In ecommerce, success isn’t just about sales figures – it’s also about optimizing the delicate balance between profit margins and customer satisfaction.
Ecommerce is a world of perfect competition – competitive products, prices and offers are just a click or scroll away. And once purchased, customer expectations for fast, often “free”, and seamless fulfillment of theirs order are high and getting higher.
So with retail prices constrained and consumer expectations becoming ever more expensive to meet, the challenge for growing profit margins often lies with Operations.
And that’s where ecommerce operations professionals turn to Distributed Order Management (DOM).
Unlocking Efficiency and Profitability with Distributed Order Management
Distributed Order Management (DOM) systems have emerged at the linchpin in driving operational performance, margin improvement and a better ecommerce customer experience in many organizations.
For ecommerce executives tasked with P&L responsibility, DOM is no longer just an industry buzzword; it’s a transformative technology that propels brands toward heightened profitability and customer engagement.
For ecommerce operations managers and executives tasked with P&L responsibility, DOM is no longer just an industry buzzword; it’s a transformative technology that demands consideration. As the last few years have demonstrated, DOM has evolved from a useful technology tool into a business strategy that propels brands toward heightened profitability and customer engagement.
Distributed Order Management is a comprehensive solution that orchestrates and optimizes the order fulfillment process across various channels, warehouses and locations. It acts as a central hub, ensuring that orders are efficiently managed, tracked and fulfilled, regardless of the fulfillment source. This level of operational synchronization is crucial for modern ecommerce businesses striving for seamless customer experiences and operational excellence.
Advantages of Distributed Order Management systems include:
- Efficient Order Fulfillment: DOM enables businesses to effectively manage orders from multiple channels, reducing processing times and minimizing errors. It optimizes order routing and allocation, ensuring that orders are fulfilled from the most suitable location.
- Real-time Inventory Visibility: With DOM, businesses gain real-time visibility into inventory across all locations. This reduces stockouts, excess inventory and carrying costs, leading to improved inventory utilization.
- Optimized Shipping Costs: By intelligently routing orders based on factors like location, carrier costs and inventory availability, DOM helps minimize shipping costs. It ensures that orders are fulfilled from the nearest and most cost-effective location.
- Unified Data: DOM consolidates order and inventory data from various sources into a single platform. This data cohesion enhances decision-making and allows for accurate demand forecasting.
DOM's impact on margins is clear: By optimizing order routing, inventory allocation and fulfillment processes, businesses can reduce operational inefficiencies and shipping costs, ultimately leading to improved margins.
Selecting the Right Distributed Order Management System
Distinguishing between Order Management System (OMS) and Distributed Order Management (DOM) systems is crucial. Although vendors and retailers often use OMS and DOM as interchangeable terms – or just consider DOM as part of an OMS system – they are not the same thing.
In the world of e-commerce, the journey from a customer placing an order to that order arriving at their doorstep involves a symphony of operations. The pivotal players in this symphony are Order Management, Order Orchestration and Order Optimization.
- Order Management: The foundation of streamlined order handling. Spanning order capture to fulfillment, it manages inventory, workflows, shipping and customer updates.
- Order Orchestration: Harmonizes systems, partners and locations for efficient fulfillment. Integrating ERP, CRM and WMS systems enhances efficiency and real-time order and inventory visibility.
- Order Optimization: Harnesses data analytics to fine-tune processes, analyzing historical data, customer preferences and market trends with a goal to drive current and future order profitability. It maximizes future order efficiency and profitability by optimizing inventory placement for the utmost profitability. Dynamic pricing, demand forecasting, and personalized offers provide additional efficiency and profitability improvements.
As you evaluate Distributed Order Management systems, understanding the advantage of DOM-based order optimization is essential. This transformative technology, driven by driven by innovations such as Etail’s Ideal Order capabilities, can reshape your ecommerce landscape, optimizing efficiency and profit margins.
Order Management. Order Orchestration. Order Optimization. What’s the Right Approach for You?
Order Management: Laying the Foundation
Order Management sets the stage for efficient order handling. It encompasses the processes from order capture to fulfillment, ensuring that customers receive their purchases accurately and on time. This involves managing inventory; directing picking, packing, labeling and other warehouse fulfillment workflows; coordinating shipping; and providing customers and sales channels with order status updates.
In essence, Order management serves as the backbone of any ecommerce operation. It keeps the wheels turning and ensures a seamless transactional experience for customers.
Key Features of Order Management:
- Order capture and processing
- Inventory management
- Pick, pack and label processes
- Shipping and delivery
- Customer communication
For simple ecommerce operations, a basic order management system may be enough. For example, if you only fulfill from a single location or fulfill some orders through FBA and other non-FBA orders though your own warehouse or a 3PL, DOM may be overkill. A simple ecommerce platform, shopping cart provider or ERP could probably handle the functionality you need.
Order Orchestration: Integrating Locations and Systems
Order orchestration elevates the game by harmonizing various systems, processes, and partners involved in fulfilling an order. It's like conducting a symphony, ensuring that every instrument plays its part at the right time.
Order orchestration often involves multiple fulfillment locations and third-party partners such as your own warehouses and DCs, FBA and other channel fulfillment options, 3PLs and other fulfillment partners, and retail locations.
This requires integration of systems like ERP, CRM and WMS to streamline operations across the entire supply chain.
The result? Improved efficiency, real-time visibility into order status, and the ability to optimize processes for cost-effectiveness and faster delivery.
Key Features of Order Orchestration:
- Integration of systems (ERP, CRM, WMS, etc.)
- Multi-party coordination
- Multi-location fulfillment
- Real-time order tracking
- Advanced workflow automation
Most DOM vendors are basically offering order orchestration systems. And most of these systems do a good job of routing current orders to the best fulfillment option available at the time. And most of these options have the analytics you need to understand where those orders shipped from and why.
But here’s the key difference. Order orchestration-based DOM can only tell you what happened with your current order – not what should have happened to maximize operational efficiency and profit margins. For that, you need an order optimization platform.
Order Optimization: Ensuring Current and Future Profitability
Order optimization takes cues from data analytics to supercharge the order management and orchestration process.
Like order orchestration systems, order optimization systems route orders across multiple sales channels, fulfillment options and third-party partners to determine the best fulfillment location for that order at that time.
But order optimization systems like Etail's DOM platform take order management and orchestration to a new level. This involves analyzing historical data, customer preferences and real-time market trends to make informed decisions to plug net income leaks and optimize future profitability. They also offer advanced capabilities such as dynamic pricing, demand forecasting and customized listings to increase ecommerce fulfillment margins.
Key Aspects of Order Optimization:
- Demand forecasting
- Dynamic pricing strategies
- Customized listings
- Data-driven decisions
Here’s how order optimization differs from order orchestration.
Let’s imagine a customer living in Florida orders a product to be delivered in two days or less from a seller who has fulfillment locations in Atlanta (400 miles from Florida) and Salt Lake City (2300 miles from Florida).
The order should ship from Atlanta, but the product is out of stock there, so the order needs to be shipped from Salt Lake City – although at a much higher fulfillment cost for air transport to expedite the package and deliver it in two days.
A typical DOM order orchestration system would route the order to Salt Lake City and record it as shipped from that location. The order was shipped successfully from an order orchestration point of view – but could also have been a financial disaster from a profitability point of view. It was the right thing to do for that order – but not something you would want to do for future orders.
Order optimization takes order orchestration to the next level by also ensuring that every order – including future orders – are optimized to deliver the highest margins possible.
Ideal Order is an ecommerce analytical technology that automates deep understanding of fulfillment cost and opportunities for improvement
While Etail’s DOM system has always been designed around the concept of order optimization, Etail recently introduced Ideal Order – a new technology designed to optimize current margins and grow future profitability.
Ideal Order is an ecommerce analytical tool that automates understanding fulfillment opportunity cost. Ideal Order measures every ecommerce order against nine fulfillment metrics to produce an Ideal Order score for that order.
But then Ideal Order also runs a simulation to determine what would have happened if every factor had been ideal and the cost difference for each factor. Adding up the results and analyzing by SKU, location, functional area, carrier and other factors reveals exactly what is causing net income to leak from your ecommerce operations.
That means you’ll be able to pinpoint the optimal inventory location and stocking quantity by SKU to meet demand. Plus Ideal Order examines other costs like carton usage and carrier costs so you can spot additional areas for improving net income.
Here’s how it works.
In the example above, DOM order optimization systems such as Etail’s Ideal Order platform would route the order to Salt Lake City since the product was out of stock in Atlanta, But Etail Ideal Order technology also would record the extra cost of shipping the order from Salt Lake City. So it is recording not only what actually happened, but also what should have happened if inventory had been available.
This is important because optimizing future orders often involves optimizing inventory placement. Traditional order management and order optimization systems base forecasting and replenishment decisions on where orders actually shipped from. But this may not have been where the order should have shipped from – so you’ll just keep repeating the same mistakes, causing future stock-outs and digging a deeper hole in your margins.
Traditional order management and order optimization systems ignore the cost of not having the right inventory in the right place when it is needed. Etail’s Ideal Order technology aggregates the cost of not having the right inventory in the right place by SKU and by location. As a result, you’ll see exactly what it’s costing you not to have inventory where you need it to optimize orders. And you’ll know exactly where to stock and replenish your inventory for maximum profitability.
Order optimization systems like the Etail DOM platform often also include other advanced capabilities to improve bottom-line profitability. A few of these include:
- Cartonization: Automate selecting the right carton for each order – including splitting orders to take advantage of carrier discounts or weight and size limitations. By using specialized algorithms and software, cartonization ensures that items are packed efficiently, reducing the number of boxes required for an order while maintaining product protection. This enhances shipping sustainability, decreases transportation expenses, and improves customer satisfaction by minimizing packaging waste. Ultimately, cartonization streamlines the order fulfillment process, benefiting both the retailer and the environment through smarter, more resource-efficient packaging practices.
- Inventory-Driven Listings: Products, listing content, and pricing shown to customers are personalized and driven by inventory location and the cost of fulfillment to that customer’s address. For marketplaces like Amazon, if fulfilling the product is unprofitable, the listing may not be shown or priced at a level where it would be profitable (but perhaps not competitive). The goal: never take an order that can’t be profitably fulfilled.
- Dynamic Pricing: Pricing is automatically adjusted across channels based on inventory status such as inventory age, stocking level, or on cost of fulfillment.
If you are considering a Distributed Order Management platform based on order orchestration (and most of them are) shouldn’t you at least also understand the advantages of DOM order optimization, driven by Ideal Order technology? Check out the resources below for more information.