Five Signs You Need an Order Management System

Is your business ready for an order management system?

It’s easy to put off important decisions when they involve investing precious time and money. Most of your time is focused on keeping your business moving forward, hiring and managing people and servicing your customers. And there’s never enough time for keeping track of your competition and for your own strategic planning.

“When so much of your attention is devoted to operating your business, it can be difficult to know when you’ve reached the point to implement an automated order management system,” says Ernie Schell, director of Ventnor, NJ-based consultancy Marketing Systems Analysis, a firm that helps clients specify, select and implement integrated order management systems.

“Most start-up ecommerce companies do fine getting off the ground using either a manual, homegrown order processing and fulfillment solution or an accounting package,” Schell says. “As business volumes pick up, most find those same in-place systems are not growing with -- even hindering -- operations.”

Order management systems automate the typical tasks involved in receiving and fulfilling sales orders. While the specific range of functions each vendor’s system provides will vary, most order management systems handle the follow tasks:

--Receive orders from your shopping carts
--Update and track inventory
--Print invoices and packing slips
--Generate shipping labels
--E-mail customers when their orders have been processed
--Allow for easy tracking and returns
--Help with customer support
--Update your accounting package

Below are five telltale signs to watch out for -- signs to alert you that your business should start seriously weighing the benefits of an automated order management system. If any of these sound familiar, perhaps you’d better start shopping.

1.) Too many mistakes in data entry, shipping, purchasing, invoicing and accounting

Errors are costly -- from mistakes typing addresses or credit card numbers, to over- or under-ordering stock, from picking or packing the wrong merchandise, to shipping to the wrong customer. As an e-commerce or catalog company grows in size, revenue or SKU count, its complexity increases, and so do the chances for making mistakes.

“After a few years, we were managing more than 7,200 styles, sizes and colors of support hose,” says Art Witkowski of hosiery merchant Healthy Legs. “The sheer level of detail and volume was becoming overwhelming. We were making costly mistakes -- not always shipping on time and not knowing what stock needed to be purchased for replenishment.”

What’s more, Witkowski says, “handling merchandise returns accurately was a real challenge. Without a good OMS it seemed that no matter what we tried, we were making costly mistakes that could have been avoided.”

2.) Payroll costs on the rise

Is your payroll heading higher and higher because your immediate solution to handling an increase in sales is to hire more staff or pay for overtime? More sales usually leads to more revenue, but can you be sure? Would an order management system be a more cost-effective option for managing growth?

Compare the cost of an order management system designed and priced for your size company vs. all those additional payroll costs. An order management system may be less expensive -- and it may end up being a good investment.

Switchhits.com, a marketer of decorative switchplates, needed to hire more staff. Since managing costs is always important, the owners carefully scrutinized their options and chose to implement an order management system instead of expanding the payroll.

As a result, the merchant more than doubled its annual revenue each year for eight years while maintaining the same high level of customer service with just one person in the customer service department.

3.) Trouble keeping up with demand

Timeliness is essential for order processing and good customer service. How long does it take to process an order? How long does it take to respond to a customer inquiry about their order? Are employees spending more time chasing down information about fulfilled orders than handling new ones?

As Schell advises, “This situation has a ‘creeping’ effect -- at first it may involve just a few instances, but before you know it, the problem can involve enough orders to really tie up resources.”

As order volume grew at GPSDiscount.com, Scott Farris found he was spending more and more time just trying to keep up with demand for the site’s GPS devices. There were days he would come into the office before 6 a.m. and not leave until 7 p.m.

“The sales volume got to a point where we didn’t have enough man hours to handle the day’s orders,” he says. GPSDiscount.com started using the Stone Edge Order Manager platform in 2000.

“Now, with Stone Edge Order Manager, if an order comes in at 4:45 p.m., it is packed and out by 5 p.m. all we have to do is approve it,” he says. “The time to process orders is a fraction of what it was before we automated.”

According to Schell, as a very gross generalization, an entry level OMS package may start at about $2,000 for a single user and $1,000 for each additional user. But packages could start as high as $7,500 - $10,000, depending on the system and the vendor, though for those rates you generally get four to six users as the starter package, he says.

4.) Too many inventory surprises

Running out of stock, or worse yet, not knowing you are out of stock, can lead to lost revenue. On the other hand, purchasing too much merchandise ties up funds and risks losing money on unsold merchandise. Inventory control is the lifeline of a retail business. A merchant needs full visibility into stock levels, plus a view on SKU history to track sales trends.

“Inventory tracking seemed so basic,” says Lee Amon of Kate’s Caring Gifts, “except for when it is missing!”

Kate’s Caring Gifts carried a few different seasonal chocolates. In January, the owners needed to determine what they should order for the upcoming season. How many milk chocolate hearts? How many dark chocolate hearts? How many chocolate hearts filled with cherries?

“In past years,” Amon says, “we tried to remember how many we had ordered the prior year and guessed.” The company implemented its first OMS (also from Stone Edge) in 2006. “This year, we looked at last year’s shipping history and we knew exactly how many of each type we sold last year.”

5.) Fear of success

How would your current order processing method perform if demand for your products suddenly exploded? Are you ready for an unexpected windfall? That’s what happened to Kate’s Caring Gifts.

Kate’s Caring Gifts started as a kitchen table business with a mission to market and sell earth-friendly products. Sales volume grew slowly and steadily -- at just the right pace so the two owners could manage operations themselves. But as fortune would have it, on Dec. 15 a show host from the ABC network program “The View” mentioned a Kate’s item on the air in a “Favorite Gifts under $40” segment.

“The response was overwhelming,” Amon says. “By Dec. 18 we had 600 orders -- our average had been about 20 orders a day. We could never have handled the unexpected business explosion without an automated order management system.”

Being realistic about when you need to invest in an automated order management system is critical to the health and profitability of your ecommerce company. Don’t put off an important decision -- especially when an order management system can save you time and manpower.

Rebecca Barthel is a senior consultant with Next Step (www.NextStepGrowth.com), a consulting and training firm based in Redwood City, CA, with expertise in sales, marketing, operations and employee development.