What is order management?

Order management is a process counting several stages, that always occur in a similar order. Customers requiring a product place a physical or automatic order electronically. The goods are conveyed via all useful means, and the customer receives them. This last stage is the final one in the process. Obviously, order management is closely linked to stock management (produced and/or purchased upstream). Without sufficient stock levels to satisfy customer needs, regardless of the quantity ordered, the order cannot be managed properly. Without sufficient production, order management is impossible.

For producers, the following order management stages are standard:

  1. Purchasing raw materials and/or spare parts;
  2. Production;
  3. Storage;
  4. Transport;
  5. Delivery.

 

Specificities of order management

Inventory is the main focus point when aiming for efficient order management. Order management is the process whereby orders are placed either directly or via a storage platform. An inventory of usable or sellable goods, available in storage and in-store, allows for proper stock management.

Stock management operations unfold as follows:

  • Entries are registered in the point of sale’s management software;
  • After each purchase, item amounts are automatically deducted from the quantities available in the point of sale or at the producer’s (the stock level that appears on the computer is not always the actual stock);
  • Actual stock is calculated by taking theft, loss, expired and broken items into account - known by looking at the difference observed during physical inventories;
  • Physical inventories are increasingly often replaced with randomised calculations, based on an estimated shrinkage percentage (caused by theft, breakage, etc.);
  • The stock level recorded in the management software allows for reliable orders, increased or decreased based on sales forecasts.

 

Examples and practical applications

Managing orders and supply chain

Order management has an impact on how the entire supply chain operates. There are two different examples to be taken when talking about order management: for finished product manufacturers and distributors.

  • Producers work alongside countless partners, including raw material, spare part and component suppliers, as well as packaging agents, distributors, after-sales services and return services for products that are obsolete or need recycling;
  • The danger lies in losing the qualitative and quantitative vision of the pending order;
  • Hence the use of reliable ordering software, that keeps perfect track of provisional sales and available or upcoming stock.

Order management by the distributor or logistician

Ordering software is configured based on theoretical stock levels, which must come as close as possible to actual stock levels. Upon purchase, every time a mistake or oversight occurs, it creates an error in the actual stock numbers. To resolve the issue of order management, unwavering command of your stock levels is necessary on the computer, and accurate sales must be foreseen.

Managing orders and provisional sales

For producers and distributors alike, sales forecasts take company history, seasonality and any changes in standards or laws into account. This being said, each product has its own appeal, date of obsolescence and expiry, and meets seasonal marketing incentives (Christmas, New Year, Easter, summer, winter, etc.). Sometimes, a simple change in a standard or law can cause a rise in sales. Statistical anticipation is a favourite amongst buyers in the industrial and distribution field.

For professional and private end customers, order management implies virtual or physical exchanges with the logistician when the goods are on their way. Each step is an opportunity to lose or gain the customer’s trust. To the detriment or for the benefit of the logistician’s and retailer’s or producer’s income.

 

Order management in figures

  • In-store theft (shrinkage unknown): 49 billion euros per year for European distributors;
  • 6% of European distributors resort to RFID to automate their inventories. [1]

 

Regulatory cornerstones

  • Supplier’s general terms of conditions of sale.
  • Supplier’s commercial sales contract.
  • General terms and conditions or purchase.

 

[1] Source of the figures: https://www.lsa-conso.fr/decouvrez-la-veritable-facture-du-vol-en-magasins,322496