followed by inventory sourcing, then picking and packing, before the order is shipped.

Order tracking and updates are provided to the customer. After delivery, customer service may handle returns or feedback, completing the cycle.

This workflow is important in helping you to maintain customer satisfaction and loyalty.

Order processing steps

Order processing is a critical component of order fulfilment, involving a series of steps that ensure customer orders are prepared and delivered accurately and efficiently.

The order processing steps typically look like this:

  • Order placement: An order is received from various channels and its details are confirmed. The customer’s information and payment are verified for accuracy.
  • Inventory sourcing: The locations of ordered items are identified in the warehouse or distribution centre – or reordered from the supplier if no stock is available.
  • Picking and packing: Items are collected from their storage location, packed, and prepared for shipping.
  • Shipping: The order is handed over to a delivery service. This phase involves choosing the right carrier to deliver the package to your customer’s doorstep.
  • Tracking: Order tracking systems keep the customer updated on the journey of their purchase, ensuring transparency until the order is delivered.
  • Customer support: After the order reaches its destination, customer service plays a role in addressing any post-delivery concerns, such as returns or exchanges.

This entire process can be managed manually, which can be time-consuming and inaccurate, or with order processing software, which helps minimise errors and improve customer satisfaction.

types of order processing

Order processing can be done manually or as an optimised workflow using cloud-based digital tools.

Types of order processing

Order processing is a fundamental aspect of business operations, particularly around eCommerce. There are several types of order processing systems, each with its own method of managing orders, calculating payments, and shipping from seller to buyer.

The three main types of order processing:

  • Manual order processing: This traditional approach involves physical paperwork and human interaction at every step. This approach can be time-consuming and prone to errors, resulting in inefficient inventory management, shipping inaccuracies, and increased fulfilment costs.
  • Automated order processing: Integrating technology systems such as sales order processing software can help streamline and expedite the order process. This method significantly reduces manual tasks, reduces errors, and speeds up the entire fulfilment process.
  • Electronic order processing: This method integrates platforms that combine different parts of the ordering process, from order receipt, picking, packing and inventory management to dispatch, shipping, and customer service. Electronic order processing can greatly enhance efficiency and improve customer satisfaction by keeping track of stock availability and order status.

4 key order processing methods

There are numerous approaches to order processing – the right method will depend on your specific business objectives and resources. Efficiency in your order processing methods is essential to ensure customers receive the correct items, in full and on time – reducing the risk of negative feedback or requests for returns.

1. Order-to-cash processing

Order-to-cash processing is a basic business process that starts when a customer places an order and ends when the payment is received and recorded.

It encompasses several steps that include:

  • Order management
  • Credit management
  • Order fulfilment
  • Shipping
  • Invoicing
  • Payment collection
  • Cash applications

This process is crucial for ensuring efficient operations and a healthy cash flow for your business. Technology plays a significant role in streamlining the order-to-cash processing by providing real-time data and analytics to identify areas for improvement.

2. Sales order processing

Sales order processing begins with the receipt of a customer’s purchase order, which triggers the creation of a sales order by you, the seller.

This document confirms the details of the transaction, including the type and quantity of products, pricing, and delivery terms. A sales order is a legally binding agreement that signifies the acceptance of the purchase conditions by both parties.

The sales order then goes through various stages – which may include billing, production, and logistics – to ensure that each step involved has the necessary information to fulfil the order efficiently.

Technology plays a significant role in modern sales order processing, streamlining the flow of information and automating tasks to minimise errors and expedite delivery. The goal of this process is to satisfy customer demands promptly while maintaining accuracy and efficiency throughout the order fulfilment cycle.

3. Purchase order processing

Purchase order processing is a component of procurement that ensures that goods or services are acquired efficiently and effectively. The process starts with the creation of a purchase order or purchase requisition: a document that outlines the need for a particular item or service.

Once approved, a purchase order is issued to the supplier, detailing the quantity, price, and specifications of the goods or services required. The supplier then acknowledges the purchase order.

Once delivered, the goods or services are received and inspected for quality and accuracy.

This is followed by a three-way matching process, where the invoice, the purchase order, and the receiving report are compared to ensure consistency. If everything aligns, the invoice is approved for payment, and the supplier is paid.

The final step involves record-keeping for auditing purposes and closing the purchase order. Automating this process can significantly reduce errors and increase efficiency, as manual processing can be slow and prone to mistakes.

4. Order fulfilment

Order fulfilment is a physical process that involves these key steps:

  • Receiving and managing inventory
  • Processing the order
  • Picking and packing the items
  • Shipping the goods
  • Handling any returns or exchanges as necessary

This is an important process for maintaining customer satisfaction and loyalty because it directly impacts the speed and accuracy with which customers receive their orders. Efficient order fulfilment can also significantly affect a company’s operational costs and overall efficiency.

You may choose to manage this process in-house or outsource it to third-party logistics providers, depending on your business’s size, resources, and specific needs.

The evolution of eCommerce has made order fulfilment an even more critical aspect of retail operations, demanding faster and more reliable delivery methods to meet consumer expectations.

order processing system

Order fulfilment plays a vital role in order processing, as it is the final step required to physically deliver a customer’s ordered goods.

Order processing metrics for tracking performance

Order processing metrics help businesses monitor and improve their operational efficiency and customer satisfaction.

Key order processing metrics for tracking performance include:

  • Order processing time
  • Order accuracy
  • On-time delivery rate
  • Cost per order

Tracking and analysing these metrics can help you identify bottlenecks, improve order processing speed, reduce errors, and ultimately increase customer satisfaction and loyalty.

Common order processing challenges

Order processing is a crucial component of supply chain management, but it comes with several challenges that must be addressed.

A key issue is the shortage of resources. This can be aggravated during peak seasons or sudden surges in demand and leads to delays and increased costs.

Another significant challenge is the lack of skilled labour, which can result in errors and inefficiencies in order processing. System breakdowns can further disrupt the order fulfilment process, resulting in negative customer experiences.

To address these challenges, companies are increasingly turning to AI tools and automation to optimise resource usage, reduce errors, and improve overall efficiency.

Implementing a robust inventory management system and conducting regular audits can help maintain accuracy and prevent stock discrepancies, which are crucial for customer satisfaction and business success.

How to improve your order processing workflows

Improving order processing workflows helps lift customer satisfaction and operational efficiency. By focusing on these areas, you can create a more efficient, accurate, and customer-friendly order processing system.

You can optimise your order processing workflow by employing these five strategies.

1. Upgrade to automated order processing software

Implement order processing software to automate your workflow, minimise manual errors, and speed up the entire process from order placement to delivery. Most software solutions integrate with other tools to provide a centralised dashboard for enhanced visibility and control.

2. Optimise internal communications

Streamline communication within the order processing chain to establish clear communication channels and procedures that keep all stakeholders informed and united.

This can be achieved through regular updates, centralised information systems, and training programs for staff to understand processes and manage these effectively to enhance productivity and improve customer satisfaction by providing a more reliable service.

3. Measure, review, and assess performance

Monitor and analyse performance by regularly tracking KPIs. By regular monitoring and analysis of these metrics, you can pinpoint inefficiencies and identify areas for improvement.

This data-driven strategy enables more informed decision-making and can significantly improve workflow management, leading to increased productivity and success.

4. Efficiently train and upskill your staff

Invest in training to enhance team competency in new technologies and processes. This ensures that all team members are equipped with the necessary skills to handle advanced systems, leading to greater productivity, improved efficiency, and more accurate order processing.

5. Regularly analyse and improve existing processes

Analysing and implementing feedback leads to incremental improvements in your order processing workflow. Create a culture of continuous improvement establishing mechanisms for regular feedback from all stakeholders.

This enables you to adapt more quickly to new challenges and it ensures that your order processing system remains robust and responsive to the needs of both your business and your customers.

order processing tools

Improving the order processing goes a long way towards establishing highly efficient, cost-effective business operations.

What is order processing software?

Order processing software is a digital tool designed to streamline the management of your order fulfilment from start to finish. It automates the various stages of an order’s lifecycle, from order entry and inventory management to shipping and delivery tracking.

Order processing software is vital for scaling operations. As your business grows, order processing software becomes a valuable tool to help streamline these tasks, minimise errors, and maintain efficiency.

Order processing software ensures orders are processed accurately and delivered on time. Features such as real-time inventory visibility, integration with other business systems, and analytics make order processing software a key component in modern eCommerce and retail operations.

Benefits of order processing software

Order processing software offers a multitude of benefits that streamline your operations and enhance your customers’ satisfaction. A key advantage is the automation of the order fulfilment process, which significantly reduces the time taken to process orders and minimises the risk of human error.

Automation leads to greater accuracy in order fulfilment and, consequently, higher customer satisfaction. In addition, the software integrates with other business platforms to provide a central platform for order management, billing, and accounting. This simplifies workflows and improves operational efficiency, offering real-time inventory tracking, which helps in maintaining optimal stock levels and reduces the risk of stockouts or overstocking.

The increased efficiency and accuracy that order processing software provides can also lead to cost savings and improved profitability for your business.

Key order processing software features

Order processing software is designed to streamline and manage the entire order lifecycle, from placement to delivery.

While there are a near-infinite number of software features available, there are three that are standard in most solutions.

The key features of order processing software include:

  • Real-time order tracking: This provides transparency and increases customer satisfaction by allowing them and the business to monitor the status of orders.
  • Inventory management: Automated stock control is a crucial order processing software feature that offers real-time visibility into stock levels, reorder alerts, and analytics for forecasting, helping to prevent stockouts and overstocking.
  • Integration capabilities: Order processing software often needs to seamlessly merge with other systems like CRM, accounting software, and eCommerce platforms. Scalability ensures that the software can handle growing order volumes and complexity as your business expands.

These features collectively help in enhancing operational efficiency, improving customer satisfaction, and driving sales growth.

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Oliver Munro - Unleashed Software
Oliver Munro

Article by Oliver Munro in collaboration with our team of specialists. Oliver's background is in inventory management and content marketing. He's visited over 50 countries, lived aboard a circus ship, and once completed a Sudoku in under 3 minutes (allegedly).

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