Order management system (OMS) — what it is, how it works, and how to choose one
Many business owners may be struggling to stay on top of orders or are just looking for a better management system. An order management system (OMS) can help streamline and automate your orders and product fulfillment. It can even connect you with the right data to solve pressing issues for your retail or ecommerce business.
Migrating to an order management system might sound intimidating, but choosing the right platform can set your business up for long-term success. This article will help you understand what an order management system is, how it works, and how to choose the right solution for your business.
This post will cover:
- What an order management system (OMS) is
- How an order management system works
- Benefits of an order management system
- Types of order management systems
- How to choose an OMS
What is an order management system (OMS)?
An order management system is a software that helps retailers and distributors manage, sell, and fulfill orders in an efficient and cost-effective manner. It provides a single place to oversee orders across all of your sales channels, both online and offline.
Unlike inefficient or outdated processes that rely on spreadsheets to manage your retail business, an OMS addresses the multifaceted nature of every stage of order management. This centralized platform for orders and processing also touches on sales, inventory, and fulfillment.
Order management systems typically include functionalities such as:
- Customer database. Collect contact information and order history on every shopper across all channels.
- Sales channels. An OMS helps businesses sell both in store and via online platforms like Amazon, Walmart, and eBay.
- Suppliers. If you source products from multiple suppliers, an OMS streamlines the product fulfillment process for dozens of suppliers in one place.
- Accounting. This feature integrates your order data with your accounting solution, which can simplify financial reports and taxes.
The ultimate goal of an OMS is to simplify the order process from start to finish. An OMS can often make the difference between satisfied customers and negative reviews, so it’s more important than ever for retailers to embrace omnichannel retail tools like an OMS.
How does an order management system work?
The good news is that your business doesn’t need to change how it fulfills orders. An effective OMS will fit naturally into the order management process. Typically, an order management system follows six steps to help streamline your business.
1. Shows complete inventory
Over- or under-stocking can have a negative impact on the shopper experience. Fortunately, an order management system helps retailers carry the right amount of available-to-promise (ATP) inventory at all times. This ensures you have the right inventory levels at your warehouses, stores, and third-party suppliers.
The OMS calculates the ideal ATP rate for your business, which helps you optimize capacity while managing inventory more efficiently.
2. Processes customer orders
If you’re processing hundreds of orders daily, an order management system automates the more tedious parts of order processing to free up your time. The OMS receives the customer’s order, processes their payment, and automatically sends the shopper an order confirmation email.
While this sounds simple in theory, if your business sells on multiple ecommerce platforms and in store, processing customer orders can quickly become complicated. An OMS is a true omnichannel solution that stores a customer’s information in the system so you can access their data whenever and wherever needed.
3. Automates the order fulfillment process
When a customer places an order through an OMS, it kicks off a chain of automated events to begin the order fulfillment process. During this stage of order management, the product is picked, packed, and shipped.
The OMS tracks every order from purchase to delivery, so you can see the status of all orders in one place. It can even route orders to the closest warehouse to reduce delivery timelines and costs. Once the warehouse ships the product, the OMS will automatically send a shipment notification and tracking number to the shopper.
4. Tracks inventory levels by channel
You likely sell products to customers through more than just one channel. Order management systems make it possible for omnichannel retailers to sell goods to shoppers on various platforms while optimizing their inventory levels on each channel.
At this stage, the OMS will collect historical data about your business and provide seller analytics. For example, it can identify which products sell out most quickly by location and channel so you can better understand the flow of demand in your business.
While you’re free to analyze the data manually, most systems will suggest actions to forecast stock levels and prevent out-of-stock issues. The OMS will automatically update inventory information across all channels and help you restock at the appropriate levels at the right time.
5. Handles reverse logistics
Reverse logistics is the process of accepting returns and issuing refunds to shoppers. While few businesses love returns, they’re an increasingly common part of the online shopping experience. In 2021, retailers saw a 16.6% return rate for ecommerce orders — a 6% increase from 2020.
Fortunately, retailers don’t have to process refunds or returns manually. The right order management system makes it simple to do reverse logistics, even on a large scale. The OMS issues refunds to shoppers and automatically chooses the most affordable and efficient carrier for the return. From there, the system generates a return label and tracking number before sharing that information with the customer automatically.
Best of all, an OMS lets shoppers buy products online and return them in store, or buy a product in store and return it from home via courier pickup. It allows for a truly omnichannel return experience, which isn’t possible with traditional order fulfillment.
6. Manages and shares accounting data
Order management systems can improve the customer experience through greater transparency, but they can also make the back end of your business more efficient. For example, an OMS can connect with accounting solutions, like QuickBooks, to automatically share order data.
This removes the need for double data entry, which saves time and reduces the possibility of accounting errors. OMS integration can also automate invoicing, purchase orders, and accounts payable and receivable. This can make it easier to process complex inventory and sales data in one place, helping you better understand your profitability and margins.
Benefits of an order management system
Customers expect a seamless shopping experience, regardless of which channel they use. Order management helps retailers and ecommerce businesses make the most of this omnichannel environment. Since multichannel shoppers spend three times more than single-channel shoppers, streamlining the ordering experience across all channels can lead to major growth.
- Order management systems have several key benefits, but these are some of the biggest advantages of switching:
- Source global inventory. An OMS can determine the most efficient and affordable way to transport products from your store or warehouse to your customers. It can also help customers figure out where they can purchase your products in real time. For example, brands like The Home Depot display whether an item is available in store or online, as well as the timeline and cost for both options.
- Monitor inventory levels better. Monitoring inventory across channels can be challenging, especially if you sell products on dozens of platforms. An OMS makes it much easier to access this information by providing all analytics, KPIs, and reports in one place.
- Fulfill orders quickly across all channels. Manual fulfillment takes too much time and opens you up to more potential for errors. Order management systems help businesses automate the fulfillment process, which makes true omnichannel shopping a reality.
- Track orders more accurately. Inaccurate orders give customers a poor experience and increase your costs. But with an OMS, you can match orders to inventory and always ship the right products and quantities. The system can even coordinate orders across sales channels.
- Handle customer service more efficiently. Social media, ecommerce, and in-store shoppers all expect the same level of customer service. An OMS can help manage customer service from one centralized place so you can give shoppers the consistent support they’ve come to expect. With an OMS, you can send shipment notifications, connect customers to support agents, and facilitate returns on the same platform.
- Make accounting faster. Automating payments, invoices, and the transfer of financial data makes it easier for your business to have more accurate accounting information. An OMS tracks payments to ensure every order is paid in full at the right time. It also automatically shares financial data with your accounting solutions to give you better insight into profitability — with fewer accounting errors.
- Give customers a sense of ownership. An OMS puts power back in the hands of your shoppers. The OMS allows customers to place orders, check order status, and look up inventory information without contacting customer service. Not only does this give shoppers a greater degree of control, but it also frees up your customer service staff to address more complex issues.
Types of order management systems
While order management systems share a core set of features, there are different types that fit different businesses. Generally speaking, you’ll need to choose between an individual versus an enterprise OMS and an on-premises versus a cloud-based OMS.
Individual vs. enterprise OMS
When assessing which OMS to use in your business, you’ll first need to decide whether you want to buy an OMS as a standalone solution or as a more integrated enterprise solution.
An individual OMS acts as a single tool that doesn’t connect with other areas of your business. For example, it doesn’t integrate with customer service, sales, or accounting. This is ideal if you just want an OMS for the order management component and wouldn’t have much use for automated invoicing, marketing, or customer service. It’s ideal if you have a smaller business that doesn’t need the extra bells and whistles of an enterprise solution.
An enterprise OMS solution, on the other hand, integrates with all of your systems — such as accounting, marketing, the supply chain, sales, and customer service. Because everything is integrated, this is an ideal option if you want to automate as much as possible. For example, integrations make it possible to automate invoices, email communications, and customer ticketing. It also allows you to pull better analytics and reporting since an enterprise OMS contains more information about your business.
On-premises vs. cloud-based OMS
Once you’ve chosen an individual or enterprise OMS, you’ll need to decide between an on-premises or cloud-based solution.
With an on-premises OMS, you manage the system and its data center on-site. This requires a lot of resources, but if you have the staff and budget for hardware, an on-premises OMS provides a greater degree of control. This is ideal for larger companies with more resources, or businesses that need to meet strict security or compliance requirements.
However, companies are increasingly moving to cloud-based systems because they’re more affordable and easier to manage. With a cloud-based OMS, the platform works off-site in the cloud, so your team can access it from anywhere, as long as they have an internet connection. This is usually billed as a software as a service (SaaS) subscription, which means your business pays only for what it needs. Since third-party vendors manage cloud-based OMS solutions, this is a time-saving and cost-saving option for many businesses.
How to choose an OMS
Every business is different, so it’s important to choose the best order management system for your unique needs. Follow this simple four-step process to choose the right OMS for you:
- Assess your business needs. First, consider where your business needs the most help. By assessing your needs first, you can ensure your OMS solves your top pain points. For example, if you need help with order fulfillment, an individual OMS might be a better choice. Or if you added new sales channels and struggle to keep up with customer communications, you might need a cloud-based enterprise OMS with customer service capabilities.
- Define your goals. Defining goals will help you determine whether the move to a new OMS was successful. Your goal might be to decrease shipping costs, improve profit margins, or speed up the customer shopping experience. Set SMART goals to ensure your OMS delivers tangible results.
- Draft a request for proposal (RFP). Let vendors know you’re in the market for an order management system. Draft an RFP that communicates your budget, required functionalities, and timeline.
- Evaluate your options. Finally, choose between the different OMS vendors who replied to your RFP. Make sure their proposals touch on every requirement in the RFP. Once you select a vendor, plan how to integrate your system and data for the smoothest possible migration.
Getting started with an order management system
Ecommerce is becoming increasingly more complex. With an order management system, retailers and ecommerce brands can make the most of the omnichannel sales environment. When you’re ready to capitalize on an OMS, consider which OMS might be right for your business.
The Adobe Commerce order management system can help. Adobe Commerce is the world’s leading digital commerce solution for merchants and brands. With Commerce, you can build engaging shopping experiences for every type of customer — from B2B and B2C to B2B2C.
Commerce is built for enterprise on a scalable, open-source platform with unparalleled security, premium performance, and a low total cost of ownership. Businesses of all sizes can use it to reach customers wherever they are, across devices and marketplaces. Adobe Commerce is more than a flexible shopping cart system — it’s the building block for business growth.