Getting online orders is usually a good thing…until it’s not.
Ecommerce success means more orders. More orders means more stress on current order fulfillment workflows that once were adequate but are now overwhelmed.
And an overwhelmed order fulfillment system means disappointed customers, warehouse chaos, lost margin and slumping brand reputation. And perhaps even account suspension or getting dropped from your sales channels or retail drop shipping accounts.
We call it “volume induced pain” – the business-threatening pain caused by outgrowing current systems. It’s one of the main reasons brands concerned with scale have all invested in order management systems and continue to reinvest in new systems as they grow.
Order management systems have been around as long as ecommerce. And most inventory management systems also offer order management functionality.
What’s an order management system? The definitions are pretty consistent. Shopify, for example, defines an order management system (OMS for short) as “a platform that tracks sales, orders, inventory and fulfillment. It enables the people, processes and partnerships necessary for products to find their way to the customers that bought them.”
So far, so good…except that 42 percent of OMS users surveyed said there was “room for improvement” in their order management systems.
We think we know why almost half of OMS users aren’t happy.
The days of “order management” are over. Done and gone. What’s required to thrive in ecommerce today is a bigger ask. It’s called “order optimization”.
Order Management: A platform to track sales, orders, inventory and fulfillment...
Shopify’s definition of order management neatly captures the fatal flaw in only managing rather than optimizing orders. Recall that the definition states “an order management system is a platform that tracks sales, orders, inventory, and fulfillment”.
“Tracking” is good. Orders need to be tracked. But tracking is also passive. It assumes somehow orders arrive and somehow money will be made by fulfilling them.
Order optimization is based on intentionality. Orders aren’t just tracked. Rather the brand’s entire ecommerce system is tweaked and targeted to optimize the order and fulfillment process for both the customer and the brand.
Of course “optimization” implies that there is some goal that the system is optimizing towards.
From an order optimization approach, there are three reasons to take an order:
- Create a satisfied customer – and build brand
- Make money – both at the topline revenue level but more importantly at the margin level
- Learn more – gain a better understanding of what and how to sell and scale the business
So the goal and a working definition of an order optimization system could be “an integrated platform designed to maximize profitability on every order while meeting customer expectations”.
Order Optimization: An integrated platform designed to maximize profitability on every order while meeting customer expectations.
The term “IOU” usually means a debt owed. We’ll use the term as an acronym for the three foundations of order optimization: Intentionality. Optionality. Understanding. But our clients tell us the term is more than a useful mnemonic. It’s also a reminder that understanding the distinction between order management and order optimization is a debt that you owe to yourself and your business in order to truly maximize profitability.
Here are some examples of how an ecommerce platform can be designed using intentionally, optionality and understanding to optimize orders and increase margins and bottom line profitability.
“Intentionality“ refers to the concept that orders shouldn’t be just passively accepted and managed. Rather, orders should be intentionally orchestrated to maximize margin on each order while still meeting channel and customer expectations.
Here are a few examples of how intentionality is designed into the Etail platform.
- Listing content and pricing shown to individual shoppers can be modified to reflect the brand’s ability to fulfill the order at an acceptable margin for that specific customer. The goal is to intentionally never to take an order that cannot be successfully and profitably fulfilled.
- Automation is used to reduce overhead and, more importantly, human error. The intention is to address the major pinch point that causes order entry and fulfillment errors and the resulting returns – your coworkers.
- Orders are automatically routed to the lowest cost source of fulfillment that still meets customer delivery expectations. This might be your own warehouse or DC, a 3PL, FBA or another fulfillment service, a retail location and any other fulfillment option. It's called Distributed Order Management (DOM). The objective is to automatically review every option on every order – in milliseconds – and then intentionally choose the option that results in the best possible margin.
- Intentionality even extends to the packing line where orders are aggregated and pick lists created to minimize labor costs. Cartonization ensures that packaging is optimized for each order to reduce shipping expense. Rate shopping provides the best possible shipping option for each order. Taken individually, each step is an intentional decision made to maximize margin and meet customer expectations.
No one can predict the future of ecommerce.
Someone should tell the order management guys.
That’s because most order management systems are relatively static. They are designed and implemented to handle current order management challenges and those that can be reasonably predicted in the near future.
But the ecommerce world doesn’t work that way. To paraphrase John Lennon, “ecommerce is what happens while you are making other plans”.
Unlike order management systems, an order optimization system is built around a strong integration engine. That way, you can’t be blindsided.
Need to expand to a new channel? Integrate them. Need to add or change 3PLs, suppliers or other trading partners? Sign ‘em up. Have legacy systems you depend on or make an acquisition that runs on a different platform? No problem, integrate the optimization system to work with and leverage the platforms that that are already in place.
The idea is to capitalize on the order optimization platform’s integration capabilities to keep your options open. That way you don’t need to predict the future; you can create it.
Ecommerce runs on data.
And most order management systems don’t handle it well.
To be fair, true to the definition of order management, these systems usually handle order tracking reasonably well.
But optimizing orders and margins involves more than order tracking. It involves gathering information from across your entire ecommerce ecosystem – sales channels, inventory sources, fulfillment options, suppliers, third party data, and internal data such as forecasts and KPIs. Often this data arrives in multiple formats and proprietary taxonomies (the way that products and their specifications are classified in different systems. To you, “SKU #123” and “SKU123” are the same item. To your data platform, they are apples and oranges).
All this data needs to be aggregated, normalized and reported. Only then can you make the intentional, data-based decisions needed to optimize both customer satisfaction and your ecommerce operations.
So it’s really not about optimizing orders. It’s about optimizing your entire commerce ecosystem and turning data into information and then creating a deep understanding of your business.
Putting the "You" in IOU
Intentionality. Optionality. Understanding. It adds up to I.O.U. and a debt owed.
Don’t you owe it to yourself to understand how order optimization can boost your brand and your ecommerce results? Get in touch and we'll be happy to show you how.