What is an order management system & how does it work?

An order management system (OMS) is a software package that coordinates all of the disparate functions of an order fulfillment process and allows them to be controlled succinctly.

This is because, whereas it was once a relatively simple process of taking an order and shipping the product, there are now many more factors to consider. They include a variety of:

• Buying channels
• Shipping options
• Third party logistics
• Analytics

An OMS can control these elements to make sure that the customer’s order is fulfilled and that the data is fed back into the business.

How does an order management system work?

The complexity of such a system varies depending on the industry sector, the scale of the business using it and that business’s needs. However, all system types perform the same key functions:

Track orders

Arguably the most essential step of an OMS. The days of the ring binder are gone, and no single person can be expected to mentally keep track of each order’s progress.

As more and more firms turn to selling through multiple channels, such as physical stores, online, third party webstores and by phone, a good system will record and track the sales made through each.

It will then enable these records to be centralised in one place, allowing you to monitor and compare the performance and trends of each. It also allows you to check on the progress of each order and make any necessary changes, regardless of its channel, and contact the customer if needed.

Inventory management

Having a strong hold of your company’s inventory, and being able to balance it along the tightrope of its optimum capacity and usage, is one of the trickiest parts of business operations.

The main pitfalls with inventory management are:

• Overordering — having too much stock of any one item (or all items) to be able to sell or use, and causing the warehouse to be used inefficiently because of reduced space.
• Underordering — risking running out of stock, which means having to pause operations, disappointing customers and causing a knock-on effect to partners.
• Poor forecasting — not having sufficient information to accurately understand where your market is heading, which risks trends being missed out on and stock running out.

A good OMS will update the inventory on a perpetual basis, meaning that the figures change with every item that comes in or goes out of the business, always giving accurate information.

Shipping

With orders coming through different channels, organising the logistics for fulfillment can be a nightmare. An OMS will simplify this process by automatically printing the correct shipping labels and routing orders to the correct locations and warehouses.

This is particularly useful if the system integrates with that used by a third party logistics (3PL) provider. As well as speeding up the process, it means the customer is given greater visibility of their order’s progress.

Returns

Almost one third of all products bought online are returned, compared to around one in ten products bought in a physical store. That means that, to be a truly effective tool, an OMS should also handle the reverse logistics. Thankfully, good systems will.

This makes it a simple and quick operation to process refunds for customers, as well as updating the inventory. Depending on whether the product is suitable to be resold or is discarded, it will update the relevant figures accordingly.

Integrating with other software

To link in the OMS with other business functions, some systems can integrate with ERP systems — such as Spruce, our cloud-based software package for builders merchants.

This means your business can have the benefits of an order management system paired with other functions, such as accounting, reporting and analytics. It also extends to management of other aspects like marketing and customer loyalty schemes.

This avoids the need for your business to store and manage data from different sources in separate silos, and allows you to fully visualise and analyse its performance across the board in a new, streamlined way.