The Definitive Guide to Distributed Order Management System

Amazon generated over 25% of all U.S. Retail growth in 2016[1], and their sales represented 5% – 6% of total U.S. retail sales. This one behemoth pushed all others aside to eat an outsized chunk of retail pie growth. Many analysts consider Amazon Prime to be a significant growth driver, with over 90mm Prime members[2] who have access to movies, e-books and photo storage, at no additional charge. Of course, free 2-day shipping is included too.

For perspective, at $99 per year, that’s $9B in Prime Membership revenue, before a single purchase is made on the site. Collectively, consumers with Prime Memberships have a $9b incentive to purchase on Amazon to take advantage of 2-day free shipping. The psychological pull is strong — “Why should I try to meet the $75 free shipping minimum on otherwebsite.com when I already have free shipping on Amazon?”

The new ecommerce realities are margin eaters. Over 90 million Prime consumers expect:

• Free and fast shipping options
• Date-certain delivery choices (Amazon typically offers 4 options)
• Frequent, accurate, multi-device order status updates (website, mobile, text)
• Frictionless returns
• Lower prices, with multiple merchants offering the same products on Amazon Marketplace

As a result merchants face new challenges. How can you capture your fair share of ecommerce growth, while also:

• Adding free shipping and multiple, date-certain delivery choices
• Providing frequent, accurate, order updates
• Offering simple returns and exchanges processes
• Holding prices in check

Meanwhile, many pure play ecommerce businesses are far more complex today than they were 15 years ago. The days of a single ecommerce storefront are long gone, with many pure-play ecommerce merchants also selling through marketplaces, including Amazon, to ride the coattails of their huge traffic. In terms of sourcing, merchants purchase from multiple vendors, and they’re also selling products fulfilled by drop-shippers.

Multichannel retailers with bricks and mortar storefronts entered the ecommerce fray quite a while ago. Their challenges are even more daunting.  Sales channels no longer operate in silos. Many are seeking to offer omnichannel services that pure play ecommerce player like Amazon cannot (until recently). Buy online and pickup in the store; buy online and return to the store; inventory optimization across stores, ecommerce storefronts, and warehouses; persistent shopping carts that remain current as consumers move from the website to the mobile device to the store; ship from store. The list is growing.

The new reality is that the companies who are capable of creating omnichannel experiences for customers, to differentiate versus Amazon, are most likely  the ones who will come out ahead in the retail shakeout currently underway. The merchants that consistently deliver stellar and consistent service as consumers shop across channels, and transform their sales channel silos into an integrated whole will be the winners.

[1] https://www.digitalcommerce360.com/2017/02/17/us-e-commerce-sales-grow-156-2016/

[2] http://www.businessinsider.com/amazon-prime-subscribers-chart-2017-10

We’ll define Distributed Order Management by first defining Order Management in the context of a simple ecommerce business with an online storefront and a single fulfillment center.

Order Management is the capture and processing of a customer order, followed by the assignment of that order to a fulfillment center or 3PL to pack and ship the item(s). Order management also includes reverse logistics (returns). In this simple case, there is only one location receiving returns, so tracking is straightforward, as is adding the item back into inventory.

Distributed Order Management (DOM) was born out of challenges that arose as ecommerce grew more complex. A DOM addresses the challenges that channel proliferation and rising expectations introduced. Many online-only businesses now sell through multiple channels – their own storefronts plus multiple marketplaces. Sourcing and fulfillment are more complex too, with products fulfilled by multiple warehouses, dropshippers, and 3PL’s.

New challenges are plentiful:

Challenge #1: With multiple sales channels, how do you ensure you only sells items that are in stock?

How does the ecommerce storefront evaluate whether an item in the shopping cart is still in stock? If the last item is sold through your storefront, will your marketplace stop selling the item? Or continue selling?

Challenge #2: How do you decide which fulfillment center should handle an order?

With orders coming in from multiple storefronts, and being distributed to multiple fulfillment centers, a new question emerges. Should you ship from the fulfillment center closest to the ship-to-address? Or to the fulfillment center with the highest days of inventory on hand? How will you handle an order that includes 2 items that are not in the same warehouse? What about an item that is out of stock, but on its way to the warehouse?

Challenge #3: Which carrier should be used to ship faster and cheaper?

Even with Amazon’s economies of scale, shipping costs were over 17% as a percent of their average order value in 2016. To keep shipping costs in check, which carrier should you use for a specific delivery — e.g. which one  has the best price for 2-day guaranteed delivery from North Carolina to Texas?

Challenge #4 (and 5 and 6): Bricks and Mortar

Now add brick-and-mortar storefronts into the mix. How can you keep a real-time holistic pulse on inventory with orders coming in from online sources and items also being sold in stores? How can you squeeze synergy out of bricks and clicks? How can your store associates accept a return for an item purchased online? Will it be reflected in inventory? If an item is out of stock in your fulfillment center, can you sell it online and ship from a store? The questions, challenges and opportunities are endless.

Taking these questions a step further, If a retailer intends to deliver consistent experiences across all channels, and to put all of their inventory to work (e.g. an online order can be shipped from a store), complexity increases exponentially. Silo’d systems can’t possibly keep up.

A Distributed Order Management System processes orders from multiple sales channels and intelligently routes them to the ideal fulfillment center. Some can even select the ideal shipper, too.  Orders are turned around faster and more accurately; inventory turns increase; shipping costs decrease. Implemented properly, the Order Management System squeezes more out of your prior commerce technology investments, unifying them to orchestrate streamlined operations, optimized inventory, faster order turnaround, and better cross-channel customer support.

An order management system resolves the challenges outlined above by:

• Synchronizing real time Order and Inventory data with all sales channels and fulfillment centers
• Processing orders from multiple sales channels (e.g. fraud checks, payment processing, address correction)
• Calculating the optimal fulfillment location based on priorities (e.g. closest to customer; fulfillment center with highest inventory)
• Routing the order to the ideal fulfillment center and maintaining up-to-date inventory information.

The distributed order management system also does far more. It not only routes the order, it prioritizes fulfillment of each order against the others, and manages back-orders and reservations for pre-launch products.

Source: Gartner Market Guide for Retail Distributed Order Management Systems, 2017

Capabilities include:

• Single data repository of all orders and all inventory from all retail channels and fulfillment centers, providing real-time inventory to POS, fulfillment, and ecommerce platforms. An enterprise DOM will also house customer order histories, and product and pricing information.
• Order acceptance from multiple sales channels, including marketplaces.
• Payment processing and checkout, including credit checks, fraud checks, payment authorization, tax and export duty calculations, and refund payment processing.
• Order routing to the ideal fulfillment center or dropshipper based on customized rules and priorities, to optimize inventory turns, or reduce shipping costs and delivery times. Typically integrated with shipping carriers, the DOM can select the ideal carrier for the order.
• Order modification or cancellation via any channel (online, store, contact center) prior to shipping.
• Order tracking and lead-time estimates throughout the entire order lifecycle.
• Omnichannel service enablement for buy online pickup in store, buy online return to store, ship from store, and ship to store services
• Sophisticated handling of pre-orders, back-orders, and order splitting. For example, routing pre-orders and backorders to fulfillment as soon as inventory is available.

An enterprise strength DOM also manages product information across multiple sales channels and includes business analytics tools and reporting to make maximum use of the DOM’s robust order and inventory data.

The power of these capabilities is immense. Consider some real-life shopping situations.

A shopper is in a fashion retail store, and the store doesn’t have the blouse in stock in her size.

Without a DOM, she will leave empty handed. At best, a high-touch store associate can call around to other stores to find one with the item in stock. These calls take time, and may be fruitless. With a DOM, they have real-time access to inventory availability across the entire enterprise. A store associate can rapidly order online for in store pickup, order online for delivery to the customer, or have the item shipped from another store to the customer.

A consumer needs to buy a specific item tonight, and wants to make sure the item is in stock first.

Without a DOM, it’s not possible for the ecommerce site to display store product availability. The information sits in silos. If he’s shopping on REI.com, he’ll find out the closest store with the item in stock, and will be given the option to buy online and pickup in the store. The ecommerce website reveals real-time inventory across every store. Each store’s POS is linked to the DOM, updating inventory every time the cash register rings.

A consumer buys online and wants to modify the order before it has shipped.

Without an Order Management System, once the order is sent to a fulfillment center, there is no turning back. It’s in a queue to ship. The consumer will have to wait for it to ship, and to be delivered, in order to exchange it. With a DOM, the consumer can modify the order in the store, via the contact center, or on the ecommerce website. Each has order-level data, with up-to-date fulfillment information, and the ability to change the order and update all of the systems touching the order.

Behind the scenes, a DOM’s impact on inventory turnover can be profound too. A 5% reduction in out of stocks and a 5% reduction in overstock situations can move a merchant from being in the red to in the black — especially during the holidays! The DOM accomplishes this by intelligently routing orders to optimize inventory across every fulfillment center, retail location, and ecommerce website.

To see why Omnichannel Commerce and Distributed Order Management make such a wonderful couple, it’s worth taking the time to understand some related terms.

Multichannel Retail is exactly what it sounds like. For example, a retailer may sell through a handful of brick-and mortar stores, an ecommerce storefront, and Amazon marketplace. Whether the channels act as silos or are integrated, the term multichannel refers to selling products through multiple sales channels. These channels can operate in distinct silos from end-to-end. E.g. different warehouses for online versus stores.

Omnichannel Commerce refers to seamless, consistent, effortless, integrated customer experiences for shoppers as they traverse different sales and support channels. Shoppers enjoying a stellar omnichannel experience feel like, regardless of sales channel, that they’re interacting with a single company that sees them as one individual — whether on the website, in a store, or on the phone with a contact center rep, the shopper sees one company. For example, customers may have a single, persistent shopping cart on the website, their mobile device, and even on in-store tablets (e.g. Crate & Barrel’s wedding registry). Or a customer may buy online and wish to return to a store. Or a shopper may buy online, and make an exchange in-store before the item has even shipped. At every step, the store associate, contact center rep, and website have the necessary information and processes at their fingertips to serve the customer with knowledge of their past interactions.

How can a merchant make this happen? How can a store associate modify an online order? When they do, how will the fulfillment center be informed not to ship? How will inventory be tracked across all channels? Distributed Order Management.

Omnichannel Commerce and the Distributed Order Management System is a match made in heaven. A DOM enables Omnichannel Commerce to flourish. Without demand for omnichannel commerce, a DOM’s purpose in life would be far diminished.

An Order Management System can unify existing, siloed, commerce technology to unleash a commerce whole greater that the sum of its technology parts. Deep business significance is hidden between these buzzwords. Most merchants did not start out as multi-channel businesses. An online only store might have, over time, decided to sell through marketplaces. Or, a brick and mortar chain may have decided to begin selling online. Growth-minded merchants find, at some point, that technology that worked so well when they served only one channel is not up to the complex tasks of breaking down business silos.

A Unified Commerce Platform integrates the commerce technology stack to enable these complex transactions. A Distributed Order Management system is the catalyst that transforms existing, siloed technology into a Unified Commerce Platform.

If you’re planning to implement a robust order management system, what is the best approach? For a comprehensive overview, see our blog post and whitepaper, “Which OMS is Best for Me? Home Grown, On-Premise, or SaaS?” Given today’s technology trends, start with the assumption that a cloud-based solution is probably the best choice, because you’ll avoid the headaches of running a data center, updating software, managing compliance, and other distractions from your core expertise. Answering a handful of questions can help a mid-market merchant decide which approach is best for their business:

Question 1: Does your business have a state of the art data center? If not, then there’s little point in considering anything other than SaaS. With increasing security concerns, especially in ecommerce, the risks are simply too high to run your commerce technology on anything less than a top-notch data center.

Question 2: Does your business have truly unique needs that would require customization? If so, are these unique needs due to the nature of your legacy systems? If you’re customizing to put a bandaid on old technology, then it’s time to update the house of cards rather than add more complexity. If you truly do need customization, then a premise-based solution will offer greater customization capabilities.

Question 3: Are your customization needs so vast that even a premise-based solution can’t meet your needs? Are you considering building instead of buying? If so, then you should only consider going forward if software development is a core strength and differentiator for your company. If not, then you’re heading down a treacherous path building a homegrown solution.

The most important step in selecting an Order Management System is to very clearly identify all of your requirements. You can find a comprehensive overview of potential features in our Order Management System RFP Template. You can also find an overview requirements often missed until it’s too late in, 5 Hidden Costs to Avoid when Buying an OMS. Following is just a sampling of the kinds of requirements you may not have considered without some prompting.

Distributed Order Management: Do you need purchase order support for B2B ecommerce? Do we want to enable customers to choose their delivery date? Do we intend to enable customers to set up recurring orders (e.g. subscribe and save)? Do we need to integrate drop shipping into our OMS?

Inventory Management: Do you need to track inventory across multiple sales channels and fulfillment centers? Do you need the OMS to create vendor purchase orders? In bulk? Do we intend to use store inventory for ship-from-store and buy online, pickup in store services?

Customer Service: Do CSRs need to be able to search all orders across channels? Do you intend to empower CSRs to modify website orders?  Do you want CSRs to issue refunds and credits?

Stores and Fulfillment: Do you want to customize shipping criteria or carrier by SKU or delivery location? Do you intend to support for buy online pickup in store / return to store?

Other Systems: With which systems must the DOM integrate?

If this is your first DOM procurement, the requirements phase is absolutely critical. Even our list of over 150 features (see above) doesn’t cover everything one might need.

With a clear view of your needs and their relative importance, comparing and selecting vendors becomes a typical procurement exercise. Just never take your vendor’s word for their depth of capabilities. Make sure you see all of it in action.

The Return on Investment for Order Management Software is gained through a combination of efficiency gains that reduce costs and free up cash.

Inventory Optimization

A DOM pulls a number of levers to increase top line revenue (fewer stockouts) and increase inventory turns (less overstock). Enterprise-wide visibility reduces need for “just in case” inventory while Intelligent Order Routing reduces “slow inventory.” The ability to “ship from store” enables you to fulfill orders when your warehouse is out of stock. All of these improvements reduce the inventory needed to run the business, freeing up cash and saving on warehouse costs (i.e. fewer square feet needed).

Return = Reduction in average inventory x Line of Credit Interest Rate

Fulfillment Efficiency

The DOM routes orders near-instantaneously to the optimal fulfillment center. The routing includes accurate packing slips and shipping labels (i.e. employee proof). Error reduction is a hard cost saving, with less return shipping, customer support hours, and reverse logistics management.

Return = Reduction in return shipping expense + reduction in reverse fulfillment labor costs + reduction in returns-related customer service call labor expense 

Employee Efficiency

The DOM assigns orders for more efficient fulfillment, including packing slips and shipping labels, shedding some man hours. Contact center reps benefit handsomely, with the ability to see all orders, inventory, shipping status and customer order history with one login. Issue resolution time can be cut dramatically.

Return = reduction in issue resolution time x CSR pay rate

Pulse Commerce’s OMS ROI Calculator calculates these potential profit impacts, based on your own inputs and assumptions.

The success of your deployment, or lack thereof, can be the difference between a high ROI investment and a negative one. The most important component of a successful implementation is your requirements gathering effort during procurement. In general, the success of a SaaS implementation is driven by three factors:

(1a) Did you seek all of the capabilities you’ll need (see above)?

(1b) Does the software do all that you were told it does? This includes performance, latency and uptime, too.

(2) Does the OMS integrate well with your existing commerce technology?

A successful deployment rests on the OMS’ API’s. Robust and well-documented APIs, bode well for the implementation. If custom API’s are needed, then you may be on track for project overruns — in both time and money.

(3) Is vendor technical support a partner? Or an adversary? Will you spend more time convincing tech support to help? Or more time getting help? This is one of the most important areas to pressure test with customer references.

At its core, omnichannel commerce is just a fancy way of saying, “treat customers as they’d expect you to if everyone in your company and all of your systems knew every interaction you’ve ever had. All while allowing customers to treat all sales channels and touchpoints as one, single entity. As customers go from Pinterest to your website, to your store, it all feels like one seamless shopping experience. A Distributed Order Management System is that centralized memory and up-to-date repository of these insights. It’s also the conductor of the modern retail commerce orchestra — a conductor that appears to be on the verge of fame.