Only a few years ago, unless you sold through mail-order catalogs or late-night infomercials, most retailers and brands didn’t need to worry much about order management - at least not about shipping to individual customers.
Those times have changed. Ecommerce has redefined how customers shop and how brands sell: Selling through multiple channels. Fulfilling though multiple options. Shipping multiple, individual parcels. And managing multiple stakeholders to deliver a seamless customer experience. Today, ecommerce order management creates multiple challenges and opportunities for mid-to-large retailers and brands.
In this guide, we’ll dive deep into ecommerce order management systems, software and processes in the context of larger, established ecommerce sellers and brands. Ecommerce sellers and brands, especially those operating at scale, are learning how to thrive as ecommerce revenues and customer expectations continue to grow. However, with greater scale comes a whole new set of complexities as order management becomes the pivotal factor in determining long-term customer loyalty and bottom-line success.
Why Ecommerce Order Management Matters
The mathematics of ecommerce are simple – and brutal. Those businesses that make the most profit have the most resources available to grow and invest in acquiring new customers and partners, and in continuing to scale and optimize operations to generate additional margin. Those new customers – if satisfied and retained by meeting or exceeding their expectations – will continue to buy and, with luck, advocate for the business and help attract additional customers.
But it all depends on order management.
Order management drives the fulfillment experience – which in the ecommerce ordering processes is the last, most recent interaction with your brand and the touchpoint that shoppers are most likely to remember:
- 90% of online shoppers say that their shipping delivery experience accounts for at least half of their total online shopping experience. (UPS Capital/InsureShield)
- 98% of ecommerce consumers say their delivery experience affects their loyalty towards a brand. (Retail TouchPoints)
- 72% of customers satisfied with their delivery experience will increase their purchase levels with the brand by 12%. (Capgemini Research Institute)
But if you get it wrong and your order management processes are not up to the challenge…
- 85% of online shoppers say that a poor delivery experience would prevent them from ordering from that online retailer again. (Ipsos)
Ecommerce businesses that excel in order management gain a competitive advantage by meeting and exceeding customer expectations. But investing in ecommerce order management software and systems also produces solid financial returns:
- For online retailers, the average cost of fulfilling an order is 70% of the average order value. Improvements to order and fulfillment management drop right to the bottom line. (eFulfillment Service)
- Ecommerce sellers lose an average of $29 for every new customer acquired. Up 222% in the last eight years. New customer acquisition costs have risen an average of 60 percent over the past five years. Retaining current customers, especially first-time customers, is critical for success. (SimplicityDX)
What is Ecommerce Order Management?
Let’s get started by getting on the same page: Defining order management.
Order management is the process of overseeing and controlling all aspects of order fulfillment in ecommerce, from the initial placement of an order to its successful delivery to the customer. It involves a series of interrelated tasks and processes which ensure orders are processed accurately, efficiently and on time. These include:
Order Placement: This is the point at which a customer initiates a purchase by adding items to their cart and proceeding to checkout.
Order Processing: Once an order is placed, the order needs to be verified, inventory is promised to fulfill that specific order, and a fulfillment plan created – which might involve “shopping” carrier rates to determine the best fulfillment location, splitting the order between fulfillment locations, or specifying cartonization and packaging requirements. Then the order and plan are sent to the selected fulfillment locations(s).
Picking and Packing: Items are selected from the warehouse, packed, and prepared for shipping. In more complex scenarios, this may also involve assembly, kitting or bundling components to create the final SKU for shipping.
Shipping: The order is handed over to a carrier for delivery to the customer.
Communications: During the processing and delivery process, the status of the order is updated for the customer and sales channel.
Delivery: The customer receives the order.
It’s important to note that inventory management also plays a key role in successful order management. Once an order is accepted and inventory is assigned to the order, inventory available to be promised to sales channels may need to be reallocated to avoid the potential for out-of-stocks and overselling. Overselling leads to disappointed customers – and sometimes stiff marketplace penalties.
Challenges In Ecommerce Order Management
Customers demand rapid delivery, real-time tracking and easy returns. Meeting these expectations while maintaining cost-efficiency is a complex balancing act. Challenges in effective and efficient ecommerce order management include:
Complex Ecosystems: Larger ecommerce retailers and brands often operate within a complex ecommerce including:
- Multiple sales channels each with highly specific expectations and requirements for order fulfillment – and hefty penalties for not meeting them;
- Fulfillment partners ranging from channel partners such as Amazon FBA and Walmart WMS, 3PLs and other third-party fulfillment partners, and drop ship or other finished goods suppliers. Each has their own systems and workflows for processing orders.
- Shipping and logistics suppliers who often have geographic coverage limitations, packaging specifications and restrictions, and other complexities such as negotiated shipping rates by fulfillment location to consider.
Multiple Last-Mile Fulfillment Options: Today’s ecommerce consumer demands more than just fast, low cost delivery to their doorstep in a few days. They want some products today. That’s why today’s fastest growing fulfillment options include BOPIS (Buy Online Pick-up In Store) and BOPAC (Buy Online Pick-up At Curb) – both which require retail locations to become fulfillment sites. The demand for same-day delivery also puts pressure on creating store-based, last-mile delivery operations and other options such as dark stores and highly-localized micro-fulfillment centers.
Inventory Management Complexity: Large sellers and brands often have extensive product catalogs with thousands of SKUs. Selling across multiple channels, including online marketplaces, brick-and-mortar stores, and their websites, increases the complexity of inventory management. Coordinating stock levels across fulfillment nodes, forecasting and replenishing inventory, and ensuring real-time updates are substantial challenges.
Order Volume and Demand Fluctuation: High order volume fluctuations are common in ecommerce, particularly during peak seasons. Ensuring that orders are processed efficiently and fulfilled promptly on Black Friday, Cyber Monday or Amazon Prime days can put tremendous pressure on even the best-designed order management system. Sellers must anticipate and meet these variations without overstocking or running out of inventory. Delays can lead to customer dissatisfaction and lost sales.
International Expansion: Many large ecommerce entities sell internationally. Managing orders across borders involves dealing with different currencies, tax regulations, and shipping logistics, which can complicate order management.
Integration of Systems: Along with the need to integrate with a complex external ecommerce ecosystem, large sellers employ a mix of internal systems for various functions like order processing, inventory management, and shipping. Ensuring seamless integration among these systems can be challenging.
Reporting: Ecommerce is a business of data. Data drives forecasting and replenishment. Data drives KPIs and organizational development. Data (hopefully) drives decision making. But in complex ecommerce ecosystems involving multiple sales channels and fulfillment partners, and their supporting systems, data often is collected in multiple formats and taxonomies. The data needs to be aggregated and normalized before analysis and reporting.
Evaluating Your Current Ecommerce Order Management System
At Etail, we’ve worked with hundreds of retailers and brands as they’ve scaled to grow their ecommerce businesses or struggled to expand their D2C fulfillment capabilities. Here are some signs that it might be time to evaluate your current ecommerce order management system.
Rapid Growth and Increased Order Volume: When your ecommerce business experiences significant growth and a surge in order volume, it's time to evaluate your order management system. A sudden influx of orders can strain your existing system's capacity, leading to errors and delays. Assess your order management capabilities to ensure they can handle the increased workload effectively.
Customer Complaints and Errors: An increase in customer complaints and order processing errors is a red flag that your order management system needs attention. Frequent mistakes, such as shipping the wrong items or delivering late, can harm your reputation and customer trust. It's a sign that your system may need reconfiguration or replacement.
Expanding Product Catalog: If your ecommerce store is diversifying its product range, your order management system must adapt to handle the additional complexities. New products may have varying sizes, weights, and shipping requirements, which can strain an outdated system.
Growing Integration Requirements: As you expand your online business, you’ll need to integrate your order management system with new sales channels, 3PLs and other partners, and other internal software solutions like inventory management, CRM, and accounting systems. In such cases, it's essential to evaluate your current system's integration capabilities and consider an upgrade if it falls short.
Increasing IT Support: Often, in an attempt to work with current systems as long as possible, ecommerce owners will patch together disparate existing systems, build point-to-point integrations, buy one-off solutions, and leverage platform plug-ins to connect and grow their ecommerce systems. That depends on a lot of IT hours and support, which are always in short supply and could even make IT a barrier to ecommerce growth. And these patchwork systems might work – until they don’t. Things change in the individual, disparate componants and it only takes a minor change for this IT-driven house of cards to collapse, often during peak order times.
Out-of-Control Headcount: We’re always amazed at the number of experienced, successful ecommerce businesses that depend on people – often dozens of people – to manually enter and track ecommerce orders. Lack of automation, manual processes and “spreadsheet Olympics” will never scale. In fact, one survey of experienced ecommerce operations professions show that 62% of respondents cited human error from manual process management as the number one cause of inventory and fulfillment issues. (Schliechtriem)
Assessing Your Ecommerce Order Management Software Needs
Like many things ecommerce-related, the concept of “order management” isn’t as simple as it seems. “Order management” comprises three different levels of functionality: basic order management, order orchestration, and order optimization. Depending on the complexity of your ecommerce fulfillment strategy and operations you may not need all three levels.
Order Management: The Foundation of Streamlined Order Handling
Basic order management focuses on efficient order processing. It encompasses everything from the initial order capture to successful fulfillment, ensuring that customers receive their purchases accurately and on time. This involves a host of tasks, including basic inventory management, directing warehouse workflows, coordinating shipping, and providing order status updates to customers and sales channels.
Basic 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 basic order management systems include order capture and processing; inventory management; pick, pack and labeling processes; shipping and delivery; and customer communication.
For relatively simple ecommerce operations, a basic order management system may be adequate. However, as the complexity of your operations grows, you may need more advanced tools to streamline the process.
Features of basic order management platforms include:
- Order capture and processing
- Inventory management
- Pick, pack and label processes
- Shipping and delivery
- Customer communication
Order Orchestration: Integrating Locations and Systems
Order orchestration (sometimes called composable order management) takes order management to the next level by coordinating and synchronizing various systems, processes, and partners involved in fulfilling an order across a more complex ecommerce ecosystem. This often involves multiple fulfillment locations, third-party partners, retail locations, and the integration of other systems such as ERP, CRM, and WMS platforms.
The result of order orchestration is 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 include the integration of systems, multi-party coordination with partners, multi-location fulfillment, real-time order tracking, and advanced workflow automation.
Features of order orchestration/composable platforms include:
- Integration with other systems of record (ERP, CRM, WMS, etc.)
- Multi-partner coordination
- Multi-location fulfillment
- Real-time order tracking
- Advanced workflow automation
Order Optimization: Ensuring Current and Future Profitability
Order optimization takes the concept of order management and orchestration even further. It leverages data analytics to supercharge the entire order fulfillment process. Order optimization systems, like the Etail platform, analyze historical data, customer preferences, and real-time market trends to make informed decisions to maximize operational efficiency and profit margins.
One of the significant advantages of order optimization is its ability to route orders across multiple sales channels, fulfillment options, and third-party partners to determine the best fulfillment location for that specific order at that specific time. This includes advanced capabilities such as demand forecasting, dynamic pricing strategies, cartonization and customized listings to increase ecommerce fulfillment margins.
The key difference between order optimization and order orchestration lies in the ability to plan for future profitability. Order optimization doesn't just focus on the current order; it also considers what should have happened to maximize operational efficiency and profit margins. These scenario-based capabilities, currently exclusive to Etail’s Ideal Order technology, simulate what should have happened to an order if all fulfillment conditions had been ideal and then assigns a dollar value to the opportunity cost of what should have happened if all conditions had been ideal vs what actually happened to get the order shipped. This is especially helpful in inventory planning and pinpointing where net margin may be leaking from your ecommerce fulfillment operations.
Characteristics of order optimization platforms include all the features found in order management and order optimization software plus:
- Distributed order management capabilities
- Scenario-based demand forecasting
- Dynamic pricing strategies
- Customized listings based in inventory availability and fulfillment costs
- Cartonization and other margin improvement technologies
- Data-driven decision-making tools
As you evaluate your ecommerce operations, it's important to understand the advantages of each of these components. For simple operations, basic order management may suffice, while more complex scenarios may benefit from the integration and coordination provided by order orchestration.
However, to truly optimize your ecommerce landscape and maximize future profitability, order optimization is the way to go. It ensures that not only your current orders but also your future orders are optimized to deliver the highest margins possible. Technologies like Etail's Ideal Order capabilities can transform your ecommerce landscape by taking data-driven order optimization to new heights. By harnessing the power of data analytics, businesses can fine-tune their processes and provide customers with a seamless, cost-effective, and highly personalized fulfillment experience.
For a deeper dive into the choice among order management, order orchestration and order optimization and how to choose the right platform for you, check out our blog post on “Choosing the Best Distributed Order Management System”.
Consider a Control Tower Approach to Order Management
As we’ve seen, simply managing the processing of an ecommerce order is one thing. Orchestrating and optimizing the order to maximize profitability and meet customer expectations is quite another – often involving multiple complex systems and partners.
To stay competitive and responsive, online retailers are increasingly turning to innovative solutions like Ecommerce Control Towers. These powerful platforms are transforming the way ecommerce businesses operate by providing end-to-end visibility and control over order management, inventory management and their other ecommerce operations.
What is an Ecommerce Control Tower?
An Ecommerce Control Tower is a centralized platform that integrates data from various sources within the ecommerce ecosystem, including inventory management, order processing, shipping and customer data. This real-time visibility allows businesses to make informed decisions, respond to changing market conditions and optimize their operations.
Key Benefits of Ecommerce Control Towers
- Real-time Data: Ecommerce Control Towers provide a single source of truth for all ecommerce operations. This real-time data helps businesses identify bottlenecks, track inventory levels and monitor order status.
- Proactive Issue Resolution: With automated alerts and scenario-driven insights, businesses can proactively address issues like stockouts, delivery delays or quality concerns before they impact customer satisfaction.
- Optimized Inventory Management: Control towers enable businesses to maintain optimal inventory levels, reducing carrying costs while ensuring products are readily available to meet customer demand.
- Improved Customer Experience: By streamlining order processing and delivery, businesses can provide a better customer experience, with faster shipping times and accurate order tracking.
- Cost Reduction: Enhanced visibility and control help businesses reduce operational costs, streamline processes and minimize waste
- Scalability: Ecommerce Control Towers are highly adaptable and can grow with your business, accommodating increased order volumes and expanding product lines.
It's easy to see the immediate impact a control tower approach can have on ecommerce operations. and in meeting customer expectations.
Use Cases of Ecommerce Control Towers
- Order Fulfillment: Control towers help automate and optimize the order-to-delivery process, reducing errors and delays.
- Inventory Optimization: Keeping the right amount of inventory on hand and available to promise to sales channels is crucial to preventing stockouts and excess holding costs.
- Marketplace Integration: For businesses selling on multiple ecommerce platforms, control towers centralize order processing and tracking.
- Demand Forecasting: Accurate demand forecasting ensures businesses can meet customer needs without overstocking.
- Supplier Collaboration: Ecommerce Control Towers facilitate collaboration with suppliers to improve the entire supply chain.
In an increasingly competitive ecommerce landscape, businesses that invest in Ecommerce Control Towers gain a significant advantage in order management and optimization. These platforms offer real-time visibility, data-driven insights, and the agility required to adapt to the changing demands of online retail. With the ability to streamline operations, reduce costs, and enhance the customer experience, the Ecommerce Control Tower is becoming an indispensable tool for the modern online retailer.
For more information on Ecommerce Control Towers, check out our infographic “What is an Ecommerce Control Tower”.
Conquer Complexity with Distributed Order Management
Consumer expectations regarding ecommerce fulfillment are pretty straightforward:
- Ship it fast – often in less than two days or with options like in-store pick-up to help speed delivery.
- Ship it free – or at least at an acceptably low cost.
- Ship it right – so the order arrives complete, on time and undamaged.
Your CFO probably has an additional expectation:
- Ship it at a profit.
For many online sellers, Distributed Order Management (DOM) systems have become an important tool for ensuring successful, profitable fulfillment.
A distributed order management system is a specialized software solution designed to optimize and streamline the end-to-end order fulfillment process by effectively managing orders from multiple sources and distributing them across various fulfillment centers, suppliers or stores in a network.
Once viewed the domain of only the largest, most complex online sellers, Etail pioneered creating powerful, affordable DOM platforms for mid-to-large size ecommerce brands and retailers.
Savvy ecommerce operations folks realize that the key to fast, low cost shipping often lies in locating inventory as close as possible to customers. That cuts shipping time and expense. To do that, they’ll leverage multiple fulfillment options including their own warehouses and DCs, channel fulfillment services like Amazon FBA and Walmart WMS, 3PLs and other third-party fulfillment partners, dark stores and retail locations.
DOM systems optimize orders by routing them to the best – most profitable – fulfillment option that still meets the customer’s delivery expectations. Key components of DOM systems include:
- Order Capture: DOM starts by capturing orders from various sales channels, such as online stores, mobile apps or physical retail locations. It ensures that all orders are processed seamlessly, regardless of their source.
- Order Routing: Once an order is captured, DOM determines the best, lowest-cost fulfillment location. This could be a warehouse, a brick-and-mortar store, or a third-party supplier such as a 3PL, depending on factors such as inventory availability, the fulfillment’s location proximity to the customer, and shipping costs.
- Inventory Visibility: A crucial component of DOM is real-time inventory visibility. It allows businesses to keep track of their stock levels across all locations, ensuring that customers are only offered products that are actually available for purchase. Advanced DOM systems such as the Etail platform can also modify pricing and listings shown to individual shoppers – modifying them based on inventory availability and the total cost of fulfillment. The goal is to ensure an order is never taken unless it can be profitably fulfilled.
- Order Fulfillment: DOM manages the order fulfillment process, orchestrating the movement of goods from the selected location to the customer. It can even split orders if items are available at different locations to expedite delivery.
- Integrated Systems: DOM provides an integrated order and inventory management system that centralize data and streamlines analytics and reporting. This enables businesses to have a comprehensive view of their operations.
Distributed Order Management is not just a logistical tool; DOM also is a powerful lever for elevating customer satisfaction. Through efficient order processing, real-time inventory visibility and enhanced customer communications, DOM can turn satisfied shoppers into loyal brand advocates.
A well-implemented DOM system provides:
- Faster Order Processing: DOM's ability to route orders to the most suitable location results in quicker order processing and reduced delivery times. Customers today expect fast deliveries and DOM helps businesses meet these expectations.
- Real-time Inventory Tracking: Employing technology to provide real-time visibility into inventory across all channels helps businesses avoid stockouts and overselling. Real-time inventory visibility prevents over-promising and under-delivering. When customers see an item as available, they can trust that it's in stock and will be delivered promptly. Preventing customers from placing orders for out-of-stock items builds trust and avoids negative experiences.
- Automated Order Processing: Order accuracy is critical. Automation reduces human errors and expedites order processing. Mistakes in shipping the wrong item or missing items can lead to customer frustration and disappointment. DOM can also enable quicker order confirmations and shipping notifications.
- Enhanced Customer Communication: Effective order management includes clear and timely communication with customers. DOM facilitates better communication with customers regarding order status, shipping updates and delivery times. Customers appreciate being kept informed, which leads to higher satisfaction.
For a complete guide to evaluating and selecting Distributed Order Management platform, check out our Distributed Order Management Solutions Overview.
Use Data to Drive Margin Improvement
Data-driven decision making is a long-held mantra in business.
And nowhere is it more important than in order management.
That’s because order fulfillment – driven by order management – often ranks with product cost as the two highest expense contributors to gutting (or growing) ecommerce profitability.
Ecommerce Order Management KPIs
Measurable standards are the cornerstone of driving ecommerce success.
Order management key performance indicators (KPIs) are used to track and analyze the success of the order management process. By measuring KPIs, businesses can learn how to improve particular processes to boost performance.
Some common KPIs found within ecommerce order management software platforms include:
- Cost Per Order: This metric focuses on the average total costs incurred from fulfilling an order. For more complex fulfillment operations, the metric is often broken down by product type or fulfillment location.
- Order Accuracy: Order accuracy is a vital metric that reflects the percentage of orders that are fulfilled without any errors. This includes ensuring the right products are picked, packed and shipped to the correct address. High order accuracy builds trust with customers, reduces return rates and minimizes customer complaints.
- Order Cycle Time: Order cycle time measures the total time it takes from the moment a customer places an order to when they receive their products. This metric encompasses order processing time, shipping time and delivery time. Reducing order cycle time is often a goal for ecommerce businesses to improve the customer experience.
- On-Time Delivery Rate: The on-time delivery rate is a critical metric for assessing the reliability of your order fulfillment process. It measures the percentage of orders that are delivered within the promised timeframe, which is typically determined by the delivery-time option chosen by customers. Consistently meeting delivery commitments can lead to higher customer satisfaction and repeat business. And if you sell through marketplaces, missing delivery times can incur stiff penalties from Amazon or other sales channels.
- Inventory Accuracy: Inventory accuracy is crucial to maintaining smooth order fulfillment processes. It evaluates how closely your actual inventory matches the recorded quantities in your system. When your inventory is accurate, you can avoid overselling, stockouts and disruptions in your order fulfillment process.
- Order Fill Rate: The order fill rate measures the percentage of customer orders that are fulfilled from available inventory without requiring backorders or substitutions. A high order fill rate indicates that your inventory is well-managed and that you're meeting customer demand effectively.
While these individual metrics have value, until recently there hasn’t been there hasn’t been a single, quantitative KPI to measure ecommerce fulfillment performance and, more importantly, provide direction for improvement.
That ultimate KPI is called the Ideal Order Ratio. Here’s how it works.
Introducing the Ideal Order
First, let’s understand the concept of “Ideal Order”.
An “Ideal Order” measures each order across nine criteria to ensure that the order meets customer expectations and also meets operational metrics that directly affect net income from that order.
If an order meets all nine criteria, it is considered “Ideal”. Dividing the number of Ideal Orders by the total number of orders yields an Ideal Order Ratio – the percentage of time your ecommerce fulfillment system was firing on all cylinders.
By tracking your Ideal Order Ratio, you can give your entire team a clear understanding of your ecommerce operational efficiency. And because Ideal Order records and aggregates data for nine different attributes against every order, you can use it to identify the specific actions needed to move your Ideal Order Ratio closer to 100%.
The result? You have a single, quantitative KPI to set corporate objectives and ensure organizational alignment. Plus individual Ideal Order attributes provide KPIs for functional areas; help to enforce service level agreements with carriers, 3PLs and other partners; and aid in setting targets for cost reduction and cap ex projects.
What About the “Perfect Order”
Sometimes the concept of "Ideal Order" is confused with a "Perfect Order". They are related, but very different metrics.
The concept of a “perfect” order has been around the ecommerce fulfillment world for decades.
In 1997, the American Productivity and Quality Center surfaced the idea of a “Perfect Order” in a paper titled “Order Management: A Core Competency”.
The Perfect Order was defined as an order which had the following attributes:
The Perfect Order:
- Arrives on time
- Has all the items ordered
- The items are undamaged
- The box contains the necessary invoice or documentation
“Perfect Order” is great in theory, but as a metric, the Perfect Order is impossible to implement
Since it first became a topic of conversation in supply chain circles, hundreds of articles, papers and blogs have been written about the “Perfect Order”, but it remained mostly a just an academic concept. You really don’t see commercially available solutions delivering a way to report on “perfect” orders, primarily because three out of the four components of a Perfect Order require feedback from the customer.
Unless you have a programmatic way of getting that feedback from the person who opened the box – you don’t know if the order arrived complete, undamaged and with the necessary paperwork.
So you don’t actually know if an order was “perfect” or not.
Why “Perfect” Orders Aren’t Good Enough
Beyond not being able to collect real-time, quantitative data, the concept of a “Perfect Order” has another major issue: Sometimes “perfect” for the shopper is a disaster for the seller.
Consider the following example:
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 seller ships the order.
If the order gets there on time, is undamaged, has all the right items and includes an appropriate pick-sheet or invoice, the order would meet the criteria of being a “Perfect Order”.
However what if:
- The seller happens to only have inventory for that order in Salt Lake City and not Atlanta, and as a result…
- The seller fulfills the order from Salt Lake City, then ends up having pay more to for air transport to expedite the shipping to get it to the consumer on time, which…
- Creates a “Perfect Order” that isn’t profitable for the seller, and…
- Adding insult to injury, expediated shipping dramatically increased the mileage and carbon impact of transportation, which increased the carbon footprint of the seller…working against their corporate commitment to sustainable business practices.
In this example, the order would be “Perfect” for the consumer but is far from being “Ideal” for the seller.
How Ideal Order Works
Both focus on getting the order to the customer in a way that meets the customer expectations. But Ideal Order management also includes measuring fulfillment operations steps that boost – or drain – net income from the order.
Here’s how it works.
Let’s set “Ideal Order” to be an overall attribute of each order. It’s binary, either “True” or “False”. If it’s “True” – congrats! The order was Ideal for both your customer and your bottom line. If “False”, it’s a data point that might be worth digging into
Digging into that data point requires that we establish additional attributes that are also binary.
True or False - Was the order:
- Shipped from the ideal location?
- Shipped using the ideal packaging?
- Shipped using the ideal carrier?
- Shipped using the ideal service levell?
- Shipped on time?
- Shipped in compliance with the sales channel’s service level agreement (SLA)?
- Shipped complete (all items on the order were shipped, although they could be split into different parcels)?
- Delivered on time?
If all these attributes are True, that is the criteria to set the “Ideal Order” attribute to “True”. But if any of these attributes are False, the order is not an “Ideal Order”. By aggregating these attributes across all of our orders – by SKU, by location, by product dimensions, by carrier, by parcel rate choices, by supplier, by 3PL, by time of day or shift (you get the idea) – we can determine where our fulfillment operations are falling short and dragging down both customer satisfaction and profitability.
Ideal Order management adds another function that Perfect Order doesn’t consider: It looks at what should have happened if all the factors involved in fulfilling the order had been perfect – oops, sorry – had been ideal.
Some days, it seems like ecommerce fulfillment is Murphy’s Law in action: If anything can go wrong, it will go wrong.
Inventory isn’t in the ideal location. Packers throw tiny products into huge cartons. Carriers are selected because they are the first choice on the software menu, not the best choice for profitability. The list seems never-ending.
Ideal Order gets the package out the door using the best options available at the time, but it also runs and records a simulation on what would have happened if everything had been ideal. Then Ideal Order highlights the cost difference between what actually happened and what, ideally, should have happened.
The ability to perform this simulation and comparison gives you the data you need to understand why the order was not ideal and where to put your attention to reduce the likelihood of that scenario reoccurring.
So what’s the result?
Better Fulfillment Management: Dividing the total number of Ideal Orders by the total number of orders for a given time yields an “Ideal Order Score” – a single, quantitative metric for fulfillment performance that encompasses both customer satisfaction and business profitability.
Improved Margins: Ideal Order highlights where margin is leaking from your order management system and reveals opportunities for margin improvement. Each of the nine Ideal Order criteria is a KPI in-and-of itself. They can be aggregated across all orders and used to uncover areas for improvement such as increased training, automation or tighter workflows.
Optimized Inventory Strategy: Etail’s Ideal Order technology assigns a cost to each non-ideal order – usually driven by increased shipping expense caused by not having the right inventory stocked in the right locations to meet customer demand. Using Ideal Order, you can quantify the opportunity cost of not having inventory in the right place, in the right amounts, at the right time. You will increase forecast accuracy by understanding actual demand by SKU by location. Plus you can model the impact of alternative inventory, replenishment and fulfillment scenarios to maximize cash flow and margins
Enhanced Performance Management: The Ideal Order score provides a quantitative KPI for internal overall performance management while each of the nine individual criteria provides a quantitative KPI for improving functional areas. You can establish quantitative metrics. Establish and measure SLAs with 3PLs, dropship suppliers and carriers to ensure performance and claim credits or refunds for breaches. And create internal KPIs with a “single point of truth” to measure departmental or location performance and ensure organizational alignment.
Interested in learning more about Ideal Order and ecommerce metrics? Check out our whitepaper “Ideal Order Insights”.
Creating Ecommerce Order Management as a Strategic Advantage
In today's fiercely competitive ecommerce landscape, effective online order management can be a game-changer for brands and retailers looking to build their D2C capabilities and revenue. Creating a streamlined and optimized ecommerce order management system serves as a potent competitive advantage. By ensuring that orders are processed quickly and accurately, you not only enhance customer satisfaction but also reduce operational costs and plug net income leaks. In an online world where speed and reliability matter, investing in the right ecommerce order management software is a strategic move that will set your ecommerce business apart from the competition and drive success.
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