Getting to know order management systems (OMS)
Updated 04 July 2022 • 12 min read
Fulfilling customer orders might appear relatively straightforward.
When you start your business, you can probably get by with a manual system.
But as soon as your business starts to grow, you’ll face new challenges such as processing more orders across multiple channels, keeping track of what’s in stock, analysing and reporting on your best selling items and reordering them before they sell out.
At this stage, your pen-and-paper manual processes will likely begin to crumble.
Now’s the time to invest in an order management system (OMS) – software that makes it easier to fulfil your customer orders and overcome your growing pains.
In this guide you’ll discover:
what order management is
how the order management lifecycle works
what an order management system is and how it works
different types of order management systems
benefits of an order management system
how to choose the right order management system for your business.
What is order management?
Order management is the process of capturing, tracking and fulfiling customer orders. It starts when an order is placed and ends when the customer receives their package.
How does the order management lifecycle work?
The order management lifecycle is an end-to-end process involving 4 key stages:
1. Order is received
Customers from different locations place orders, at various times, across multiple channels, including email, your website, a third-party sales site, or over the phone with a sales representative.
Receiving an order includes accepting the order from the customer and collecting payment for it.
2. Order is processed
Next, the order information is passed to the fulfilment centre, where the order processing begins.
Someone needs to pick all the items in the order from the warehouse.
Order picking won’t impact lead times in a small warehouse. But, in massive warehouses with millions of products, finding and picking the products takes considerably longer.
Therefore, it’s essential to have robust order picking best practices, so your order lead time won’t suffer and you keep your customers happy.
Once items have been picked, you’ll need to pack them. The packing process consists of choosing a suitable material and size for packing all the items, weighing the package and labelling its packing slip.
3. Order is reconciled
Before shipping, the order is sent to the accounting department, where it’s recorded in your accounts receivable ledger and a receipt sent to your customer. If you’re using inventory software, the change in order status will sync automatically with your accounting software to update the sales ledger and notify your customer. Accounting and inventory management software makes it easier to reconcile orders, audit stock levels and submit end-of-year taxes.
4. Order is shipped
Once the order is packaged, it’s shipped to the customer. Each order is assigned a shipment tracking number and shared (either manually or automatically, depending on the software) with the customer to track the delivery status.
What is an OMS?
An order management system, or OMS, is a software platform that tracks sales, orders, inventory and fulfilment.
An OMS maintains accurate inventory management, tracks sales through different selling platforms and notifies you when your items drop below their re-order stock levels.
A modern OMS touches almost every aspect of a business, from the warehouse staff to the accounting department, the customer service team and external suppliers, including:
inventory levels and location
suppliers for purchasing and receiving
customer service for returns and refunds
order printing, picking, packing, processing, and shipping.
A fully integrated order management system enables consistent and seamless execution across all customer, inventory, financial, and supply chain touchpoints, resulting in customer satisfaction, repeat business and long-term loyalty.
Furthermore, it can improve sales visibility and reduce delays and backorders by giving you a single view of demand, inventory and supply.
In short, an effective order management system will improve your business workflow and increase the likelihood of repeat customers.
What does an order management system do?
Now that we know what an order management system is, let’s check its features and capabilities.
Tracks and manage inventory
An OMS helps you track and manage inventory across multiple sales channels, including in-store point-of-sale (POS) software, self-serve through a direct-to-consumer (DTC) eCommerce store and online/offline combinations like buy-online-pick-up-in-store (BOPIS).
You can also track which items (SKUs) sell best through each channel, view best-selling products by region or channel and restock accordingly.
Automates order fulfilment
A modern OMS handles the whole supply chain in one centralised platform and automates the order fulfilment process from start to finish.
It swiftly pushes orders through the picking, packing, and shipping stages, routing orders to the correct warehouse, generating picking lists, and auto-printing shipping labels.
An OMS can also accept customer order payments regardless of shipping destination or currency and send shipping information to third-party logistics partners (3PLs) for fulfilment.
Monitors stock levels
An OMS monitors stock levels across warehouses and sends notifications so you can reorder items in time.
Merges order and financial data
An OMS can also integrate with other back-office functions such as your accounting software to merge order and financial data. You can gain insights on accounts payable and receivable, as well as automating invoice and purchase orders.
Manages reverse logistics
An efficient order management system can manage reverse logistics when customers return items to your warehouse for a refund, exchange or credit note. The software enables customers to print return shipping labels and track their status online.
At the same time, the customer service team gets updated on the returned product and logistics to process a refund, arrange a replacement or reorder new stock. Finally, the OMS handles returned items by writing off stock, placing it in quarantine, or adding it back to your inventory on-hand figure.
Manages customer data
An order management system (OMS) also acts as a customer relationship management (CRM) platform to manage customer data, such as their location, order history and lifetime value.
Armed with this data, marketers can send personalised messages to a customer segment or individual based on location and shopping habits.
Types of order management systems
There are various types of order management systems to suit different businesses. Here are 4 of the most common types:
Manual order management
Manual order management systems are suitable only for small companies. However, recording all order details in a ledger or via spreadsheets is both time-consuming and error-prone.
The main downside is that manual systems aren't scalable, so it becomes harder to manage orders as your business grows. Even with a spreadsheet developed in-house, things can quickly go awry as increased orders and extra sales channels soon strain the system.
Standalone order management software
Standalone order management software runs alongside other business systems, like accounting software. Standalone tools usually have all the essential components of order management, so you can track orders and manage customer data. Some software also includes additional functionality for inventory and warehouse management.
The main drawback of standalone tools comes down to their integration capabilities. Ideally, you need your order management software to integrate with POS, inventory, accounting, shipping and demand planning platforms. A lack of integration can cause out-of-sync data silos and stunt scalability.
eCommerce platforms are used to process online customer orders. Smaller, younger brands also use their eCommerce platform as an order management system, which is fine, as long as:
your orders come through your site – that is, not via third-party channels
your eCommerce platform is closely linked to your warehouse so that you can maintain inventory and fulfilment details
your customer service representatives have full access to the platform
you don’t have any aggressive growth plans
you only require basic order fulfilment processes.
If you plan to scale further, then you’ll need to consider a more robust system.
4. ERP software
Firms that struggle with the constraints of smaller standalone systems often turn to ERP software to integrate more business applications. ERP software spans many business functions, including:
accounting and finance
warehousing and logistics
customer relationship management (CRM)
HR and payroll.
With everything integrated into one solution, there are no data silos, and the system can scale. The downside is that ERP systems can be notoriously challenging to implement, and some may not be tailored to your industry.
The benefits of an order management system
Now that you know what an order management system does, let’s look at the benefits of using one as part of your order fulfilment process.
Fulfil and ship orders faster
The longer it takes to fulfil and ship orders, the longer it takes for them to reach customers. But customers increasingly expect purchases to arrive quickly, particularly in the B2C space.
An efficient OMS streamlines the picking and packing process by checking available stock across multiple locations and identifying the fulfilment centre closest to the customer. Then it sends the order information directly to that centre and updates the customer accordingly.
Reduce operational costs
An OMS reduces operational costs by streamlining, automating or eliminating tedious tasks and highlighting trends. That means you’ll process fewer returns and spend less time correcting order mistakes.
Prevent overstocking and understocking-
Maintaining the correct stock levels requires careful balancing.
If you overstock, you tie up cash on unwanted products. But if you under-stock, you risk making customers wait, splitting shipments, or losing sales from potential customers who'll probably go to your competitor instead.
An OMS with inventory control prevents overstocking and under-stocking so that you have precisely the correct stock levels.
Reduce order fulfilment errors
Human error is the root cause of order fulfilment issues in manual order management systems. Shipping the wrong products to a customer causes customer dissatisfaction and creates logistical headaches. An OMS reduces order fulfilment errors by automating and synchronising processes.
Create accurate inventory forecasts
An OMS won't only track your current orders but also help you understand broader patterns and trends. The reporting and insights enable you to create accurate inventory forecasts as you plan for the future.
Track your business from anywhere, at any time
An OMS lets you track your business from anywhere, at any time, using your phone, laptop or computer. Plus, your customers can also buy and track anything you sell, from anywhere, at any time. It’s a win-win situation that makes your order processing more efficient and increases customer satisfaction.
Make smarter business decisions
A modern OMS combines accounting, inventory and customer information into a single, unified platform. With it, you can get a quick overview and track orders from one central place so that you can make smarter business decisions.
Improve customer service
An OMS can also provide real-time updates on the status of all inventory and current orders. Everyone has the most up-to-date information on hand and can resolve any queries.
Instead of waiting for a package, customers can also benefit from automatic updates, so they know exactly when to expect their delivery. Overall, this leads to better customer service and an enhanced customer experience.
Signs you need an OMS
Before you start researching OMS for your business, you should check whether implementing new software is worth your time and money.
Here are 6 surefire signs you need an order management system.
If you are:
struggling to process more than 10 orders a day
managing orders from multiple channels, such as an eCommerce platform, marketplace and brick-and-mortar store
fulfilling orders with various suppliers or third-party logistics partners (3PL)
making critical errors like shipping the wrong product or delivering to the incorrect address
taking days instead of hours to fulfil orders and deliver on time
working without any visibility or reporting into current processes.
How to choose the right OMS for your business
When choosing an OMS for your business, there are several factors to consider.
Check the features you get are relative to your investment and take note of tiered pricing by order volume or users that would increase as you scale your business.
Core features should include:
centralised order management
multiple payment gateways
fulfilment and shipping
Ease of use
The software you choose needs to be easy to use – otherwise, employees will become disgruntled and look for shortcuts to bypass the system. Make sure there's an onboarding process to get users up and running quickly.
It’s essential to choose an order management system that'll grow with your business. If possible, select software with tiered pricing that'll scale features and users as you expand.
If you choose a standalone order management system, then the software must integrate with other tools. A lack of integration can cause erroneous data and prevent scalability. At a minimum, you need your OMS to integrate with:
accounting and financial management
Depending on your business model, you may require an order management system to facilitate offline functionality, such as buy-online-pick-up-in-store (BOPIS) or dropshipping.
Check the reporting and analytics capabilities of the OMS can help you understand trends and provide accurate forecasting and planning insights. For instance, consider the following questions:
can you monitor business performance over time?
can you analyse reports on customer demographics?
can you track sales to get a complete picture of growth?
do you have a real-time overview of your profitability?
can you make data-driven demand forecasting?
Your order management system will be an integral part of your business, so you need to make sure your chosen vendor offers the right level of support for your needs. Also, it’s worth checking to see if they offer an implementation service and user training program.
Improve order and inventory management with MYOB
Time for a quick recap.
The order management lifecycle is a complex end-to-end process that includes sales, warehouse management, inventory, shipping and fulfilment. There are several types of order management systems, such as manual order management, standalone order management software and ERP systems.
But choosing the right order management system brings many benefits, allowing you to:
fulfil and ship orders faster
reduce operational costs
prevent overstocking and understocking
reduce order fulfilment errors
create accurate inventory forecasts
track your business from anywhere, at any time
make smarter business decisions
improve customer service.
MYOB’s accounting and inventory management software lets you accurately keep track of what’s in stock, see your best sellers and reorder them before they sell out.
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